On December 30, 2021, the Department of Labor (“DOL”) released sub-regulatory guidance in the form of Field Assistance Bulletin No. 2021-03 (“FAB 2021-03”) detailing the DOL’s temporary enforcement policy for group health plan provider disclosures under new ERISA section 408(b)(2)(B). This statute embodies the new rule detailing the information that must be provided to group health plans by brokerage and consulting service providers. Parties providing brokerage and consulting services to group health plans covered by ERISA who reasonably expect to receive $1,000 or more in “direct” or “indirect” compensation must comply. The new disclosure requirements became effective December 27, 2021, and apply to new contracts or renewals executed on or after that date. There is also no minimum size for compliance (i.e., small plans are not exempt).
The required disclosures are intended to provide the responsible plan fiduciary (with respect to the applicable group health plan) with sufficient information to assess the reasonableness of the compensation to be received and potential conflicts of interest that may exist as a result of the service provider receiving indirect compensation from sources other than the employer plan or plan sponsor. Notably, while the disclosure obligation falls on the consultant or provider (rather than the employer plan or plan sponsor), any failure to comply with the requirements could cause the service arrangement to be treated as a prohibited transaction. A prohibited transaction can trigger excise taxes and assessment of civil penalties on the employer/plan sponsor.
The disclosure standard itself tracks the standard that has applied to retirement plans (like 401(k) plans) for more than a decade, and no formal regulations are expected. While the new requirements are effective now, the DOL acknowledged the complex nature of the subject matter and announced a period of “good faith” enforcement.
During this period of temporary enforcement relief where good faith compliance is required, employer plans and plan sponsors of group health plans are not exempt from ensuring that their new contracts and renewals with group health plan service providers contain compliant disclosures. Note that there is no standard disclosure format or template for the required disclosures.
Those responsible for overseeing group health plans (and or their contracts/renewals) should be prepared to assess whether their arrangements comply with the new law, including with respect to the reasonableness of compensation to be received – and potential conflicts that may exist – as a result of the provider receiving direct compensation as well as indirect compensation from sources other than the employer plan/plan sponsor.