An exemption can make a covered transaction lawful, but only on its terms.
Section 408 and the Department of Labor’s exemption authority let some transactions go forward. This page covers the reasonable arrangements exemption, the group health disclosure text and what we could not confirm.
Start With The Overview.
General information, not legal or tax advice. Check the cited sources before you act.
ERISA Prohibited Transactions Overview
Start here for the whole picture: the rule, who it reaches, the exemptions, the consequences and the coverage questions.
What ERISA Section 406 Prohibits
The two lists in the statute: transactions with parties in interest, and fiduciary self-dealing.
Who Is a Party in Interest
The statutory list of people and businesses around a plan, with plain examples labeled as our reading.
The Reasonable Arrangements Exemption.
ERISA section 408(b)(2)(A), 29 U.S.C. 1108(b)(2)(A), says section 406 does not bar contracting or making reasonable arrangements with a party in interest for office space, or for legal, accounting or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid. The Department of Labor’s regulation, 29 CFR 2550.408b-2(a), states the same test in three parts: the service is necessary, it is furnished under a contract or arrangement that is reasonable, and no more than reasonable compensation is paid.
Fiduciary Conflicts Stay Covered.
The regulation adds that section 408(b)(2) does not contain an exemption from the acts described in section 406(b)(1), (2) and (3), and calls those acts separate transactions not described in section 408(b)(2). In plain terms, if the person approving a vendor is paid personally by that vendor, the services exemption does not cover that payment. The exemption is about the plan’s arrangement with the provider, not about a fiduciary’s side benefit.
The Disclosure Text, And What Is Still Proposed.
The statute text we read on Cornell’s copy of the U.S. Code now includes section 408(b)(2)(B) for contracts between a covered plan, which includes a group health plan, and a covered service provider. As we read it, the contract is reasonable only if the provider gives the responsible plan fiduciary written disclosure of its services, whether it acts as a fiduciary and its direct and indirect compensation, reasonably before the contract is entered, extended or renewed. It also contains a section 408(b)(2)(C) condition for pharmacy benefit management arrangements for plan years beginning 30 months after February 3, 2026.
Status: the detailed regulation we read at 29 CFR 2550.408b-2, current on the eCFR as of October 23, 2026, sets out disclosure rules for pension plans. We did not find final health plan regulation text there. Our PBM page covers the Department’s January 2026 proposal, which is proposed and not final. We did not confirm the public law number of the 2026 amendment or the dollar threshold that applies to covered service providers, so read the statute directly.
Section 408(a) And Class Exemptions.
Section 408(a) lets the Secretary of Labor grant conditional or unconditional exemptions from sections 406 and 407(a) for a fiduciary, a transaction or a class of either. The Secretary must find the exemption administratively feasible, in the interests of the plan and its participants and protective of their rights, and for an exemption from section 406(a) must publish notice in the Federal Register first.
The Department publishes class exemptions and individual exemptions in separate sections of its site. The one class exemption we verified is PTE 2002-51, amended effective March 17, 2025, which gives conditional excise tax relief for certain transactions corrected through the Voluntary Fiduciary Correction Program. We did not review other class exemptions, including those for insurance agents and brokers, and make no statement about whether any applies to broker compensation. Every exemption has its own conditions, and a transaction that misses one is not protected.
What A Fiduciary File Looks Like.
For a service arrangement, a reasonable file records why the service is needed, what was compared, what the provider disclosed about its compensation and when, and who approved the decision. It also records any connection between the provider and the people who approved it. Counsel decides whether the exemption is met. The file simply shows the work was done at the time.
What To Request And Record.
Ask each service provider for its written description of services and compensation before the contract is signed, extended or renewed, and log the date it arrived. If the provider later tells you the information has changed, add that to the file with its date. Note any compensation that comes from someone other than the plan, such as a payment from a third party, since the statute text speaks of both direct and indirect compensation.
An exemption is not a shield you can claim afterward without records. Even where an exemption applies, the fiduciary duties of prudence and loyalty still apply to the choice, which our fiduciary duties guide covers.
Related Rules And Tools.
PBM Fee Disclosure Proposed Rule
The Department of Labor proposal on what pharmacy benefit managers must tell plans. A proposal, not a final rule.
Selecting and Monitoring Health Plan Service Providers
Hiring and watching TPAs, PBMs, brokers and stop-loss carriers as a fiduciary job.
ERISA Fiduciary Duties for Employer Health Plans
A practical guide to the duties of the people who run an employer health plan.
Laws And Sources
ERISA section 408, 29 U.S.C. 1108: Section 408(a), (b)(2)(A), (b)(2)(B) and (b)(2)(C).
29 CFR 2550.408b-2: 29 CFR 2550.408b-2, current on the eCFR as of October 23, 2026.
ERISA section 406, 29 U.S.C. 1106: Section 406, the prohibitions the exemptions modify.
Federal Register, Voluntary Fiduciary Correction Program (January 15, 2025): The January 2025 notice describing amended PTE 2002-51 and its March 17, 2025 effective date.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Does the reasonable arrangements exemption cover fiduciary self-dealing?
No. The Department of Labor regulation says section 408(b)(2) has no exemption from the acts in section 406(b)(1), (2) and (3), which concern fiduciaries dealing in their own interest, acting for adverse parties or taking personal consideration.
Is there a separate disclosure rule for group health service providers?
The statute text we read includes a section 408(b)(2)(B) disclosure condition for group health plans. The detailed regulation text we read covers pension plans, and the Department’s pharmacy benefit manager proposal is proposed, not final.
What is a class exemption?
It is an exemption the Secretary of Labor grants under section 408(a) for a class of fiduciaries or transactions rather than one applicant. Each one carries its own conditions, and we verified only PTE 2002-51.
The Rest Of This Series.
What ERISA Section 406 Prohibits
The two lists in the statute: transactions with parties in interest, and fiduciary self-dealing.
Who Is a Party in Interest
The statutory list of people and businesses around a plan, with plain examples labeled as our reading.
Consequences of a Prohibited Transaction
Personal liability, Department of Labor penalties, the Code excise tax question and correction.
Fiduciary Liability Insurance vs. the Fidelity Bond
What each one covers and does not cover, checked against ERISA section 410 and Department of Labor material.
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