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The Consolidated Appropriations Act, 2021 (CAA) introduced a major shift in the way group health plan vendors must disclose their compensation and plan sponsors must oversee it. Plan fiduciaries have a continuing duty to ensure vendor fees are reasonable under the Employee Retirement Income Security Act (ERISA).
Vendor Disclosure Requirements
Under the CAA, certain “covered service providers” to group health plans – including brokers, consultants, third-party administrators (TPAs), pharmacy benefit managers (PBMs), and others – must disclose detailed information about their compensation and services. The rule applies when a provider reasonably expects to receive $1,000 or more in direct or indirect compensation in connection with brokerage or consulting services.
These disclosure rules apply not only to brokers who assist in selecting an insurer or TPA, but also to consultants and other vendors who advise on the design or operation of a health plan, including areas such as compliance, pharmacy benefits, wellness programs, and similar services. Disclosures must be provided in writing before a contract or renewal takes effect.
Each covered vendor must disclose:
- A description of all services provided
- Whether the vendor will act as a fiduciary
- All direct compensation paid by the plan
- All indirect compensation (commissions, rebates, referral fees, revenue sharing, or other forms of payment)
- The method, manner, and timing of payment
This transparency requirement is designed to help plan fiduciaries understand exactly what vendors are paid and how those payments might influence plan costs or vendor recommendations.
Fiduciary Duties
While the obligation to disclose rests with vendors, the responsibility to evaluate those disclosures lies squarely with the plan sponsor and fiduciaries to act prudently with that information. Fiduciaries must review the information to determine whether total compensation is reasonable for the services provided and whether any conflicts of interest exist.
If a vendor fails to provide the required disclosure prior to entering into an agreement, fiduciaries must:
- Request it in writing and give the vendor up to 90 days to respond.
- Notify the Department of Labor (DOL) if the vendor fails to comply, and decide prudently whether to terminate or continue the contract.
The DOL has indicated it will apply a “good-faith, reasonable interpretation” enforcement approach to vendor disclosure requirements and fiduciary implementation, but vendors and plan sponsors should note that this is only a temporary enforcement policy and should stay abreast of DOL guidance on enforcement and requirements.
Employer Action Items
CAA disclosure rules reinforce long-standing ERISA fiduciary principles. Plan sponsors must be able to demonstrate that vendor arrangements are transparent, compensation is reasonable, and participants’ interests come first.
By gathering disclosures now, confirming fees, and documenting your review, plan sponsors can strengthen fiduciary oversight, meet CAA transparency obligations, and reduce future compliance risk.
- Identify all brokers, consultants, TPAs, PBMs, and other service providers that may meet the disclosure threshold
- Request and review written documentation of all compensation (direct and indirect) before renewals.
- Benchmark fees and confirm that services and costs align with market standards.
- Conduct bids for service providers as needed based on the benchmark assessment or if it has been more than three to five years since the last bid or review.
- Keep copies of disclosures, benchmarking data, meeting notes, and communications in your files in the event of audit or ERISA litigation – especially considering the recent trend of excessive fee litigation.
- Update contracts to include clear rights to fee and data transparency, audit access, and termination for non-compliance in future vendor agreements.
This information has been prepared for UBA by Fisher & Phillips LLP. It is general information and provided for educational purposes only. It is not intended to provide legal advice. You should not act on this information without consulting legal counsel or other knowledgeable advisors.
