While the most widely discussed elements of the Consolidated Appropriations Act of 2021 (CAA) relate to monetary relief for those affected by the COVID-19 pandemic, the act also includes new disclosure requirements for brokers and consultants providing services to ERISA health plans. Additionally, it effectively lays responsibility for policing compliance in the laps of plan fiduciaries.
In 2012, the US Department of Labor (DOL) issued regulations requiring certain service providers to employer-sponsored retirement plans to make detailed disclosures to plan fiduciaries about direct and indirect compensation they receive related to the services they provide. However, health and welfare plans were specifically excluded from these requirements. The CAA now creates similar disclosure requirements related to brokers and consultants for group health plans.
The new disclosure requirements apply to service providers who reasonably expect to receive $1,000 or more direct and/or indirect compensation for brokerage services related to the selection of group health plan products such as medical, dental, vision, and stop-loss insurance; recordkeeping services; benefits administration; and pharmacy benefit management, among others. They also apply to those who expect to receive such compensation for consulting services provided to group health plans with respect to the development or implementation of plan design, insurance or insurance product selection, and the selection of service providers. They do not, however, apply to insurance providers or pharmacy benefit managers.
These disclosures are meant to reveal any conflicts of interest that may exist in the service provider’s relationships and also to provide plan fiduciaries with the information they need to comply with ERISA’s prohibited transaction rules. Prohibited transaction rules require fiduciaries to ensure that the terms of their contracts with service providers are “reasonable.” If a service provider fails to provide the necessary information, a plan fiduciary may be required to notify the DOL and terminate the contract. Otherwise, the fiduciary could risk personal liability for the fees paid by their plans for such services.
The new requirements apply to contracts for services executed, extended or renewed on or after December 27, 2021, but plan sponsors and fiduciaries should not wait to begin thinking about what it all means for their organization. Wise men and women will begin now to establish procedures for obtaining, evaluating, and documenting the required information. They should also make a plan for what they will do to protect their companies and themselves in the event the information is not provided.