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, everyone is getting paid. The changes will help the fiduciaries to identify and assess possible conflicts of interest.
Earlier Protections for Retirement Plan Fiduciaries
Ten years ago, the U.S. Department of Labor (DOL) published a final regulation under the Employee Retirement Income Security Act of 1974 (ERISA) requiring retirement plan service providers to disclose information about their compensation and potential conflicts of interest. Under the regulation, covered service providers to retirement plans are required to disclose:
- Services they provide to the retirement plan;
- 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;
- All “indirect” compensation (generally from some source other than the plan or the plan sponsor) the service provider, its affiliate, or a subcontractor reasonably expects to receive;
- 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
- Certain other information.
Largely as a result of the 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, which allows them to have a very clear understanding of any potential conflicts of interest.
New Protections for Health Plan Fiduciaries
Unfortunately, because of the absence of similar rules, health plan fiduciaries haven’t enjoyed the same protections. The health plan rules haven’t required the same level of disclosure. Therefore, their fiduciaries haven’t always had the same level of insight into every type and amount of compensation 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 they’ve placed with a certain provider—without any clear requirement to disclose the compensation to their employer clients. Thus, many health plan fiduciaries haven’t been 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 of 2021 (CAA) amended ERISA to require certain service providers to group health plans to disclose specified information to a responsible plan fiduciary about the direct and indirect compensation they expect 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 and expect to receive $1,000 or more in direct or indirect compensation. The disclosures are intended to provide plan fiduciaries with enough information to assess the reasonableness of the compensation to be received (before it is obtained) and any potential conflicts of interest.
DOL Clarifies New Requirements
The DOL recently issued Field Assistance Bulletin (FAB) 2021-03 to clarify some important aspects of the new CAA requirement:
Look to retirement plan rules. The disclosure requirements for health plans aren’t identical to the rules for retirement plans, but the new FAB says 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, the fiduciaries should ask service providers to disclose the same level of detailed information required from 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 doesn’t call itself a “consultant” or charge a “consulting” fee doesn’t determine whether it must comply with the new disclosure rules. 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 standards and not try to label themselves as something other than a broker or a consultant merely to avoid the rules.
Effective date. The new requirements apply to contracts entered into, renewed, or extended on or after December 27.
Brandon Long is an employee benefits attorney in the Oklahoma City office of McAfee & Taft. You can reach him at email@example.com.