Employers sponsoring a group health plan are entitled to know how much their broker or consultant expects to be paid, and by whom. Since December 27, 2021, federal law has required brokers and consultants to put that in writing before a contract is signed or renewed. The rule exists because much of a broker’s pay often comes from insurers and vendors, built into the premium, where the employer cannot see it.
What does the law require?
Section 202 of the Consolidated Appropriations Act, 2021 (CAA) added a disclosure rule to ERISA section 408(b)(2)(B). A covered service provider must give the plan’s responsible plan fiduciary a written disclosure of its services and expected compensation. If it does not, its contract with the plan is not “reasonable” under ERISA, and the arrangement becomes a prohibited transaction.
The responsible plan fiduciary is whoever has authority to sign, extend or renew the contract for the plan. For most employer plans, that is the employer or a benefits committee.
The written disclosure must include:
- A description of the services the provider will give the plan.
- A fiduciary statement, if applicable, that the provider, an affiliate or a subcontractor will act as a fiduciary to the plan.
- All direct compensation the provider, its affiliates and subcontractors expect to receive, in total or by service.
- All indirect compensation, with who pays it, the arrangement it is paid under, and the services it is paid for.
- Compensation paid among related parties on a transaction basis, such as commissions and finder’s fees passed between the provider, its affiliates and its subcontractors.
- Compensation on termination, and how any prepaid amounts will be calculated and refunded if the contract ends early.
- How compensation will be received, for example billed to the plan or paid out of premium.
Who must disclose?
A covered service provider is a broker or consultant that contracts with an ERISA group health plan and reasonably expects $1,000 or more in direct or indirect compensation for covered services. The services include brokerage in the selection of insurance products (including dental and vision), recordkeeping, medical management, stop-loss insurance, pharmacy benefit management, wellness, transparency tools and third-party administration, plus consulting on plan design and compliance.
What matters is the work and the expected pay. Several common assumptions are wrong:
- Job titles don’t decide it. The Department of Labor (DOL) says a provider’s choice not to call itself a “consultant” is not the deciding factor.
- Size doesn’t decide it. A small agency that expects $1,000 or more is covered, and the rule applies to plans of every size, including small plans that don’t file Form 5500.
- Funding doesn’t decide it. Fully insured and self-funded plans are both covered, as are grandfathered plans and limited-scope dental and vision plans.
- Fiduciary status doesn’t decide it. Providers that are not fiduciaries to the plan must still disclose.
- Pay structure doesn’t decide it. A broker paid only by direct fees must disclose those fees, and a broker paid only by commissions must disclose the commissions.
The rule sits in ERISA, so it applies to ERISA-covered plans. Church and governmental plans generally fall outside it. See ERISA vs. non-ERISA plans.
What is direct vs. indirect compensation?
Direct compensation is paid by the plan itself. Indirect compensation comes from anyone other than the plan, the plan sponsor, the provider or its affiliates, which in practice usually means insurers, PBMs and other vendors.
“Compensation” means anything of monetary value. Gifts, trips, meals and other non-monetary items count unless they total $250 or less over the term of the contract.
The DOL lets providers express compensation as a dollar amount, a formula or a per-person charge. When pay depends on future events, a reasonable range or an estimate with its method and assumptions is allowed, but the DOL says more specific information is preferred.
Common compensation types.
| Type | What it is | Usually direct or indirect? |
|---|---|---|
| Commission | A payment from the insurer for placing and servicing the policy, often a percentage of premium or a flat amount per employee per month. It is usually built into the premium the employer pays. | Indirect |
| Override | Extra pay on top of the base commission, often paid to the agency or a general agency based on its total business with that insurer. | Indirect |
| Bonus | A payment for hitting targets set by an insurer or vendor, such as new sales, total premium volume or client retention. | Indirect |
| Contingent compensation | Pay that depends on results not known at signing, such as growth, retention or loss ratios across the broker’s book with an insurer. Because the amount isn’t fixed, it is often disclosed as a formula or range. | Indirect |
| Fee | An amount agreed in a service contract, such as a flat annual fee, an hourly rate or a per-employee-per-month charge. | Direct when paid by the plan |
| Referral or finder’s fee | A payment from a vendor, such as a wellness or care navigation company, for steering a plan client to it. | Indirect |
| Non-cash compensation | Trips, gifts, conference sponsorships and similar items from insurers or vendors. Excluded only if $250 or less in total over the contract term. | Indirect |
Many brokers receive more than one type. That is legal. The point of the disclosure is to let the employer see every source and judge whether the total is reasonable for the services.
When is the disclosure due?
The disclosure is due reasonably in advance of the contract being entered into, extended or renewed. The rule took effect December 27, 2021, and applies to new contracts, extensions and renewals on or after that date.
| Event | Deadline |
|---|---|
| Initial disclosure | Reasonably in advance of the date the contract is entered into, extended or renewed |
| Changes to disclosed information | As soon as practicable, and no later than 60 days after the provider learns of the change |
| Good-faith errors or omissions | Corrected as soon as practicable, and no later than 30 days after the provider learns of the error |
| Information the plan requests for its own ERISA reporting | Reasonably in advance of the date the fiduciary says it needs to comply |
| Fiduciary’s notice to DOL | If a written request goes unanswered for 90 days, notice is filed within 30 days after the earlier of the provider’s refusal or the end of those 90 days |
For broker-of-record arrangements, the DOL treats the contract as entered into on the earlier of the date the broker-of-record letter is submitted to the carrier or the date the group application for the next plan year is signed. The disclosure should arrive before then.
What does DOL guidance say?
Field Assistance Bulletin (FAB) 2021-03 is the DOL’s temporary enforcement policy for the rule. The DOL has not issued regulations for broker and consultant disclosures to group health plans, so the FAB is the main guidance.
Its key points:
- Good faith counts. Until further guidance, the DOL will not treat a provider as having failed to disclose if it followed a good-faith, reasonable reading of the statute.
- Retirement plan guidance helps. The DOL views it as a good-faith step for providers to follow its guidance under the parallel fee disclosure regulation for pension plans.
- Indirect pay triggers a hard look. A provider that expects indirect compensation tied to its advice, recommendations or referrals should be ready to explain, if audited, why it concluded it was not covered.
- Fiduciary duties still apply. Under ERISA section 404, the employer must act prudently and loyally when hiring and monitoring service providers, and reasonable compensation is part of that.
What is the fiduciary’s duty?
The employer’s duty is to act when a disclosure is missing or incomplete. The disclosure is the provider’s obligation, but a responsible plan fiduciary who learns a disclosure is missing or incomplete must act, or it can share in the prohibited transaction.
ERISA gives the fiduciary relief if it follows these steps:
- It didn’t know. The fiduciary did not know the provider failed to disclose and reasonably believed the disclosure was made.
- It asks in writing. On discovering the failure, the fiduciary requests the missing information in writing.
- It reports the provider. If the provider does not respond within 90 days, the fiduciary notifies the DOL in writing, no later than 30 days after the earlier of the provider’s refusal or the end of the 90 days.
- It decides whether to continue. The fiduciary decides whether to end or keep the arrangement. If the missing information relates to future services and the provider doesn’t disclose it promptly after the 90 days, the fiduciary must end the arrangement as quickly as possible.
Ending the contract is not automatic. It is required only in that last case. Keep the disclosure, any written requests and any DOL notice with your plan records. The ERISA compliance checklist shows where this fits with your other plan duties.
Does the rule cover individual market brokers?
Yes, under a separate rule. Section 202 also added a separate rule for individual coverage. Insurers that sell individual health insurance or short-term limited duration insurance must disclose to the enrollee the direct and indirect compensation they pay agents and brokers for plan selection and enrollment.
That disclosure must be made before the individual finalizes plan selection and must appear on the enrollment confirmation. Insurers must also report agent and broker compensation to the Department of Health and Human Services each year, before open enrollment begins. This rule applies to insurers, not employer plans, and is separate from the ERISA disclosure.
What changed in 2026?
The Consolidated Appropriations Act, 2026 (Public Law 119-75), signed February 3, 2026, amended the same ERISA section in Division J, section 6702. It changed three things that matter to plan sponsors:
- Covered services are broader. “Brokerage services” became “services (including brokerage services),” and “consulting” became “other services.” The covered list now names plan design, insurance product selection, recordkeeping, medical management, benefits administration selection, stop-loss insurance, pharmacy benefit management, wellness, transparency tools, group purchasing organization agreements, preferred vendor panels, disease management, compliance services, employee assistance programs and third-party administration, plus consulting on any of them. Section 6702 sets no delayed effective date for this change.
- PBM contracts carry new conditions. For plan years beginning on or after the date 30 months after enactment (August 3, 2028, so January 1, 2029 for calendar-year plans), a contract for pharmacy benefit management services entered into, extended or renewed on or after that date is reasonable only if the PBM passes 100 percent of drug rebates, fees, alternative discounts and other remuneration through to the plan, or to the insurer for a fully insured plan. Those amounts must be remitted quarterly, fully disclosed, and open to audit at least once per plan year by an auditor the fiduciary picks and the PBM doesn’t pay.
- New fiduciary relief. A fiduciary that didn’t know a PBM failed to remit required amounts gets the same request, 90-day and DOL notice path described above.
Separately, the DOL proposed a rule on January 30, 2026 that would require PBMs, and brokers and consultants affiliated with them, to make detailed compensation disclosures to self-funded plans. After the 2026 act passed, the DOL extended the comment period to April 15, 2026 and asked whether the rule should change to match it. As of October 2026, the rule is still a proposal. For more on PBM pricing, see how to choose a PBM and PBM spread pricing.
What to ask your broker.
Use this list at every new contract and renewal:
- Did we receive a written compensation disclosure before we signed or renewed, and is it dated?
- Does it describe every service you provide to the plan, and say whether you or anyone you work with acts as a fiduciary?
- Does it list every source of pay, including commissions, overrides, bonuses, contingent compensation, fees, referral fees and non-cash items over $250?
- For each indirect payment, does it name who pays, the arrangement, and the services it is paid for?
- Is each amount shown as a dollar figure, a formula or a per-employee charge, and if it is a range, how was it estimated?
- Does it cover your affiliates and subcontractors, and any pay passed among them?
- Do any of your insurers or vendors pay you more for more business, higher premium or retention, and how would that affect what you recommend to us?
- What would you receive if we ended the contract early, and how would prepaid amounts be refunded?
- For our PBM, what do you or your affiliates receive from the PBM, and will the contract meet the 2026 rebate pass-through and audit rules when they take effect?
- Will you tell us in writing within 60 days if anything changes?
If an answer is missing, ask for it in writing and calendar the 90 days. The fiduciary standard explains why reasonable compensation is part of your plan’s duty, and Ethos Benefits’ fiduciary governance work includes reviewing service provider disclosures like these.
