Reasonable Fees, and the Disclosure That Lets You Judge Them.
ERISA section 408(b)(2) exempts reasonable service arrangements from certain prohibited-transaction rules, and since 2021 it requires brokers and consultants to group health plans to disclose their pay.
Start Here.
General information, not legal or tax advice. Check the cited sources before you act.
Selecting and Monitoring Health Plan Service Providers
The overview page for this series, with all six topics and the sources.
Monitoring on a Calendar
A plan-year rhythm for checking reports, fees, complaints and contract terms.
Documenting the RFP Process
The records that show every bidder got the same questions and that the choice was reasoned.
Services Must Be Necessary, Reasonable and Fairly Priced.
ERISA section 408(b)(2), 29 U.S.C. 1108(b)(2), exempts from certain prohibited-transaction rules the contracting or making of reasonable arrangements with a party in interest 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 regulation at 29 CFR 2550.408b-2(a) restates three conditions: the service is necessary, the contract or arrangement is reasonable, and the compensation is no more than reasonable.
Under paragraph (b) of the regulation, a service is necessary if it is appropriate and helpful to the plan in carrying out its purposes. The regulation also says the exemption does not excuse a fiduciary from the section 404 duties. A fee that fits the exemption still has to be chosen prudently.
Section 202 of the Consolidated Appropriations Act, 2021.
The regulation’s detailed written-disclosure scheme in paragraph (c)(1) covers pension plans, and its paragraph (c)(2), headed welfare plan disclosure, is marked reserved. Group health plans received their disclosure rule from Congress instead. Section 202 of Title II of Division BB of the Consolidated Appropriations Act, 2021 added ERISA section 408(b)(2)(B). It provides that a contract or renewal between a group health plan and a covered service provider is not reasonable unless the provider makes written disclosures to the responsible plan fiduciary. A PBM arrangement is treated as the PBM indirectly furnishing services to the plan.
A covered service provider is one that expects $1,000 or more in compensation, or an inflation-adjusted amount set by the Secretary of Labor, for the listed services. The Department of Labor’s Field Assistance Bulletin 2021-03 describes those services as brokerage services and consulting. It says the rule reaches insured and self-insured plans of any size, including grandfathered plans and limited-scope dental and vision plans, and excludes qualified small employer health reimbursement arrangements. It took effect on December 27, 2021, and contracts executed before that date are not subject to it.
Six Items and a Timetable.
Under section 408(b)(2)(B)(iii), the written disclosure must include a description of the services, a statement of whether the provider will act as a fiduciary, all direct compensation, all indirect compensation with the payer and the arrangement, transaction-based compensation such as commissions, and compensation on termination with how any prepaid amount is refunded. Subparagraph (iv) adds a written description of how the compensation will be received.
Compensation may be stated as an amount, a formula, a per-capita charge or a good-faith estimate with its method. The bulletin adds that ranges or estimates with stated assumptions are acceptable where amounts cannot be known in advance.
The disclosure is due reasonably in advance of entering, extending or renewing the contract. Changes must be disclosed within 60 days unless extraordinary circumstances beyond the provider’s control apply. On written request the provider must also supply other information the plan needs for its own reporting and disclosure compliance. An inadvertent error or omission does not make the contract unreasonable if the provider corrects it within 30 days of learning of it.
The Fiduciary’s Written Request.
Section 408(b)(2)(B)(viii) gives a responsible plan fiduciary conditional relief from the prohibited-transaction rules in section 406(a)(1)(C) and (D) when a provider fails to give a required disclosure. The fiduciary must not have known of the failure and must have reasonably believed the disclosure was made. After discovering the gap, the fiduciary must ask for the information in writing, and must notify the Secretary of Labor if the provider has not complied within 90 days of the request. The notice is due within 30 days of the earlier of the provider’s refusal or the end of the 90 days.
The statute then requires a decision: continue or end the arrangement. If information about future services is still missing, the fiduciary must terminate as soon as prudently possible. The statute lists what the notice must contain, including the plan name, plan number and the provider’s identity, so have counsel prepare it.
Three Uses for the Disclosure.
Read it for conflicts, especially indirect compensation from carriers or vendors that could shape advice. Compare it with the fees the plan actually pays, which the Department of Labor says to check in its guide for group health plan fiduciaries. File it with the date received, so next year’s version can be compared with this year’s.
The same guide suggests asking every provider whether it receives third-party compensation such as finder’s fees, commissions or revenue sharing, and which services the estimated fees do and do not cover. Asking bidders to include the disclosure with their responses keeps the comparison on real numbers, as described in documenting the request for proposal.
Laws And Sources
29 U.S.C. 1108 (ERISA Section 408): Subsection (b)(2) and the group health plan disclosure rules in (b)(2)(B).
29 CFR 2550.408b-2: Department of Labor regulation on the general statutory exemption for services; paragraph (c)(2) on welfare plan disclosure is reserved.
Department of Labor, Field Assistance Bulletin 2021-03: Scope, effective date and enforcement approach for the brokerage and consulting disclosure.
Department of Labor, Understanding Your Fiduciary Responsibilities Under a Group Health Plan: Questions to ask about fees and third-party compensation.
General information, not legal or tax advice.
Quick Answers.
Short replies on this page’s topic, each tied to a fuller guide.
Does section 408(b)(2) cap what a vendor can charge?
It sets no dollar figure. The exemption requires necessary services, a reasonable arrangement and no more than reasonable compensation. The Department of Labor says the law sets no specific permissible fee level, so the test is reasonableness for the services provided.
Does the broker disclosure apply to small employers?
The Department of Labor’s bulletin says it applies to insured and self-insured group health plans regardless of size, including grandfathered plans, and excludes qualified small employer health reimbursement arrangements.
What if our broker or consultant never sent the disclosure?
Ask for it in writing. Section 408(b)(2)(B)(viii) gives a fiduciary conditional relief if it did not know of the failure, requests the information in writing and notifies the Secretary of Labor when the provider has not complied within 90 days. Have counsel review the notice.
The Rest Of This Series.
The Prudent Selection Duty
What ERISA section 404(a)(1) requires when you choose a TPA, PBM, broker or other vendor.
PBM and Pharmacy Contracts
Fiduciary questions for the pharmacy benefit manager, plus the status of the January 2026 DOL proposal.
TPA Contracts and Fiduciary Roles
Who is the plan administrator, who is a named fiduciary, and how co-fiduciary liability works.
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