Fee Disclosure Rules Will Soon Apply to Group Health Plans
Buried in the year-end Consolidated Appropriations Act (CAA) is a provision that requires group health plan brokers and consultants to make comprehensive fee disclosures similar to those that apply to retirement plans. As discussed further below, the new fee-disclosure requirements will result in additional compliance obligations for group health plan sponsors, brokers, and consultants, starting in December 2021.
As background, ERISA generally prohibits transactions between an ERISA plan and a party-in-interest, such as a service provider to the plan. However, a statutory exemption (known as the ERISA 408(b)(2) exemption) allows such transactions so long as the plan pays only reasonable compensation to a party-in-interest to provide necessary services to the plan. In 2012, the Department of Labor (DOL) issued regulations under which the ERISA 408(b)(2) exemption is available for a retirement plan only if a covered service provider makes a number of fee and service disclosures to the plan’s fiduciary to enable the fiduciary to make a determination as to whether the fees are reasonable. These are generally referred to as the 408(b)(2) fee disclosures. The DOL regulations implementing this fee-disclosure requirement specifically omit health and welfare plans.
Although the DOL has not yet issued fee disclosure regulations for health and welfare plans, the CAA created a similar disclosure requirement that applies to brokers and consultants to group health plans. Perhaps surprisingly, the new CAA requirements do not apply to other group health plan service providers, such as insurance providers or pharmacy benefit managers, which often have very complicated fee arrangements. The disclosures for group health plans are limited to brokers and consultants that reasonably expect to receive $1,000 or more in direct or indirect compensation (subject to inflation adjustment) from plan assets for providing services to group health plans. Such services include selecting insurance products, recordkeeping, medical management vendors, benefits administration, stop-loss insurance and pharmacy benefit management services, and consulting on matters such as the development or implementation of plan design, insurance or insurance product selection, and benefits administration selection.
As with the retirement plan fee disclosures, the CAA includes a list of information that is required to be disclosed to the responsible plan fiduciary, including a description of services and descriptions of all direct and indirect compensation that the brokers and consultants reasonably expect to receive.
In parallel to the retirement plan rules, a responsible plan fiduciary may rely in good faith on a service provider’s disclosures in determining that the contract or arrangement is reasonable, even when the disclosures later prove to be inaccurate or incomplete, as long as certain requirements are met. For example, the fiduciary is required to take reasonable steps to obtain missing or incorrect information upon discovery of the failure, and, if the required information is not provided within 90 days of the request, the fiduciary is required to notify the DOL and to consider whether to terminate the arrangement.
The fee-disclosure requirements become effective December 27, 2021 (one year after the CAA’s enactment), and apply to contracts for services that are executed, extended or renewed on or after that date. In anticipation of the effective date, group health plan sponsors should review their existing service provider contracts and, if the contracts are up for renewal or renegotiation, should consider contractually addressing the disclosure obligations. Group health plan fiduciaries should then review and consider the disclosures in selecting and monitoring plan service providers. Service providers will want to begin exploring whether they need to comply with the regulations and what compensation disclosures they will be required to make.