The new stimulus bill (the Consolidated Appropriations Act of 2021 or CAA) imposes new disclosure requirements for brokers and consultants providing services to ERISA health plans. The service providers are required to disclose to a plan’s fiduciary the direct and indirect compensation, including commissions and other incentive compensation they (or their affiliates and subcontractors) receive from insurance and other service providers for encouraging plan sponsors and fiduciaries to choose such providers or their products.

These new requirements will apply to contracts for services executed, extended or renewed on or after December 27, 2021, which is one year after the CAA’s enactment. 

When a plan or plan sponsor contracts with a service provider, the terms of the contract, including the compensation arrangement, must be “reasonable” in order to avoid an ERISA prohibited transaction. The plan’s fiduciary must be in a position to evaluate the reasonableness of the arrangement. In 2012, the U.S. Department of Labor (DOL) issued regulations applicable to retirement plans that require service providers to such plans to provide information to the retirement plan fiduciary about direct and indirect sources of compensation. The DOL has not yet issued similar regulations for welfare plans, but the CAA creates similar disclosure requirements for two categories of group health plan service providers—brokers and consultants.   

The new disclosure requirements apply to:

  • brokerage services provided to a group health plan with respect to its selection of insurance products (including vision and dental benefits), benefit administrators and record keepers, medical management vendors, disease management vendors, pharmacy benefit administration services, stop-loss insurance, wellness services, employee assistance programs, transparency tools and vendors, compliance services and group purchasing organization preferred vendor panels; and
  • consulting services provided to a group health plan with respect to the development or implementation of plan design, insurance or insurance product selection (including dental and vision), and the selection of providers for a variety of services including recordkeeping, benefits administration, medical management, disease management, stop loss insurance, pharmacy benefit management, wellness design and management services, employee assistance programs, transparency tools, and group purchasing organization agreements and services.

In each case, the disclosure requirements apply to brokers and consultants engaged by health plan fiduciaries that are reasonably expected to receive at least $1,000 in direct or indirect compensation, including compensation received by their affiliates or subcontractors, with respect to performing the services described above for a group health plan. This $1,000 threshold is adjusted for inflation. The requirements are visited on brokers/consultants who reasonably expect to receive $1,000 or more in compensation, direct or indirect, for providing the services listed above pursuant to the contract. 

The new rules require the health plan fiduciary to obtain from the broker or consultant the following information.

  • A description of the services to be provided to the group health plan pursuant to the consulting or brokerage services contract;
  • If applicable, a statement that the broker or consultant (or its affiliate or subcontractor) expects to provide services to the plan as a fiduciary;
  • A description of all direct compensation the broker or consultant (or its affiliate or subcontractor) reasonably expects to receive in connection with its anticipated services;
  • A description of all indirect compensation the broker or consultant (or its affiliate or subcontractor) reasonably expects to receive in connection with its anticipated services. This includes incentive compensation paid to the broker or consultant based on a “structure of incentives not solely related to the contract with the [group health] plan;”
  • If applicable, a description of how compensation is shared among the broker/consultant and its affiliates or subcontractors;
  • If the broker’s or consultant’s compensation is received on a transaction basis (e.g., incentive compensation based on business placed or retained, such as commissions and finder’s fees), the information must identify the relevant services and who is paying and receiving such commissions and fees; and
  • A description of termination-related fees, including (if applicable) a description of how pre-paid amounts will be calculated and refunded.

This information must be provided by the broker or consultant reasonably in advance of the establishment or renewal of the contract for services. If information changes, there is an obligation for the broker or consultant to notify the plan fiduciary as soon as practicable, but no later than 60 days following its knowledge of the change. If the broker/consultant fails to provide the required information, the plan fiduciary may be required to notify the DOL of such failure,  and to terminate the contract,  in order to prevent a prohibited transaction from occurring. This effectively requires the plan fiduciary to be engaged with respect to making sure the required information has been disclosed. 

Plan sponsors and fiduciaries should keep in mind that these service provider disclosure rules—for retirement plans and now, for group health plans—are intended to provide information to the plan fiduciary to enable it to fulfill its duty to make a determination as to whether an arrangement for services is reasonable and otherwise qualifies for the applicable exception to the prohibited transaction exception. Before these new rules take effect, plan fiduciaries should consider how these provisions may affect new, renewed, or extended vendor agreements. They may also consider their procedures for obtaining and evaluating this information, for addressing a failure to obtain the information, and for how they will otherwise document their adherence to good fiduciary practice.  


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