The DOL has issued guidance announcing the agency's temporary enforcement policy (and related Q&As) regarding compensation disclosures for group health plan service providers under ERISA Section 408(b)(2), as amended by the Consolidated Appropriations Act, 2021 (CAA-21) (Field Assistance Bulletin No. 2021-03 (Dec. 30, 2021) (FAB 2021-03); 29 U.S.C. § 1108(b)(2)). The CAA-21 amended ERISA Section 408(b)(2) to require certain service providers to group health plans to disclose information to plan fiduciaries regarding direct and indirect compensation that the service providers expect to receive in connection with their services to the plan (see Legal Update, Year-End COVID-19 Stimulus Legislation Includes Numerous Employee Benefit Provisions, Including Surprise Medical Billing Requirements for Health Plans). These disclosure requirements apply to persons who:

The information required to be disclosed under ERISA Section 408(b)(2)(B) (as amended):

A covered service provider must provide the plan fiduciary a description of the services to be provided. The plan fiduciary should notify the DOL if a service provider fails to comply with these disclosure requirements.

The disclosure requirements apply to contracts executed one year after the CAA-21's enactment date—that is, December 27, 2021.

The required disclosures are intended to provide the "responsible plan fiduciary" (a defined term under ERISA) with enough information to assess the reasonableness of compensation to be received and potential conflicts of interest that may exist as a result of a service provider receiving indirect compensation from sources other than the plan or plan sponsor.

The CAA's disclosure requirements are largely similar (though not identical) to the DOL's regulations for covered service provider disclosures to plan fiduciaries of pension plans (ERISA § 408(b)(2); 29 C.F.R. § 2550.408b-2(c); see Good Faith and Reasonable Interpretations: Use of Pension Plan Guidance).

In FAB 2021-03, the DOL announced:

The DOL's guidance therefore is intended to address preliminary questions that service providers and group health plan fiduciaries may have regarding complying with the CAA-21 compensation disclosure requirements.

The DOL's guidance acknowledged that group health plan service provider arrangements and compensation structures are:

As a result, the DOL anticipates that covered service providers will use a variety of methods to make the required disclosures concerning their services and compensation. In the DOL's view, a key objective of the disclosure requirements is to enhance fee transparency—including for service arrangements that involve payment of indirect compensation (see Example of Indirect Compensation).

The scope of indirect compensation is potentially broad and may require changes to existing disclosure practices. In the past, for example, service providers may not have disclosed compensation that they reasonably expected to receive from a third-party provider in exchange for referring group health plan clients to the provider. In the DOL's view, this compensation—which is not paid directly by the group health plan—is an example of indirect compensation under the CAA-21 that must now be disclosed by covered service providers. In reviewing a service provider's efforts to comply with the CAA-21 disclosure requirements, the DOL will consider whether the provider's information disclosures were reasonably designed and implemented to provide the required information and transparency.

Regarding persons who are covered service providers because they furnish brokerage services or consulting to a group health plan, the DOL will not treat these persons as having failed to make required disclosures to a plan fiduciary if they use a good faith, reasonable interpretation of ERISA Section 408(b)(2)(B) in doing so.

Section 408(b)(2) (as amended) also provides conditional relief for responsible plan fiduciaries in connection with disclosure failures by covered service providers (ERISA § 408(b)(2)(B)(viii) (29 U.S.C. § 1108(b)(2)(B)(viii))). The DOL will interpret and apply this conditional relief in light of its temporary enforcement policy for covered service providers.

The DOL indicated that:

(See Practice Note, Service Provider Disclosure Requirements for Pension Plans and Legal Update, DOL ISSUES Final ERISA Section 408(b)(2) Regulations.)

In this regard, the DOL referenced notices issued in connection with its 2012 final rule governing pension plan disclosures (29 C.F.R. § 2550.408b-2(c); 77 Fed. Reg. 5632 (Feb. 3, 2012)). The DOL noted that some of the terminology and many of the requirements under the CAA-21's disclosure requirements and the DOL's 2012 regulations are identical. As a result, the DOL's explanations of this terminology—and related requirements—may be useful in analyzing the CAA-21 (75 Fed. Reg. 41600 (July 16, 2010)).

FAB 2021-03 clarifies that, for purposes of the CAA-21's compensation disclosure requirements, a group health plan includes insured plans, self-funded arrangements, and grandfathered health plans under the Affordable Care Act (ACA) (ERISA § 733(a) (29 U.S.C. § 1191b(a)); see Practice Note, Grandfathered Health Plans Under the ACA). However, qualified small employer health reimbursement arrangements (QSEHRAs) are not subject to the requirements (see Practice Note, Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs)).

In addition, "excepted benefits" are not subject to certain requirements under ERISA if they are offered separately (for example, limited-scope dental or vision benefits) (see Practice Note, Excepted Benefits). According to the DOL, limited scope dental and vision plans—though excepted from certain requirements of Part 7 of ERISA, are covered plans subject to the CAA-21's compensation disclosure requirements. Among other reasons, the DOL indicated that neither the CAA-21 nor its legislative history reflected an intent to exclude contracts or arrangements involving excepted benefit plans from the statute's disclosure requirements.

One of the DOL's Q&As clarifies that the scope of service providers subject to the CAA-21's compensation disclosure requirements is not limited to entities that are licensed as (or that market themselves as) brokers or consultants. The DOL noted that the relevant CAA-21 provisions do not define the terms "brokerage services" and "consulting" services. Instead, the statute describes these terms using a list of sub-services involving brokerage services or consulting. The DOL reasoned that:

The DOL added that the nature of compensation received by a service provider is not a basis for defining or differentiating brokerage services from consulting.

As a general rule (and subject to future guidance), the DOL's temporary enforcement policy under FAB 2021-03 applies to parties that reasonably and in good faith determine their status as a covered service provider under the CAA-21's compensation disclosure requirements. This determination will be based on the facts of a given situation. The DOL included a warning for service providers that reasonably expect to receive indirect compensation from third parties in connection with advice, referrals, or recommendations regarding covered services. These service providers should be prepared—in case of a DOL audit of their ERISA Section 408(b)(2)(B) compliance—to explain how their conclusion that they are not covered service providers is consistent with a reasonable good faith interpretation of the CAA-21. In this regard, the DOL noted the ERISA prohibited transaction consequences of compensation disclosure failures. (Compliance with the Section 408(b)(2) disclosure requirements is a condition, among others, for covered service provider arrangements to be exempt from ERISA's prohibited transaction provisions (ERISA § 406(a)(1)(C) and (D) (29 U.S.C. § 1106(a)(1)(C) and (D)); see Practice Note, Prohibited Transactions and Exemptions Under ERISA and the Code).)

Another Q&A addressed how covered service providers should disclose compensation amounts that cannot be known in advance—that is, before a contract or arrangement is entered into with a plan. This could occur, for example, if compensation to be received depends on variables such as participants' actual benefit elections, election changes, and usage rates.

According to the DOL, the CAA-21 expressly recognizes that advance disclosures may involve disclosures of estimates or formulas that may govern anticipated compensation. In some cases, the DOL acknowledged, covered service providers may be unable to state exactly how much compensation they expect to receive for services. This could happen if the method for determining some aspects of their compensation depends on decisions or variables that:

The DOL declined to provide a model form or specific directions on how to disclose all components of a service provider's potential compensation. In doing so, the DOL reiterated the diverse service and compensation structures that exist in the group health plan market. However, the statutory provision permits a variety of disclosure formats that specifically address many of the fact patterns raised by stakeholders.

Section 408(b)(2)(B) offers covered service providers flexibility in how they disclose the compensation that they reasonably expect to receive. Under the CAA-21, as a general rule, the required description of compensation or cost can be reflected as a monetary amount, formula, or a per capita charge for each individual. If the compensation or cost cannot reasonably be expressed in these ways, it can be shown using any other reasonable method. This may include a disclosure that additional compensation may be earned but may not be calculated at the time of contract. However, this disclosure must include:

(ERISA § 408(b)(2)(B)(ii)(II) (29 U.S.C. § 1108(b)(2)(B)(ii)(II)).)

According to the DOL, disclosure of compensation in ranges may be reasonable in circumstances where occurrence of future events or other features of the service arrangement may result in the service provider's compensation varying within a projected range. The DOL referenced additional guidance (from the pension plan context) addressing the use of ranges (77 Fed. Reg. 5632, 5645 (Feb. 3, 2012)). In this regard, the DOL noted that:

(See Practice Note, ERISA Fiduciary Duties: Overview.)

In another Q&A, the DOL addressed whether the general applicability date of the CAA-21's disclosure rules (December 27, 2021) includes service contracts or arrangements that have already been executed. The DOL noted that under a CAA-21 transition rule, no contract executed before December 27, 2021, by a group health plan subject to the CAA-21's compensation disclosure requirements must comply with these requirements. As a result, only contracts or arrangements that are entered into, extended, or renewed on or after December 27, 2021, must satisfy the CAA-21's disclosure requirements. The date on which a contract or arrangement is entered into between an agent or broker and a plan fiduciary is the date the contract or arrangement was executed.

A related rule under the DOL's guidance addresses agents or brokers that enter into a contract or arrangement with a plan fiduciary using a "broker of record" (BOR) agreement. In this case, the date the contract or arrangement is considered entered into for purposes of ERISA Section 408(b)(2)(B) is the earlier of the date on which:

As amended, ERISA Section 408(b)(2)(B) applies to group health plans regardless of size. There is no exception for small plans that cover fewer than 100 participants. Moreover, a small group health plan is subject to the disclosure requirements even if the plan is exempt from filing Form 5500 because it is fully insured, unfunded, or some combination of the two.

In a final Q&A, the DOL indicated that comprehensive regulations governing the CAA-21's compensation disclosure requirements are not necessary. According to the DOL, this is because: