BLOG POST

ML BeneBits

EXAMINING A RANGE OF EMPLOYEE BENEFITS
AND EXECUTIVE COMPENSATION ISSUES

Based on new ERISA disclosure rules, now is a good time to review the compensation paid to your health plan’s consultant and broker. ERISA Section 408(b)(2)(B) requires brokers and consultants expecting $1,000 or more in direct and indirect compensation for services provided to group health plans to make detailed disclosures to the “responsible plan fiduciary” regarding their services and compensation.

These include brokerage services relating to the selection of insurance products, recordkeeping services, medical management vendors, benefits administration, stop-loss insurance, and pharmacy benefit management services, among other things, and consulting on such matters as the development or implementation of plan design, insurance or insurance product selection, and benefits administration selection.

The disclosure requirement applies to contracts and arrangements entered into, extended, or renewed after December 27, 2021. Because they are part of an exemption from the ERISA-prohibited transaction rules, liability for failure to comply with these disclosure requirements could fall primarily on the group health plan fiduciaries.

Members of the ERISA plaintiffs’ bar have signaled interest in seeking to hold health plan fiduciaries responsible for reviewing service provider compensation disclosures and ensuring that plans pay no more than reasonable fees for brokerage and consulting services. This may apply equally to unfunded and fully insured health plans because participant premium payments can be viewed under applicable guidance as constituting plan assets, which could arguably serve as a basis for a claim asserting that plan assets are being used to pay excessive compensation.

While it is unclear whether, and to what extent, litigation over service provider fees in the group health plan space may arise, it appears that plaintiffs’ attorneys and the Department of Labor (DOL) may be monitoring the potential for such action.

Fee disclosures have played a significant role in the explosion of litigation alleging excessive service provider compensation in the retirement plan context. The DOL has recognized that the Section 408(b)(2)(B) disclosure requirement for health plans is “similar” to the retirement plan fee disclosure regulation, 29 CFR § 2550.408b-2(c). The DOL explained in a December 30, 2021 Field Assistance Bulletin that the DOL would view it as “a good faith and reasonable step” for health plan service providers and fiduciaries to look to that regulation for guidance.

Based on the types of claims and allegations raised in retirement plan excessive fee litigation, there are several action items health plan fiduciaries may consider to mitigate risk:

  • Establish a written fee policy statement or update plan governance documents to address service provider compensation.
  • Review compensation disclosures from service providers providing brokerage and consulting services. Designate a point person who is responsible for obtaining such disclosures, assessing the disclosures, and reporting to the plan fiduciaries.
  • Benchmark service provider fees, whether through a request for proposals process or otherwise.
  • Document your disclosure and compensation review process, including by recording the steps taken to assess the compensation and any decisions resulting from that assessment, and maintain documentation for six years.
  • Pay close attention to contracts coming up for renewal and negotiations with new service providers. Consider requesting service provider fee proposals rather than simply approving the extension of a preexisting agreement, and obtain representations in contracts for covered services that the provider has furnished all required disclosures under Section 408(b)(2)(B).

For more detail on the requirements and applicability of ERISA Section 408(b)(2)(B), see the blog posts from the Morgan Lewis Employee Benefits team on the Statutory Amendment and the Department of Labor’s Field Assistance Bulletin.

Morgan Lewis has experience assisting clients with questions regarding these disclosure requirements. Please do not hesitate to reach out to our employee benefits practice with questions. We also have a seasoned team of ERISA litigators ready to assist with any Department of Labor investigations or private actions alleging excessive service provider compensation.