Field Assistance Bulletin No. 2021-03: Temporary Enforcement Policy Regarding Group Health Plan Service Provider Disclosures Under ERISA Section 408(b)(2)(B) (Dec. 30, 2021)
The DOL has announced a temporary enforcement policy for fee disclosure requirements that apply to certain group health plan service arrangements. As background, ERISA’s prohibited transaction exemption for reasonable service provider arrangements was amended by the Consolidated Appropriations Act, 2021 (CAA) (see our Checkpoint article) to provide that arrangements for certain types of group health plan services are reasonable only if specified disclosure requirements are met. These rules apply to arrangements 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. (For more on the disclosure requirements, see our Checkpoint Question of the Week.)
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 requirement. Plan fiduciaries are also expected to implement the requirements using a good faith, reasonable interpretation. FAQs accompanying the policy provide guidance on what may constitute a good faith, reasonable interpretation.
Pension Plan Guidance. The FAQs specify that, in seeking to comply with the disclosure requirements, service providers may look to DOL regulations on pension plan disclosures. Although group health plans and pension plans have different types of compensation arrangements, much of the terminology and many of the requirements are identical for the two sets of disclosure rules.
Covered Plans. The disclosure requirements apply to group health plans as defined in ERISA § 733(a). According to the FAQs, this includes insured and self-insured plans, including grandfathered plans, regardless of size (i.e., there is no small plan exemption). Although plans providing only excepted benefits (e.g., limited scope dental or vision benefits) are excepted from certain ERISA requirements otherwise applicable to group health plans, they are covered plans for purposes of these disclosure rules. QSEHRAs are expressly excluded from the group health plan definition and thus are not covered.
Covered Service Providers. Covered service providers subject to these disclosure requirements are not limited to those that are licensed as or market themselves as “brokers” or “consultants.” Service providers should act reasonably and in good faith when determining their status as covered service providers, and are reminded to consider the goal of the disclosure requirement—to enhance fee transparency, especially with respect to indirect compensation received from third parties. The FAQs also warn that, in the event of a DOL audit, a service provider should be prepared to explain a conclusion that it is not a covered service provider.
Fee Disclosures. For compensation that depends on variables and is not known in advance, covered service providers are instructed that compensation may be described using a formula, per capita charge, or other reasonable method. Disclosure in ranges may be reasonable when compensation could vary within a range, but as under the similar pension requirement, ranges must be reasonable under the specific circumstances. Whatever the disclosure methodology, the DOL will assess the adequacy of disclosures by whether they allow plan fiduciaries to evaluate the compensation’s reasonableness and the severity of any associated conflicts of interest.
Applicability Date. The disclosure requirements apply to contracts that are entered into, extended, or renewed on or after December 27, 2021. Contracts executed prior to that date are not subject to these rules.
Future Guidance. At this time, the DOL does not anticipate issuing “comprehensive implementing regulations.“ But it will monitor feedback from stakeholders and its enforcement activities to determine what additional guidance may be necessary, and may consider issuing regulations on particular elements of the disclosure requirements.
EBIA Comment: Although the FAQs provide helpful clarifications, they remain vague on what is possibly the most vexing question—exactly what activities fall within “brokerage services” or “consulting” for purposes of these disclosure rules. Since the rules are already in effect, service providers and plan fiduciaries alike must navigate these issues as best they can. For more information, see EBIA’s ERISA Compliance manual at Section XXVIII.D.7 (“Reasonable Arrangements With Third-Party Service Providers”) and EBIA’s Self-Insured Health Plans manual at Section XXIII.C.5 (“Service Provider Compensation Must Be Reasonable”). For a discussion of the pension plan guidance referenced in the FAQs, see EBIA’s 401(k) Plans manual at Section XXIV.N (“Fiduciary-Level Service Provider Fee Disclosures”). You may also be interested in our upcoming webinar “ERISA Fiduciary Duties for Third-Party Administrators and Other Service Providers” (live on 1/20/2022).
Contributing Editors: EBIA Staff.