Compliance January 27, 2021

Lawmakers Want No ‘Surprise Billing’ for Health Benefit Plan Sponsors

Health benefit plan service provider disclosures have been added to ERISA Section 408(b)(2).

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A portion of the Consolidated Appropriations Act, 2021, addresses the problem of surprise medical billing to individuals, but lawmakers don’t want sponsors of Employee Retirement Income Security Act (ERISA) health benefit plans to be surprised by their bills either.

A part of the broader bill, the No Surprises Act, includes provisions requiring service providers to ERISA group health benefit plans to begin disclosing direct and indirect compensation to plan sponsors. The new law amends Section 408(b)(2) of ERISA, under which service providers to retirement plans have been disclosing compensation since 2012, to include providers to group health plans.

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Starting on page 4,475, the bill says, “No contract or arrangement for services between a covered plan and a covered service provider, and no extension or renewal of such a contract or arrangement, is reasonable … unless the requirements of this clause are met.” The bill defines “covered service provider” as a service provider that enters into a contract or arrangement with the covered plan and reasonably expects $1,000 or more in compensation, direct or indirect, to be received in connection with providing broker or consulting services. The bill notes that the secretary of labor may establish in regulations an amount higher than $1,000 in later years to account for inflation.

The bill defines “compensation” as anything of monetary value, but does not include non-monetary compensation valued at $250—an amount which also may be adjusted for inflation by the secretary of labor—or less. “Direct compensation” is compensation received directly from a covered plan. “Indirect compensation” is defined as “compensation received from any source other than the covered plan, the plan sponsor, the covered service provider or an affiliate. Compensation received from a subcontractor is indirect compensation, unless it is received in connection with services performed under a contract or arrangement with a subcontractor.”

Disclosures must include the following:

  • A description of the services to be provided to the covered plan pursuant to the contract or arrangement;
  • If applicable, a statement that the covered service provider, an affiliate or a subcontractor will provide, or reasonably expects to provide, services pursuant to the contract or arrangement directly to the covered plan as a fiduciary;
  • A description of all direct compensation, either in the aggregate or by service, that the covered service provider, an affiliate or a subcontractor reasonably expects to receive in connection with the services to be provided to the ERISA health plan as described in the contract or arrangement;
  • A description of all indirect compensation that the covered service provider, an affiliate or a subcontractor reasonably expects to receive in connection with the services to be provided to the ERISA health plan as described in the contract or arrangement;
  • A description of any compensation that will be paid to the covered service provider, an affiliate or a subcontractor in connection with the services to be provided to the ERISA health plan as described in the contract or arrangement if such compensation is set on a transaction basis (such as commissions, finder’s fees or other similar incentive compensation based on business placed or retained), including identification of the services for which such compensation will be paid and identification of the payers and recipients of such compensation (including the status of a payer or recipient as an affiliate or a subcontractor), regardless of whether such compensation is also disclosed by one of the methods above; and
  • A description of any compensation that the covered service provider, an affiliate or a subcontractor reasonably expects to receive in connection with termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded upon such termination.

Disclosures of changes in compensation must be made as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change.

Service providers must furnish any other information relating to the compensation received in connection with the contract or arrangement that is required for the covered plan to comply with its reporting and disclosure requirements under the law upon the written request of the responsible plan fiduciary or administrator.

Compliance January 27, 2021

Sponsors Should Understand How to Use DOL Guidance on Missing Participants

Industry experts point out that not all suggestions from the DOL work for every plan sponsor, and they share tips for implementing the guidance and list unanswered questions.

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Earlier this month, the U.S. Department of Labor (DOL)’s Employee Benefits Security Administration (EBSA) issued guidance to help retirement plan fiduciaries locate and distribute retirement benefits to missing or nonresponsive participants.

The guidance included three parts. A page titled “Missing Participants – Best Practices for Pension Plans” describes a range of best practices for fiduciaries of retirement plans to consider. Compliance Assistance Release 2021-01 reveals the information EBSA staff request from plan sponsors and the errors they look for during investigations under the Terminated Vested Participants Project for defined benefit (DB) plans. Field Assistance Bulletin 2021-01 authorizes plan fiduciaries of terminating defined contribution (DC) plans to use the Pension Benefit Guaranty Corporation (PBGC) missing participant program for missing or nonresponsive participants’ account balances.

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“We think this is a good first step,” says Aliya Robinson, senior vice president, retirement and compensation policy, at the ERISA Industry Committee (ERIC). “We had been working with the EBSA for several years, asking for guidance. We think this best practices list is informational—but we want to make sure it doesn’t become a requirements list, because not everything on that list works for every employer.”

In a blog post, lawyers at Morgan Lewis expressed a similar unease, saying “there is a concern that the DOL, or private litigants, may attempt to frame the DOL guidance as a baseline of expected practices.” This is a concern even though the DOL guidance recognizes that not everything in its best practices document is appropriate for every plan.

Other attorneys offer pointers for implementing the DOL guidance. A client alert from B. David Joffe, a partner at Bradley, and Caleb L. Barron, an associate at Bradley, says plan sponsors should have a policy for finding missing participants and update it with additional steps they will take per the DOL guidance.

The attorneys also point out that all efforts to locate participants should be documented. “With written evidence that a prudent process is in place and is being followed, a plan administrator should be able to demonstrate that participants are not missing due to any fiduciary shortcomings,” they write.

In another blog post, Kimberly S. Couch, a partner with Verrill Law, points out, “Although plan fiduciaries may delegate recordkeeping, participant communication and missing participant searches to third-party administrators [TPAs], plan fiduciaries must ensure that the delegate has established and is following sound procedures. Plan fiduciaries are ultimately responsible for ensuring benefits are paid accurately and timely under the retirement plan.”

While the DOL guidance was comprehensive, the attorneys at Morgan Lewis say it still leaves unanswered questions and creates some new ones. “For example, the DOL guidance does not materially address how plans should handle participants that are the least likely to be locatable and/or still due a benefit, such as participants that are very old, long missing, long deceased or have material data gaps (such as incorrect Social Security numbers),” they write. “Another issue unaddressed by the guidance is how plans should address issues such as identity theft or plan resource limits, which may hinder search and outreach efforts. Finally, there is no acknowledgement in the DOL guidance of the challenges of participant inaction (such as participants that are not missing but voluntarily do not commence benefits or do not cash checks).”

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