Plans subject to ERISA have many obligations, one of which is to insure that the plan is administered for the exclusive benefit of plan participants and beneficiaries. Part of this obligation relates to insuring that the cost of services rendered to the plan are reasonable. It is the plan’s fiduciary duty to validate this. To this end, the Consolidated Appropriations Act (CAA) of 2021 requires plan service providers to disclose to the plan fiduciary direct and indirect compensation it receives for services to the plan.
Who must disclose
Section 202 applies to “covered service providers”– and extending to their affiliates and contractors - who enter into contract with a covered plan [1], and who reasonably expect to receive $1,000 or more in direct and indirect compensation, in connection with brokerage and consulting services [2].
[1] A “covered plan” is a group health plan subject to ERISA, including:
- medical plans
- dental plans
- vision plans
- health reimbursement arrangements (HRAs) – except Qualified Small Employer HRAs (QSEHRAs)
- flexible medical spending accounts (FSAs)
This includes both insured and self-funded plans, including grandfathered plans, regardless of plan size.
[2] Brokerage and consulting services include product selection, plan design and implementation, benefits administration, recordkeeping, medical management, wellness services, employee assistance programs, pharmacy benefit management, third party administration, and other such services.
What must be disclosed
In the newly published Field Assistance Bulletin No. 2021-03, DOL reasserts that the Section 202 service provider fee disclosure includes a requirement to disclose all direct and indirect compensation.
How must disclosure be made
As per the Department’s guidance, covered service providers must provide “meaningful and understandable compensation information” such that the plan fiduciary may evaluate the reasonableness of the compensation. Covered service providers may disclose the expected direct or indirect compensation
- as a monetary amount,
- as a formula
- as a per capita charge for each enrollee
- as a description of the circumstances under which the additional compensation may be earned .
When must disclosure be made
The disclosure must be made in advance of the service provider and the plan entering, renewing, or extending a contract on or after December 27, 2021. If a service provider fails to make the required disclosures, the plan and covered service provider may not enter into contract.
Regulations Delayed, “Good Faith” Standard Encouraged
Because DOL is not issuing further regulation on Section 202 at this time, the Department will instead consider whether service providers are making a good faith, reasonable effort to disclose the required information and increase transparency.
Next Steps
Plan sponsors should work with their service providers in a good faith effort to comply with the disclosure requirement before the next contract renewal or extension. The DOL’s guidance directs parties to the rules applicable to retirement plans, issued in 2012, for additional guidance.
The information contained in this Benefit Beat is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. This information is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.