Ten years ago, the U.S. Department of Labor (DOL) published a final regulation under the Employee Retirement Income Security Act of 1974 (ERISA) that required retirement plan service providers to disclose information about the service provider’s compensation and potential conflicts of interest. Under that regulation, covered service providers to retirement plans are required to disclose: (a) the services they provide to the retirement plan; (b) all “direct compensation” (i.e., directly from the plan) the service provider, its affiliate, or a subcontractor reasonably expects to receive in connection with their services; (c) all “indirect” compensation (generally, compensation from some source other than the plan or the plan sponsor) the service provider, its affiliate, or a subcontractor reasonably expects to receive; (d) any related-parties compensation that will be paid among the service provider, an affiliate, or a subcontractor that is set on a commissions, soft-dollar, finder’s-fee, or other similar basis; and (e) certain other information.
Largely as a result of this regulation, retirement plan fiduciaries know (or should know) exactly who is getting paid, how much, and why for services provided to their retirement plans. There are (or should be) no secrets. This allows retirement plan fiduciaries to have a very clear understanding of any potential conflicts of interest.
Unfortunately, because of the absence of similar rules, this has not always been the case for health plan fiduciaries. On the health plan side, the rules have not required the same level of disclosure, and thus health plan fiduciaries have not always had the same level of insight into every type and amount of compensation that their service providers may be receiving. For example, some brokers or consultants might have previously received undisclosed “book of business” or “5500” bonuses, based on the overall volume of business that they have placed with a certain provider – without any clear requirement to disclose such compensation to their employer clients. Thus, many health plan fiduciaries have not able to assess all potential conflicts of interest.
Because of new rules that became effective December 27, 2021, the health plan side of the business is changing. The Consolidated Appropriations Act, 2021 (CAA), amended ERISA effective December 27, 2021 to require certain service providers to group health plans to disclose specified information to a responsible plan fiduciary about the direct – and indirect – compensation that the service provider expects to receive in connection with services to the plan. The new disclosure requirements apply to persons who provide “brokerage services” or “consulting” to ERISA-covered group health plans who expect to receive $1,000 or more in direct or indirect compensation. The disclosures are intended to provide plan fiduciaries with sufficient information to assess the reasonableness of the compensation to be received (before it is received) and any potential conflicts of interest.
About 10 days ago, the DOL issued Field Assistance Bulletin 2021-03 (“New FAB”) to clarify some important aspects of the new CAA requirement:
- Look to retirement plan rules. The disclosure requirements for health plans are not identical to the requirements for retirement plans, but the New FAB provides that health plan fiduciaries can look to the retirement plan regulation and its requirements when evaluating what kind of information to expect and request from their health plan brokers and consultants. Thus, health plan fiduciaries should ask their service providers to disclose the same level of detailed information that is required of retirement plan service providers.
- Insured and self-funded. The new health plan disclosure requirements apply to fully insured and self-funded group health plans.
- Applies to limited scope dental and vision. The new disclosure requirements apply to limited scope dental and vision plans – not just group health plans.
- Not just licensed “brokers” or “consultants.” The new disclosure requirements apply to providers of “brokerage services” and “consulting” services. The FAB makes it clear that just because a service provider does not call itself a “consultant” or charge a “consulting” fee does not determine whether they have to comply with the new disclosure requirements. The DOL expects reasonable and good faith efforts. Service providers who reasonably expect to receive indirect compensation from third parties in connection with advice, recommendations, or referrals for any of the listed services should comply with the new disclosure requirements and not try to label themselves as something other than a broker or consultant merely to avoid the rules.
- December 27, 2021. The new requirements apply to contracts entered into, renewed, or extended on or after December 27, 2021.
These new disclosure requirements should bring more transparency to the health plan side of employee benefits and allow plan fiduciaries to know and understand all the ways, direct and indirect, that everyone is getting paid. This will allow fiduciaries to identify and assess conflicts of interest.