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Through Field Assistance Bulletin 2021-03 (FASB 2021-03), the Department of Labor (DOL) announced a temporary enforcement policy for the new fee disclosure requirements that apply to group health plan service providers, added by Consolidated Appropriations Act of 2021 (CAA), Section 202 of Title II of Division BB (the “Fee Disclosure Requirements”). Though it provides helpful clarification, FASB 2021-03 is silent on a key question: what activities constitute “brokerage services” or “consulting” for purposes of the Fee Disclosure Requirements.

The Fee Disclosure Requirements are already in effect for contracts executed on or after December 27, 2021. With no additional regulations or guidance expected, service providers and plan fiduciaries must rely on a good-faith interpretation to implement the Fee Disclosure Requirements.

Background

ERISA’s prohibited transaction exemption for reasonable service provider arrangements, contained in Section 408, was amended by the CAA to require that agreements for certain types of group health plan services are only reasonable if specified fee disclosures are made. These new rules apply to agreements to provide “brokerage services” or “consulting” to ERISA-covered group health plans, and require covered service providers to disclose detailed compensation information to plan fiduciaries. This information generally must be disclosed reasonably in advance of the parties entering into such contract or arrangement.

Temporary Enforcement Policy

Under the temporary enforcement policy, the DOL will not treat a covered service provider as having failed to make the required disclosures so long as the service provider made disclosures in accordance with a good faith, reasonable interpretation of the ERISA Section 408. Similarly, plan fiduciaries are expected to implement the Fee Disclosure Requirements using a good faith, reasonable interpretation.

The DOL’s temporary enforcement policy recognizes that a significant goal of the new disclosure requirements is to enhance fee transparency, particularly for arrangements involving payment of indirect compensation.

What Contracts are Subject to the Fee Disclosure Requirements?

Contracts executed on or after December 27, 2021 must comply. FASB 2021-03 clarifies that the date on which a contract or arrangement is entered into between an agent or broker and a plan fiduciary is the date the contract or arrangement was “executed.” For example:

• A plan fiduciary enters into a new service contract with an agent on December 15, 2021, for the plan year beginning on January 1, 2022. The service contract will be treated as having been “executed” on December 15, 2021, which is prior to December 27, 2021, so that the contract will not be subject to the new compensation disclosure requirements;
• A plan fiduciary enters into a new service contract with an agent on December 29, 2021, for the plan year beginning on January 1, 2022. The service contract will be treated as having been “executed” on December 29, 2021, so the contract will be subject to the new compensation disclosure requirements.

For an agent or broker that enters into a contract or arrangement with a plan fiduciary through use of a “broker of record” (BOR) agreement, the date the contract or arrangement will be considered “entered into” is the earlier of the date on which the BOR 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, provided that the submission or signature is done in the ordinary course and not to avoid ERISA disclosure obligations.

What Constitutes a Good Faith, Reasonable Interpretation?

Additional FAQs contained in FASB 2021-03 provide guidance on what may constitute a good faith, reasonable interpretation, clarifying that:

• The Fee Disclosure Requirements apply all group health plans except QSHERAs. This includes insured and self-insured (including grandfathered plans) plans, regardless of size. It also includes excepted benefit plans, such as limited scope dental and vision plans.
• Covered service provides are not limited to those who are licensed or market themselves as “brokers” or “consultants.” The DOL specifically warns that service providers who receive, or expect to receive, indirect compensation from third parties in connection with advice, recommendations, or referrals regarding any of the listed sub-services should be prepared to explain why they are not a covered service provider.
• Covered service providers may look to DOL regulations on pension plan disclosures for guidance. Although group health plans and pension plans have different types of compensation arrangements, much of the terminology and requirements are identical for the two sets of disclosure rules.
• When the specific amount of compensation is not known in advance of contracting, anticipated compensation may be described using a formula, per capita charge, or other reasonable method. Disclosure of compensation in ranges may be reasonable in certain circumstances. Generally, more specific (rather than less specific) compensation disclosure is preferred when it can be furnished without undue burden.