Investing the time and energy in getting plans in compliance now will pay dividends in the coming years
There was an “undersea earthquake” in the employee benefits world on December 27, 2021, and almost nobody noticed. The ground shifted as enormous changes to the health and welfare benefits landscape took effect, and most affected people were totally unaware.
The first multi-million-dollar lawsuit has already been filed, a tidal wave of litigation is coming, and no one is watching.
How do I know this? Do I have a crystal ball? No. But I am confident “those that fail to learn from history are doomed to repeat it,” and the exact same thing happened in 2010.
A brief trip down 401k memory lane
In 2010 the Department of Labor (DOL) enacted new regulations under ERISA Section 408(b)(2). It required vendors serving employer-sponsored retirement plans to disclose their compensation and services and required plan sponsors (employers) to pay only “reasonable” fees associated with those services.
Before that, when asked what they paid financial advisors on their retirement plan, many employers would answer, “nothing.” But those advisors were certainly getting paid… the employers were just unaware of the mechanics. The resulting disclosures opened eyes, drove fees down, and have markedly improved participant outcomes over the past twelve years.
However, not everyone was quick to get on the transparency bandwagon. Some employers dragged their feet, resulting in DOL penalties. Others landed in the crosshairs of ERISA attorneys pressing class-action lawsuits. The result was a steady stream of litigation that continues today, resulting in settlements that have reached an aggregate of over $6 billion.
So how does this apply to health and welfare benefits?
Just over two years ago, Congress passed the Consolidated Appropriations Act of 2021 (CAA). The president signed it into law on December 27, 2020.
At 5,593 pages, it is the longest bill ever passed by Congress. It contains the year-end spending package, the first COVID relief package, and tucked quietly inside, about 90 pages that will upend the health benefits industry. Some provisions in those 90 pages took effect immediately, more took effect on the first anniversary of the signing, and others will phase in soon.
What employers need to know
The CAA expands ERISA Section 408(b)(2) to cover health and welfare benefits plans (specifically employer-sponsored medical, dental, and vision plans) and clearly identifies the plan sponsor (employer) as a fiduciary on the plan.
It requires the plan sponsor to:
- Ensure all gag clauses have been removed from plan contracts
- Collect compensation disclosures from all brokers/consultants servicing the plan
- Determine if the compensation earned by those vendors is “reasonable”
- Submit annual attestations to the DOL to that effect
- Prepare for detailed reporting on prescription drug usage and coverage equality for mental health vs. medical conditions.
Now you understand the earthquake/tidal wave imagery. Getting into compliance with the CAA will be a big lift. It will require taking a hard look at your current benefits plan, reevaluating decisions that were made years ago, collaborating with your service providers, and seeking advice from unbiased experts.
What should employers do?
- Step 1: Acknowledge that you must now administer your health and welfare benefits plans as a fiduciary.
- Step 2: Establish a fiduciary process to review your current plan, evaluate its performance, and document your decision-making process
- Step 3: Identify all plan vendors, and collect compensation disclosures from all Covered Service Providers (as defined by the CAA)
- Step 4: Benchmark those vendors against others in the area to determine if their compensation is “reasonable”
- Step 5: Determine which vendor will complete the prescription drug reporting on your behalf (carrier, TPA, PBM, external 3rd party?)
- Step 6: Determine which vendor will complete the analysis to demonstrate coverage equality for mental health vs. medical conditions.
Enforcement action and penalties from the DOL are intimidating, but the larger financial risk for employers will come in class-action litigation. Investing the time and energy in getting plans in compliance now will pay dividends in the coming years.
Published in 401KSpecialist, March 4, 2022