Amendment to Group Health Plan Fee Disclosure Rules Can Reduce Plan Costs

Plan fiduciaries have a duty under ERISA to pay only a reasonable amount for services provided to the plan. When a group health plan offers insurance, service providers may receive commissions directly from the insurance company rather than from the plan. This arrangement can make it difficult for plan fiduciaries to determine what they paid the service provider and whether that fee was reasonable. 

The purpose of the Consolidated Appropriations Act, 2021 (CAA) is to allow plan fiduciaries to have easier access to information about services that it has indirectly paid for on behalf of the plan. The CAA applies to any new contracts executed on or after December 27, 2021, or any contracts renewed or extended on or after that date. 

The CAA specifically amended section 408(b)(2) of ERISA to require service providers to disclose indirect and direct compensation to the plan fiduciary if they expect to receive more than $1,000 in such compensation for brokerage or consulting services. They also must describe the services for which they are receiving the compensation. 

Accordingly, the Department of Labor (DOL) issued Field Assistance Bulletin No. 2021-03 on December 31, 2021, which provided guidance on the amended section 408(b)(2) of ERISA. The DOL confirmed in this guidance that any service provider who performs services in connection with the selection of insurance products or the development of or implementation of plan design must provide the disclosure. Service providers must disclose their compensation under the new disclosure rule, even if they do not call themselves brokers or consultants, and even if a group health plan has less than one hundred participants and all benefits are insured. 

The DOL provided no set format for service providers to comply with the disclosure rule. The DOL did caution service providers to provide as specific compensation information as possible, so that plan fiduciaries have sufficient information to determine the reasonableness of the compensation and the severity of any conflicts of interest. 

Now that plan fiduciaries have easier access to the compensation paid to these service providers, they can judge whether the compensation is reasonable and potentially cut costs by switching service providers. For instance, plan fiduciaries could solicit proposals from other service providers to measure the reasonableness of their current service providers and determine if they are paying too much. Fiduciaries could also explore eliminating indirect compensation to service providers to save costs. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 470-571-1007.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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