By Roberta Casper Watson, Dannae Delano and Barry Salkin
The Consolidated Appropriations Act, 2021 (“CAA”) amended Section 408(b)(2) of ERISA to require that providers of brokerage services or consulting services to group health plans who reasonably expect to receive $1,000 or more in direct or indirect compensation disclose specified information to the responsible plan fiduciary about the direct and indirect compensation they expect to receive. Service providers to pension plans have been providing this information to responsible plan fiduciaries since 2012, but the CAA amendment has extended the requirement to providers of services to group health plans. The information generally must be disclosed reasonably in advance of the parties’ entering into a contract or agreement, to allow the responsible plan fiduciary to determine if the compensation to be received by the service provider is reasonable and to assess potential conflicts of interest.
It was thought that the DOL would be issuing proposed regulations, but in Field Assistance Bulletin 2021-03 (the “FAB”), it instead announced a temporary enforcement policy with respect to group health plan disclosures under amended ERISA Code Section 408(b)(2). The DOL indicated in the FAB that, considering its comprehensive guidance under the existing 408(b)(2) regulations for pension plans, it did not believe that the issuance of proposed regulations was required at this time. However, the DOL will be monitoring feedback from stakeholders and may in the future issue proposed regulations on elements of the new statutory provisions.
Under its temporary enforcement policy, the DOL will treat a provider of brokerage or consulting services to a group health plan as having made the required disclosures to a responsible plan fiduciary if the disclosures are made in accordance with a reasonable good faith interpretation of ERISA Section 408(b)(2)(B). The DOL also provided a quasi-safe harbor in this regard by indicating that it would view it as a good faith and reasonable step for a group health plan brokerage or consultant service provider to take into account the DOL’s regulations for pension plan disclosures. The relief also extends to the responsible plan fiduciaries who would be the recipients of the disclosures.
Under the temporary enforcement policy statement:
- The new disclosure provisions apply to both insured and self-funded plans, other than qualified small employer health reimbursement arrangements (“QSEHRAs”). Although it is clear that self-funded plans are covered by the disclosure rule, it is not clear that the rule applies where the agreement is solely between the broker/consultant and the employer and the employer pays for the services solely from its general assets without any plan assets being paid to the broker or consultant.
- The requirements apply to both grandfathered and non-grandfathered health plans, as well as excepted benefits such as limited scope dental and vision plans, all without regard to the size of the plan. Many people may be surprised at the inclusion of dental and vision plans, since those plans are exempted from many requirements, but the FAB explains its reasoning for dental and vision plans being included in the new disclosure rules.
- There is no exception for small group health plans with less than 100 participants as there is for Form 5500 disclosures. Consequently, even small group health plans will be required to comply with the disclosure obligation.
- The disclosure obligation is not limited to providers who are licensed as or market themselves as brokers or consultants but rather is dependent on the nature of the services they are providing to the plan. But the new rule only applies to brokerage and consulting services, using fairly broad definitions for such services. It does not appear that legal, accounting or other professional services will be subject to these rules unless the professional providers in fact provide brokerage or consulting services. Consulting services appear to be those “related to the development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.” The actual providers of those listed services do not appear to be viewed as providing consulting services. Services provided for the selection of those listed services will generally be brokerage services.
- The disclosure of compensation may be in total amounts, per capita amounts, or formulas. When necessary, disclosure in ranges may be reasonable in circumstances in which the occurrence of future events or other features of the service arrangement could result in the service provider’s compensation varying within a projected range. The adequacy of the disclosure depends on the facts or circumstances of the particular arrangement.
The new statutory requirements apply to contracts or arrangements for services entered into, extended or renewed on or after December 27, 2021. The date on which a contract or arrangement is entered into between an agent or a broker and a plan fiduciary will be considered the date that the agreement was executed. Additionally, in the case of an agent or broker that enters into a contract or arrangement with a plan fiduciary through the use of a broker of record, the date the contract will be considered entered into for purposes of ERISA Section 408(b)(2) is the earlier of the date on which the broker of record agreement is submitted to the insurance carrier or the date on which a group application is signed for insurance coverage for the following plan year, but only if the submission or signature was done in the ordinary course of business and not to avoid the disclosure obligations of the new rule.
Group health plans that enter new contracts or arrangements with brokers or consultants or renew contracts on or after December 27, 2021, for more than $1,000 in compensation should be aware that compensation disclosures should be made in advance of those contracts or arrangements. Group health plan fiduciaries should also be aware of their fiduciary duties involved in reviewing and understanding the required disclosures. Employers of small group health plans, especially those employers that do not sponsor retirement plans and are unaware of the 408(b)(2) disclosure rules as they apply to retirement plans, should be aware of these requirements and their fiduciary duties associated with reviewing and understanding the disclosures. Brokers and consultants with relationships with group health plans will need to understand the disclosure requirements and prepare to comply in advance of renewing or entering into any new arrangements.