An Important Reminder for Self-Funded Plan Sponsors

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An important reminder for self-funded plan sponsors, health plan fiduciaries must solicit information from brokers and consultants


Background Facts

Under the prohibited transaction rules under the Employee Retirement Income Security Act of 1974 (“ERISA”), a plan fiduciary may retain a vendor to provide services on behalf of a plan only if no more than reasonable compensation is paid for the services. Health plan brokers and consultants often receive compensation from sources other than the plan or plan sponsor.

From a practical standpoint, this has been an issue largely overlooked in the past as related to self-funded plan sponsors and their third-party administrators.

Consolidated Appropriations Act Changes

Effective as of December 27, 2021, the Consolidated Appropriations Act of 2021 (the “CAA”) requires the disclosure of information to ensure that brokers and consultants receive no more than reasonable compensation for their services. The CAA rule applies to the following arrangements:

  • Brokers who provide services for the selection of health insurance products (including dental and vision insurance) and a wide range of other plan administrative services and programs, including third-party administrative services, pharmacy benefit management, stop-loss insurance, wellness programs, employee assistance programs, and recordkeeping; and
  • Consultants who provide services that would subject a broker to the new rules or services related to the development and implementation of plan designs.

Compensation includes amounts that the plan or plan sponsor pays the broker or consultant directly, as well as amounts that the broker or consultant receives from other sources in connection with their services provided to the plan. This includes non-monetary compensation with a value of at least $250.

Brokers and consultants must disclose to the plan fiduciary responsible for the relationship:

  • A description of their services (including when the broker or consultant will act as a fiduciary, if applicable);
  • A description of all direct and indirect compensation they expect to receive in connection with their services (including certain details about their arrangements with other sources of payment); and
  • Certain information regarding their financial arrangements with affiliates and subcontractors.

The CAA provisions contain details about the required disclosures, especially as related to indirect compensation. The plan fiduciary may also require the broker or consultant to provide information that the fiduciary needs to comply with other ERISA requirements.

Under the CAA, compensation information must be provided reasonably in advance of the date that a contract is executed, extended, or renewed, and the information must be updated within 60 days of any change (absent extraordinary circumstances).

It is important to note that the CAA requires the plan fiduciary responsible for the relationship to compel the broker or consultant to disclose the compensation information. Penalties for noncompliance apply to the plan fiduciary, not the broker or consultant.

ERISA Enforcement

Under ERISA, a prohibited transaction can result in civil penalties of up to 5 percent of the amount involved in the transaction. Penalties can increase to 100 percent of the amount involved in the transaction if an appropriate correction is not made within 90 days of notice from the U.S. Department of Labor. Prohibited transactions generally must be undone, which generally requires the plan fiduciary to direct the broker or consultant to repay any excess compensation made to the plan.

Importantly, a violation of the CAA fiduciary rules could also be deemed a breach of fiduciary duty, particularly if plan assets are used to pay the broker or consultant. This could result in litigation by plan participants or the U.S. Department of Labor. ERISA also provides for civil penalties for breaches of fiduciary duty equal to 20 percent of the amount recovered.

Plan Considerations

It is the responsibility of plan fiduciaries to request and obtain the required information for any new relationship with a broker or consultant. Updated information must be requested upon annual renewals as well.

While the CAA rules do place additional responsibilities on ERISA plan sponsors, the provisions also provide leverage to ensure that brokers and consultants do provide the compensation information required for plan sponsors to ensure they are making appropriate decisions for the needs of the plan and plan participants.

Recommended Action

Although the CAA rules regarding compensation information governing plan brokers and consultants took effect on December 27, 2021, many plan sponsors are either unaware of the rules or have not had sufficient training to apprise them of the required action for compliance.

In order to ensure compliance, plan sponsors should take the following actions:

  • Identify the brokers and consultants who are subject to the CAA compensation disclosure rules.
  • Identify and assign internal responsibility for soliciting and evaluating the required information from brokers and consultants.
  • Require brokers and consultants to sign agreements that compel them to provide the CAA-required information.
  • Set deadlines for the provision of the required information in the related agreements.
  • Develop a system to evaluate the information received.
  • Evaluate whether the compensation is, in fact, reasonable and whether the information provided presents any other concerns that need to be investigated or further addressed with the broker or consultant.
  • Properly document the fiduciary’s compensation analysis.

Engaging ERISA counsel and a plan auditor is an excellent way to ensure compliance with not only the CAA provisions but also the plan sponsor’s fiduciary duties.

For additional information, contact Emily Langdon at

This article has been prepared for general information purposes and (1) does not create or constitute an attorney-client relationship, (2) is not intended as a solicitation, (3) is not intended to convey or constitute legal advice, and (4) is not a substitute for obtaining legal advice from a qualified attorney. Always seek professional counsel prior to taking action.

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