DOL Announces Temporary Enforcement Policy for Service Provider Disclosures

On December 30, 2021, the DOL issued Field Assistance Bulletin No. 2021-03, which announces a temporary enforcement policy for group health plan service provider disclosures under ERISA Section 408(b)(2). The bulletin also attempts to address certain questions regarding the required disclosures and indicates the DOL does not intend to issue regulatory guidance at this time.

The Consolidated Appropriations Act, 2021 (CAA) amended ERISA Section 408(b)(2) to require group health plan service providers to disclose specified information to the “responsible plan fiduciary” (i.e., typically, the employer as plan sponsor) about compensation that the service provider expects to receive in connection with its plan services. Specifically, the new disclosure requirements apply to those who provide brokerage or consulting services to an ERISA group health plan pursuant to a contract or arrangement, and reasonably expect to receive $1,000 or more in related direct or indirect compensation. Effective December 27, 2021, the disclosure must be provided reasonably in advance of the service provider and plan entering, renewing or extending a contract, so the plan fiduciary can assess the reasonableness of the service provider’s compensation and identify potential conflicts of interest.

The bulletin emphasizes that a significant goal of the new disclosure requirements is to enhance fee transparency, especially for service arrangements that involve the payment of indirect compensation (i.e., compensation received from a party other than the plan or employer). Therefore, when evaluating a service provider’s compliance efforts, the DOL indicates that consideration will be given to whether the provider’s disclosure is reasonably designed to provide the required information and promote transparency. Additionally, if a service provider makes the disclosures in accordance with a good faith, reasonable interpretation of the law, the DOL will not treat the service provider as failing to satisfy the requirements. Conditional relief is also available for plan fiduciaries in connection with disclosure failures by covered service providers.

Therefore, pending future guidance or rulemaking, covered service providers and plan fiduciaries are expected to implement the disclosure requirements using a good faith, reasonable interpretation of the law. To assist with the implementation process, the bulletin provides guidance (in the form of questions and answers), which is summarized as follows:

• According to the DOL, consideration of the 2012 final regulations for pension plan service provider disclosures would be viewed as a good faith and reasonable compliance step for a group health plan service provider. In the DOL’s view, this prior guidance may be helpful in analyzing the new CAA requirements and related terminology, despite differences in the nature of health plan compensation arrangements.
• The disclosure requirements apply to insured and self-funded ERISA group health plans, including grandfathered plans, and regardless of plan size. There is no exception for limited scope dental and vision plans.
• The disclosure requirements are not limited to group health plan service providers who are licensed as, or market themselves as, “brokers” or “consultants”, but any plan service providers who reasonably expect to receive indirect compensation from third parties in connection with advice, recommendations or referrals regarding services defined as brokerage or consulting services under ERISA Section 408(b)(2).
• If service provider compensation is not known at the time the contract is entered, the compensation may be expressed as a monetary amount, formula or a per capita charge for each enrollee. If the compensation cannot be expressed by any other reasonable method, the disclosure may include a description of the circumstances under which the additional compensation may be earned and a reasonable and good faith estimate, which explains the methodology and assumptions used to prepare such estimate. Disclosure of compensation in ranges may be reasonable if contingent on future events.
• Generally, greater specificity in the disclosure of compensation information is preferred, if possible. The objective is to provide the plan fiduciary with sufficient information to fulfill its ERISA obligations and evaluate the reasonableness of the service provider compensation and identify any associated conflicts of interest.
• Only contracts for services that are entered, extended or renewed on or after December 27, 2021, are required to comply with the disclosure requirements. A contract is considered entered on the date of execution. Pending further guidance, a contract through use of a broker of record (BOR) agreement is considered entered on the earlier of the date on which the BOR agreement is submitted to the insurer or the date on which a group application is signed for insurance coverage for the following plan year, provided that the submission or signature is done in the ordinary course and not to avoid disclosure obligations.
• The DOL will monitor comments from stakeholders and enforcement activities to assess whether additional guidance may be necessary to assist covered service providers and plan fiduciaries in complying with the new disclosure requirements. The DOL is interested in input regarding specific aspects of the disclosure requirements that would benefit from regulatory guidance.

Generally, the bulletin does not provide significant new information, but serves to confirm the disclosure requirements as set forth under the CAA. Additionally, the guidance provides insights regarding the DOL’s initial enforcement approach with respect to plan service providers and fiduciaries.

Field Assistance Bulletin No. 2021-03 »