Skip to main content
Top Button
Health Plan Fiduciaries Should Be Prepared for Service Provider Fee Disclosures Health Plan Fiduciaries Should Be Prepared for Service Provider Fee Disclosures

Health Plan Fiduciaries Should Be Prepared for Service Provider Fee Disclosures

Health plan fiduciaries are now obligated to obtain broad fee disclosures from their group health plan consultants and brokers. Failure to obtain these disclosures and determine the reasonableness of compensation to be received and any potential conflicts of interest that may exist as a result of a service provider receiving indirect compensation from sources other than the plan or the plan sponsor could be considered a breach of fiduciary duty. Consultants and brokers for health plans are also now required to provide plan fiduciaries (usually, plan sponsors) a description of their services and all direct and indirect compensation that they expect to receive for providing their services.  

These new rules are already in effect. Both fiduciaries and consultants/brokers should be prepared to comply with the new fee disclosure rules for all contracts entered into, extended, or renewed on or after December 27, 2021.


The Consolidated Appropriations Act, 2021 (CAA) amended the Employee Retirement Income Security Act (ERISA) to add specific requirements promoting transparency in the fee disclosures that many services providers make to group health plans. It did so through ERISA's prohibited transaction rules.

ERISA prohibits “self-dealing” with respect to plan assets by a party in interest, which includes service providers, absent an exemption. Under the new CAA rules (Disclosure Rule), contracts with brokers and consultants may be considered prohibited transactions unless the consultant/broker provides the required fee disclosures. More specifically, compensation paid pursuant to these contracts will not be considered reasonable—and thus not exempt from the prohibited transaction rules—unless the Disclosure Rule is satisfied.

Temporary Enforcement Policy

The CAA does not require the Department of Labor (DOL) to issue regulatory guidance and the DOL indicated it does not intend to issue implementing regulations at this time. Instead, the DOL will monitor enforcement and stakeholder feedback to determine whether additional regulations are required. For these reasons, on December 30, 2021, the DOL issued Field Assistance Bulletin No. 2021-03 (Bulletin) to clarify the DOL's temporary enforcement policy concerning the Disclosure Rule. The DOL’s Bulletin clarifies that:
  • DOL will not treat Service Providers (defined below) as failing to make required disclosures as long as their disclosures are based on a good faith, reasonable interpretation of the Disclosure Rule;
  • Service Providers may look to prior DOL guidance for pension plan fee disclosures as a "good faith and reasonable step" toward compliance with the Disclosure Rule;
  • The Disclosure Rule applies to both insured and self-insured plans of all sizes, and to excepted benefits like limited dental and vision plans;
  • Service Providers are not limited to those licensed as, or who call themselves, "brokers" or "consultants" or who receive compensation in a specific way (e.g., commissions v. fee for service), but will apply to any service provider who provides services that are set forth in the Disclosure Rule; and
  • The Disclosure Rule gives considerable flexibility in how compensation is disclosed, recognizing the diversity of service arrangements and compensation structures.
The Bulletin observes that the Disclosure Rule is intended to provide plan fiduciaries with sufficient information to assess the reasonableness of compensation and to avoid potential conflicts of interest, especially those that might result from sources of indirect compensation. Below is a summary of the highlights from the Bulletin. 

The Disclosure Rule Affects Both Health Plan Fiduciaries and Service Providers

The Disclosure Rule applies directly to fiduciaries of ERISA covered group health plans. It describes the conditions under which the plan fiduciary may use plan assets for a wide range of consulting and brokerage services. Failure to follow the Disclosure Rule results in a prohibited transaction, which is a breach of fiduciary duty.  

Service Providers will be economically compelled to follow the disclosure requirements and provide responsible plan fiduciaries with the required disclosures. Pending any future guidance, Service Providers and plan fiduciaries are expected to use a good faith, reasonable interpretation of the Disclosure Rules. The DOL will consider whether the Service Provider’s disclosures are reasonably designed and implemented to provide the required information and transparency.  

The Rule Affects All ERISA-Covered Health Plans

The Disclosure Rule applies to both insured and self-insured group health plans of all sizes.  Additionally, the DOL indicated that the Disclosure Rule applies to those plans providing only excepted benefits, such as limited scope dental and vision plans. It does not apply to qualified small employer health reimbursement arrangements (QSEHRAs), since QSEHRAs are not a group health plan under ERISA.

The Rule Affects Brokers and Consultants

The Disclosure Rule applies to any service provider—regardless of whether or not denominated a “broker” or “consultant”—that enters into a contract or arrangement with an ERISA-covered plan and reasonably expects $1,000 or more in connection with brokerage or consulting services for the selection of any of the following:
  • insurance products
  • recordkeeping
  • medical management
  • administration
  • stop-loss insurance 
  • pharmacy benefit management
  • wellness services
  • transparency tools 
  • disease management 
  • compliance services
  • employee assistance programs
  • third party administration services
  • group purchasing organization preferred vendor panels

Indirect Obligation for Service Providers: Written Disclosure

Service Providers are required to provide the plan fiduciary a written disclosure that describes all of the following:
  • Consulting or brokerage services to be provided.
  • Direct compensation reasonably expected in connection with the services.
  • Indirect compensation reasonably expected in connection with the services, together with descriptions of the arrangement for indirect compensation. For instance, Service Providers must now disclose compensation they reasonably expect from a third-party provider in return for referring group health plan clients to the provider (i.e., indirect compensation), and that is not paid directly by the group health plan (i.e., direct compensation).  
  • Any related compensation payable on a transaction basis among the Service Provider, an affiliate, or a subcontractor.
  • Any compensation reasonably expected in connection with the termination of the contract or arrangement.
  • The manner in which all of the disclosed compensation will be received.
Service Providers must make the disclosure reasonably in advance of the date on which the contract is entered into, extended, or renewed, and provide updates on any changes to the information as soon as practicable (and within 60 days of any changes, unless there are extenuating circumstances). 

Direct Obligation for Plan Fiduciaries: Ensure Disclosure

The Disclosure Rule's direct obligations fall on the responsible plan fiduciaries. In effect, a plan fiduciary may not knowingly cause the plan to pay for covered services in absence of the required disclosure. A fiduciary that unwittingly allows a group health plan to contract with a Service Provider without the required disclosure may avoid a prohibited transaction only under limited conditions (which include requesting the disclosure and notifying the DOL of any failure by the Service Provider to respond to request for the fee disclosures).

Next Steps

The Disclosure Rule makes it essential for the fiduciary of a group health plan to ensure it receives the requisite fee disclosures from all Service Providers. The fiduciary's pre-existing duties also obligate it to use these fee disclosures to make prudent and loyal decisions on behalf of the group health plan. 

Important first steps for plan fiduciaries include:
  • Identify all Service Providers; 
  • Identify all contracts and arrangements with Service Providers that will be (or were) entered into, extended, or renewed on or after December 27, 2021;
  • Ensure the Service Provider makes the fee disclosure reasonably in advance of the date on which the contract is entered into, extended, or renewed;
  • Evaluate the disclosed information in accordance with existing fiduciary duties;
  • Consult with counsel to incorporate new contractual duties related to the fee disclosures in the plan's contracts with the Service Provider;
  • Consult immediately with counsel concerning any contract or arrangement with a Service Provider entered into, extended, or renewed on or after December 27, 2021, for which fee disclosures were not received; and
  • Document the review process and specify how the reasonableness of compensation was determined.
These steps also give plan fiduciaries an important opportunity to review and evaluate their contracts with Service Providers generally to ensure that they accurately reflect current and desired services, permit termination on reasonable terms, contain adequate indemnification, and address cybersecurity and data protection concerns, among other items.

For additional information, please contact Gary Blachman, Kathleen Sheil Scheidt, Tara Sciscoe, Chris Sears, Melissa Proffitt, Shalina Schaefer, Austin Anderson, or the Ice Miller Workplace Solutions attorney with whom you regularly work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
View Full Site View Mobile Optimized