See our previous LawFlash Consolidated Appropriations Act of 2026: The New Landscape of PBM Fiduciary Oversight for more information on CAA 2026.
The DOL has emphasized the rule’s potential to strengthen fiduciary oversight, promote competition, and reduce prescription drug spending. Although the rule represents a significant expansion of PBM compensation transparency, its effect on prescription drug costs will depend not only on how PBMs respond to the new requirements, but also on whether plan fiduciaries can effectively use the additional information.
The rule does not require PBMs to lower their fees, offer more competitive pricing, or renegotiate compensation arrangements. Instead, it requires PBMs to provide additional information that may help plan fiduciaries evaluate their PBM arrangements and negotiate more favorable terms. Plan fiduciaries, however, have long been subject to ERISA’s duties of prudence and loyalty, including obligations to assess the reasonableness of service provider arrangements and act in the best interests of participants and beneficiaries.
The rule does not create these underlying fiduciary obligations or fundamentally alter the market dynamics that may constrain fiduciaries’ ability to fulfill them. Rather, it provides additional information to support fiduciaries’ existing responsibilities. While greater transparency may help fiduciaries evaluate PBM arrangements and potentially negotiate more favorable terms, whether it will translate into meaningful cost savings remains uncertain.
WHAT THE FINAL RULE REQUIRES
The final rule, Improving Transparency into Pharmacy Benefit Manager Fee Disclosure, implements ERISA Section 408(b)(2)(B), as amended by CAA 2026. The disclosures are required for covered service arrangements to satisfy the reasonableness condition of ERISA Section 408(b)(2)'s prohibited transaction exemption.
The rule becomes effective 60 days after publication in the Federal Register and generally applies to plan years beginning on or after July 1, 2027 (i.e., January 1, 2028, for calendar-year plans). It covers large, self-insured ERISA group health plans. For purposes of the final rule, these generally include self-insured plans with at least 100 participants or plans offered by employers with at least 100 employees, subject to applicable counting rules. Fully insured plans and certain plans sponsored by entities in the pharmaceutical supply chain or their affiliates are excluded from the final rule’s additional disclosure requirements, but remain subject to the underlying statutory disclosure requirements of ERISA Section 408(b)(2)(B).
The rule requires certain service providers to disclose compensation and other information to the fiduciaries of these covered plans. Covered service providers generally include PBMs and certain related entities reasonably expected to receive at least $1,000 in direct or indirect compensation for providing pharmacy benefit management services or related advice, recommendations, or referrals under the applicable arrangement. The rule broadly defines pharmacy benefit management services to include services relating to prescription drugs furnished through a plan's medical benefit, regardless of whether the provider identifies itself as a PBM.
The rule establishes the following significant requirements.
Comprehensive Compensation Disclosures
Covered service providers must disclose direct and indirect compensation reasonably expected to be received by the provider and its affiliates, agents, and subcontractors. This includes administrative fees, manufacturer rebates and other remuneration, spread compensation, pharmacy recoupments, price protection payments, affiliate compensation, and other revenue streams.
Disclosures generally must identify compensation by applicable category and, where required, by service, drug, or pharmacy channel. For bundled arrangements, covered service providers must disclose a reasonable, good-faith allocation of the compensation to each service. Initial disclosures also must address compensation connected with termination and how prepaid amounts will be refunded.
Drug Pricing and Formulary Transparency
Covered service providers must disclose net drug prices by National Drug Code, course of treatment or fill, and pharmacy channel, or, where monetary amounts cannot reasonably be determined, the methodology used to calculate those prices and an objective means of verifying it.
In addition, they must disclose specified spread compensation information, including the amounts to be paid by the plan and to pharmacies for each formulary drug and the difference between those amounts. They also must identify manufacturer incentives affecting formulary placement, certain excluded formulary alternatives, where applicable, and financial arrangements that may influence utilization or steer participants toward affiliated pharmacies.
The rule also requires advance notice of certain formulary changes reasonably expected to materially affect compensation.
Precontract and Renewal Disclosures
Covered service providers must provide the required information sufficiently in advance of entering into, extending, or renewing an agreement to permit meaningful fiduciary review. For renewals and extensions, providing disclosure at least 90 calendar days in advance is considered reasonable, although the parties may agree to a longer disclosure period.
Ongoing Reporting
Covered service providers must provide updated compensation disclosures every six months, or quarterly at the plan’s request, generally within 30 calendar days after the reporting period. These reports must identify compensation actually received or reasonably expected to be received for the period and explain increases of 5% or more in the aggregate within a compensation category over the corresponding semiannual or quarterly estimates in the initial disclosures, or a lower percentage or dollar threshold agreed to in writing. Amounts passed through to the plan are not counted for this threshold.
Expanded Audit Rights
Covered plans are entitled to audit required PBM disclosures at least annually, using an auditor selected by the plan. Covered service providers generally must provide records, transaction-level data, and relevant manufacturer and pharmacy contracts necessary to verify disclosures.
Covered service providers must acknowledge audit requests within 10 business days and generally produce requested information within 60 calendar days, subject to specified exceptions. Plans bear the costs of selecting and retaining the auditor, while covered service providers bear the costs of producing the requested information. The rule grants an audit right limited to verifying required disclosures but does not require a plan to exercise that right in every case.
Fiduciary Status and Related Disclosures
Covered service providers must disclose, where applicable, that they or relevant related entities will or reasonably expect to act as ERISA fiduciaries in connection with the arrangement, identify applicable audit rights and procedures, and, upon written request, provide information necessary for the plan to satisfy applicable ERISA Title I reporting and disclosure requirements. Any applicable fiduciary status not previously disclosed must be disclosed as part of the ongoing disclosure requirements.
Disclosure Format and Use
Required disclosures generally must be clear, sufficiently specific, and expressed in monetary amounts, although good-faith estimates are permitted when actual amounts cannot reasonably be determined. Compensation disclosures also must be provided in a machine-readable format upon a fiduciary's request, within a reasonable time.
Covered service providers generally may not restrict a plan's use of required disclosures, although reasonable confidentiality agreements may be required of third parties receiving the information.
NONCOMPLIANCE AND FIDUCIARY RELIEF
Failure to satisfy applicable disclosure requirements may jeopardize the availability of ERISA Section 408(b)(2)’s prohibited transaction exemption for the affected service arrangement. However, good-faith errors or omissions in required initial disclosures, ongoing reports, or audit disclosures will not, by themselves, cause an arrangement to fail the reasonableness requirement if the covered service provider exercised reasonable diligence and corrects the information as soon as practicable but no later than 30 calendar days after becoming aware of the error or omission.
The rule includes an administrative exemption for responsible plan fiduciaries when service providers fail to comply and specified corrective conditions are satisfied, including notification to the DOL in certain circumstances. The exemption generally requires that the fiduciary did not know of the noncompliance and reasonably believed the disclosure requirements had been satisfied. To obtain that relief, a fiduciary that discovers noncompliance must request the correction in writing and, if unresolved, notify the DOL within 30 calendar days after the earlier of the provider’s refusal to correct or 90 calendar days after the request.
If the provider has not complied within 90 days, the fiduciary must document its determination whether to continue or terminate the arrangement consistent with its duty of prudence under ERISA.
EXISTING STATUTORY REQUIREMENTS AND TEMPORARY ENFORCEMENT RELIEF
As anticipated in our earlier analysis of the CAA 2026, the DOL confirmed that the statutory disclosure obligations under ERISA Section 408(b)(2)(B) took effect on February 3, 2026, upon enactment of the CAA 2026. These statutory requirements apply more broadly than the final rule, including to certain plans and service providers outside the rule's scope (e.g., third-party claims administrators other than PBMs).
Under the temporary enforcement policy the DOL has adopted, from February 3, 2026 until the rule’s applicability date, the DOL will not treat a covered service provider as having failed to make required disclosures, or a responsible plan fiduciary as having engaged in a prohibited transaction, so long as each acted in accordance with a good-faith interpretation of ERISA Section 408(b)(2)(B).
WILL GREATER TRANSPARENCY LEAD TO LOWER PBM COSTS?
The DOL’s expectation that greater transparency may contribute to lower prescription drug costs rests in part on the ability of plan fiduciaries to use the newly disclosed information to negotiate more favorable PBM arrangements. However, greater transparency does not necessarily translate into greater bargaining power.
The PBM market is characterized by substantial concentration and vertical integration among major providers, factors that may affect the availability of alternatives and the negotiating leverage of plan sponsors. Although the DOL acknowledges these market characteristics in the preamble, the final rule itself does not address that concentration, require competitive pricing, or compel PBMs to reduce their compensation or renegotiate existing arrangements.
A PBM could fully comply with the disclosure requirements without changing its compensation structure or pricing. PBMs may also adjust the mix of administrative fees and other compensation arrangements in response to greater transparency. Whether such changes would produce savings for plans is uncertain. As a result, plan fiduciaries should consider the overall economics of PBM arrangements rather than focusing on individual fees or revenue streams in isolation.
The additional disclosures may also have implications for fiduciary litigation. For example, compensation information could become relevant to claims challenging the selection or continued retention of a PBM. However, the availability of additional information does not, by itself, establish that a fiduciary has breached its duties or that a lower-cost arrangement was available. ERISA generally requires a prudent decision-making process, not a guarantee of the lowest possible cost. The rule does not alter those underlying fiduciary standards, although the additional disclosures may inform the assessment of a fiduciary's decision-making process.
For plan fiduciaries, a prudent approach will be to establish a reasonable process for reviewing the disclosures, assessing the overall value of PBM arrangements, considering available alternatives, and documenting the basis for their decisions.
ACTION ITEMS FOR PLAN SPONSORS AND FIDUCIARIES
- Review PBM contracts and clarify fiduciary roles: Plan sponsors and fiduciaries should review existing PBM agreements before renewal, including provisions governing compensation disclosures, data access, auditor selection, rebate reconciliation, formulary modification, confidentiality, termination rights, and automatic renewal deadlines.Although a plan sponsor may execute the PBM agreement, selecting and monitoring the PBM generally are fiduciary functions under ERISA. Accordingly, sponsors should consider whether the agreement appropriately identifies the fiduciary responsible for those decisions and for receiving the required disclosures. Where a plan has an administrative committee or other named fiduciary, a three-party agreement among the sponsor, fiduciary, and PBM may help clarify their respective roles. The sponsor could remain a party for purposes of indemnification and other employer obligations, while the fiduciary would be expressly recognized in connection with PBM selection, monitoring, and disclosures. Consider negotiating delivery of disclosures earlier than the 90-day renewal benchmark to allow time for analysis, competitive bids, and any transition. Sponsors should also review whether existing confidentiality provisions or restrictions on data sharing could interfere with the plan's ability to obtain, use, or independently verify required disclosures. Any necessary amendments should be addressed before renewal.
- Evaluate PBM compensation: Plan fiduciaries should evaluate the full range of direct and indirect PBM compensation, including affiliate revenue, spread compensation, manufacturer payments, and other financial arrangements. This review should consider the services received, the plan’s overall costs, and available market comparisons.
- Develop a documented fiduciary governance process: Fiduciaries should establish and document procedures for receiving, reviewing, and escalating material disclosure issues. The process should identify responsible fiduciaries and the role of outside advisors and establish procedures for addressing incomplete, inconsistent, or potentially inaccurate information. It should also include a process for written correction requests, applicable DOL notification deadlines, and documenting whether to retain a noncompliant provider.
- Exercise and protect expanded audit rights: Plan fiduciaries should evaluate whether existing contractual audit provisions reflect the rule's expanded rights, including the ability to select an auditor and obtain transaction-level data, relevant manufacturer and pharmacy contracts, and information held by PBM affiliates and subcontractors necessary to verify required disclosures. The rule restricts certain contractual limitations on audit timing, location, and access to records, subject to the audit's permitted scope. The rule also permits specified confidentiality protections for commercially sensitive information. Fiduciaries should therefore review confidentiality and data-use provisions to ensure they protect sensitive information without unduly restricting audits, benchmarking, or sharing information with advisers, legal counsel, and regulators. These provisions should also be considered alongside ERISA Section 724's prohibition on certain contractual restrictions on access to deidentified claims and financial information (commonly referred to as the “gag clause” prohibition).
- Consider independent expertise where warranted: The complexity of drug-level pricing and PBM compensation may justify engaging independent pharmacy benefits consultants, auditors, or actuarial advisors to assist in evaluating disclosures, assessing compensation, or conducting audits. Fiduciaries should verify the independence of any advisor and review any indirect compensation or PBM affiliations. The disclosures required of certain PBM-affiliated brokers and consultants may assist fiduciaries in identifying potential conflicts.
- Plan ahead for implementation: Plan sponsors and fiduciaries should identify applicable plan years, upcoming contract renewals, and internal resources needed to review the required disclosures. Early coordination among benefits, legal, procurement, consultants, and finance teams may help ensure that fiduciaries have sufficient time to evaluate the information and consider appropriate next steps. The DOL specifically identifies involvement by the chief financial officer (CFO) or similarly situated financial leaders in employee health benefit selection, design, and procurement as a best practice.
ON THE HORIZON
Two related provisions of the CAA 2026 take effect for plan years beginning on or after August 3, 2028. New ERISA Section 726 will require PBMs to provide retrospective reports on drug spending and utilization every six months, or quarterly at the plan’s request. New ERISA Section 408(b)(2)(C) will require PBMs to remit to the plan 100% of rebates, fees, alternative discounts, and other remuneration received from applicable entities in connection with drug utilization or spending. Unlike the disclosure requirements, the remittance mandate directly affects PBM compensation and may prove more consequential for plan costs.
Conclusion
The DOL’s final PBM transparency rule represents a significant step toward greater visibility into PBM compensation, but whether it will meaningfully reduce prescription drug costs remains uncertain. Plan fiduciaries have long sought greater transparency to support their evaluation and oversight of PBM arrangements. However, while the additional disclosures may help fiduciaries better evaluate PBM arrangements, their practical impact will depend on how effectively fiduciaries can use that information and how PBMs respond to the new requirements.
For plan sponsors and fiduciaries, the rule presents an opportunity to strengthen PBM oversight and make more informed decisions about service provider arrangements. Even if greater transparency does not ultimately produce lower costs, a thoughtful and documented review process can help fiduciaries fulfill their ERISA responsibilities and identify opportunities to improve the value of their prescription drug benefit programs.
