Employee Benefits & Executive Compensation Blog

The View from Proskauer on Developments in the World of Employee Benefits, Executive Compensation & ERISA Litigation

[Podcast]: Employee Retention Issues

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In this episode of The Proskauer Benefits Brief, Proskauer partner David Teigman, senior counsel Nick LaSpina, and special guest Michelle Garrett, a principal at the compensation consulting firm Semler Brossy, discuss employee retention. It seems like there is an article almost every day talking about the “great resignation.”  In a nutshell, there have been far more job transitions recently than there have been in the past. Tune in as we discuss what employers can do to help retain employees in this working environment.

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[Podcast]: Key ERISA Fee and Investment Litigation Developments and the Impact of Hughes v. Northwestern University

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In this episode of The Proskauer Benefits Brief, Myron D. Rumeld, partner and co-chair of Proskauer’s ERISA Litigation group and senior associate Tulio D. Chirinos, review the current state of affairs with respect to the litigation challenging the fees charged and investments offered in defined contribution plans; and The Supreme Court’s recent decision in Hughes v. Northwestern University where the court reversed and remanded the Seventh Circuit’s decision affirming dismissal of a 403(b) plan excessive fee litigation.

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Ninth Circuit Agrees with Third Circuit that “Highest Contribution Rate” for Withdrawal Liability Payment Calculations Excludes PPA Surcharges

On January 31, 2022, the Ninth Circuit affirmed the lower court’s finding that surcharges imposed by the Pension Protection Act (“PPA”) are excluded from the determination of an employer’s “highest contribution rate” for withdrawal liability payment calculations. While the Multiemployer Pension Reform Act (“MPRA”) explicitly excluded surcharges that accrued after 2014 from such calculations, this case concerned surcharges that accrued before 2015 – which remains relevant even today because the highest contribution rate is determined using a ten-year lookback period.

Withdrawal liability represents an employer’s allocable share of a multiemployer pension fund’s underfunding. However, a withdrawn employer is generally permitted to pay its withdrawal liability in installments that are determined using a different formula where the employer’s annual payment amount is the product of: (1) the highest consecutive three-year average of its contribution base units during the ten plan years prior to the employer’s withdrawal and (2) the employer’s highest contribution rate during the ten plan years ending with the year of the employer’s withdrawal.

The PPA imposes a 5-10% surcharge on contributions for employers that contribute to a multiemployer pension fund in “critical” status until the employer adopts a collective bargaining agreement that incorporates the rate increases required by the pension fund’s rehabilitation plan.

In this case, an employer had withdrawn from a pension fund in “critical” status to which it previously paid the PPA surcharge for a number of years. In calculating the employer’s withdrawal liability installment payment, the pension fund included the surcharge in the determination of the employer’s highest contribution rate. The arbitrator and the lower court agreed that the PPA surcharge was not part of the highest contribution rate for purposes of calculating withdrawal liability.

In affirming the lower court’s findings, the Ninth Circuit looked to the statutory language and determined that the surcharge was not a “contribution rate” because the PPA surcharge is calculated and paid after the total amount of contributions have been calculated.  In doing so, the court agreed with a similar opinion from the Third Circuit from 2015 (Bd. of Trs. of IBT Local 863 Pension Fund v. C & S Wholesale Grocers, Inc.) that the PPA surcharge “is not the ‘highest contribution rate’ because it is not a ‘contribution rate’ at all.”

The case is Bd. of Trs. of the W. States Office & Prof’l Employees Pension Fund v. Welfare & Pension Admin. Serv,, Inc., No. 20-35545 (9th Cir. Jan. 31, 2022).

There’s More! Tri-Agencies Provide Clarifying Guidance on Group Health Plan Coverage of Over-the-Counter At-Home COVID-19 Tests

A few short weeks ago we told you in a blog post that, with only four days’ notice, the Departments of Labor, Treasury, and HHS (the Departments) required that, starting January 15, 2022, group health plans cover FDA-approved over-the-counter (OTC) at-home COVID-19 tests without participant cost-sharing, preauthorization, or medical management, regardless of whether a health care provider was involved in ordering the test.  For many employers and plan administrators, the last three weeks have been a blur of frenzied planning to ensure compliance with the new coverage mandate, which was set forth in the Departments’ FAQs Part 51.

Well, buckle up, because the fun continues. On Friday, February 4, 2022, in response to stakeholder feedback, the Departments released—you guessed it—FAQs Part 52, which clarifies their prior guidance on the new coverage requirements.

The core coverage mandate described in FAQs Part 51 has not changed—plans are still required to cover, without participant cost-sharing, preauthorization, or medical management, at least eight FDA-approved OTC at-home COVID-19 tests per 30-day period per covered individual without a prescription or individualized clinical assessment.

What has changed is that the new guidance provides some additional flexibility for plans trying to meet the “safe harbor” that allows them to limit reimbursement to $12 per test (or, the cost of the test, if less) for tests purchased from non-network providers.  The new guidance also answers a number of stakeholder questions about the coverage mandate outlined in FAQs Part 51.


In FAQs Part 51, the Departments announced a non-enforcement “safe harbor” for reimbursement limits on at-home COVID-19 tests obtained from non-network providers.  Under this limited non-enforcement policy, plans could, under certain circumstances, limit the amount reimbursed for at-home COVID-19 tests obtained from non-network retailers to the lesser of $12 per test or the actual test cost.

To rely on this “$12 safe harbor,” plans were required to make direct coverage of at-home tests available without any up-front costs to participants through: (1) the plan’s network of preferred providers, and (2) a direct-to-consumer shipping program.  Reliance on this safe harbor also required that participants have “adequate access” to tests through the direct coverage program.

Many plans struggled to comply with this safe harbor on short notice, in particular the requirement to establish a direct-to-consumer shipping program.  More difficult yet was managing the requirement that the safe harbor would apply only for periods during which participants had “adequate access” to tests—a difficult-to-measure directive, especially given recent test scarcity.

In light of these concerns, the Departments modified this safe harbor to ensure that plans have “significant flexibility” in meeting these requirements.

Modifications to the $12 Safe Harbor Rule

While the $12 safe harbor rule is generally maintained, the Departments have liberalized the rule in a number of ways.  These changes, which are effective February 4, 2022, include, for example, the following:

  • The safe harbor’s requirement that the direct coverage program provide “adequate access” (based on facts and circumstances) generally requires that tests must be made available through at least one direct-to-consumer shipping mechanism and at least one in-person mechanism. However, the new guidance recognizes that, in “limited circumstances,” a plan could satisfy the “adequate access” standard without establishing both in-person and direct-to-consumer shipping mechanisms.

Proskauer Perspective: As an example of these limited circumstances, the Departments said that a small employer plan with employees who live and work in a localized area may satisfy the adequate access requirement if the plan has in-person distribution of at-home COVID-19 tests at a nearby location, without anything else.  This logic should theoretically extend even to plans with a geographically diverse population as long as the in-person network is very broad.  However, in view of the Departments’ description of this exception as being “limited” and the language about the rule “generally” requiring both options, we suspect that the Departments might conclude that a plan with a geographically diverse population needs to have both in-person and direct-to-consumer shipping options if it wishes to rely on the $12 safe harbor.

  • The guidance contains a broad definition of “direct-to-consumer shipping mechanism,” stating that it includes any program that provides direct coverage of tests without requiring the individual to obtain the test at an in-person location. This includes online or telephone ordering and may be provided through a pharmacy or other retailer, the plan directly, or any other entity on behalf of the plan. The guidance clarifies that if the plan has opted to provide in-person coverage through a preferred retailer that also maintains an online website that will ship tests directly to participants, the website should be sufficient to meet the direct-to-consumer shipping requirement.

Proskauer Perspective: In theory, permitting plan sponsors the flexibility to rely on the retail location’s website as the direct shipping option should make it easier for many plans to meet the safe harbor.  The devil, of course, is in the details, as participants will need to be able to order the tests on the retail online platform without any upfront cost to the participant—which may not be a website feature that is easy for group health plan sponsors and/or pharmacy benefit managers to “turn on” for participants.

  • A direct coverage program may still satisfy the adequate access requirement even if it does not cover all FDA-approved at-home COVID-19 tests. The guidance states, for example, that, depending on the facts and circumstances, a plan may be able to limit its direct coverage program to tests from a limited number of manufacturers, such as those with which the plan has a contractual relationship or from which the plan obtained the tests directly.

Proskauer Perspective: On paper, this would seem to permit plans to limit direct coverage of at-home COVID-19 tests by brand or type.  However, the guidance suggests that taking this approach requires that the plan itself have a contractual relationship with the test manufacturer or that the plan obtain the tests directly from the test manufacturer.  While one would imagine that this was not intended to exclude situations in which a self-insured plan’s third party administrator or pharmacy benefit manager—rather than the plan itself—has the arrangement with the manufacturer, the language of the guidance leaves some ambiguity in that regard.  Plans utilizing this special rule should also remember to inform participants of any limitations they will impose in this regard.  Plans should also keep in mind that this special rule relates only to the direct coverage option—the plan would still have to reimburse participants for the cost of other covered tests.

  • The new guidance clarifies that, provided the plan has established a direct coverage program that is designed to meet the $12 safe harbor, the fact that the plan is “temporarily” unable to provide tests through the program as a result of a supply shortage does not disqualify it from relying on the $12 safe harbor during that time.

Proskauer Perspective: This addressed the concern of some plan sponsors that they would be not be able to use the $12 safe harbor if participants were unable to obtain tests given the supply shortage.

  • As part of the direct shipping-to-consumer option, a plan must also cover the reasonable shipping costs (in a manner consistent with other items provided by the plan via mail order). Shipping costs (and taxes) are included in the $12 reimbursement limit for tests purchased from non-network providers.

Fraud and Abuse

The new guidance adds a number of steps that a plan may take to limit or discourage fraudulent behavior.  These include disallowing reimbursement for tests that are purchased online via direct person-to-person transactions, as well as from sellers that use online auction or resale marketplaces.  Plans may also limit reimbursements to tests purchased from established retailers that would typically be expected to sell the tests.  In all instances, plans may also require reasonable proof of purchase identifying the product and seller, original receipts, or other documentation to verify that the purchase qualifies for coverage.

Proskauer Perspective: The prior guidance provided very little latitude for plans to combat fraud and abuse.  As a result, some stakeholders had expressed concern that participants would turn to unregulated online resellers (e.g., EBay, Craigslist, Facebook Marketplace, or Amazon third-party resellers) to purchase tests at much higher prices than from established retail partners.  The new guidance is welcome confirmation that reimbursement of tests purchased from such online resellers is not required, but plans should be sure to notify participants that they will not permit reimbursement of at-home COVID-19 tests from these resellers.

At-Home COVID-19 Tests Processed at a Laboratory

The guidance clarifies that the rules in FAQs Parts 51 and 52 apply to FDA-approved at-home COVID-19 tests that are authorized to be self-administered and self-read.  They do not apply to at-home tests that require a laboratory or other healthcare provider to process the results.  Those types of tests are subject to the general rules that apply to coverage for COVID-19 testing with the involvement of a healthcare provider.

Reimbursement from FSAs/HRAs/HSAs for At-Home COVID-19 Tests

Because major medical plans are now required to cover at-home COVID-19 tests without cost-sharing, participants cannot “double-dip” by claiming reimbursement from their health flexible spending account (FSA), health reimbursement account (HRA) or health savings account (HSA) and having their medical plan pay, or reimburse them, for the costs of at-home COVID-19 tests.  If a participant mistakenly seeks reimbursement from his or her health FSA, HRA, or HSA for at-home COVID-19 tests that are later reimbursed from his or her major medical plan, he or she will need to correct the erroneous reimbursement or distribution in accordance with the plan administrator’s procedures (and, in the case of an HSA, the generally applicable HSA rules regarding non-qualified medical expenses).

Proskauer Perspective: Since at-home COVID-19 tests are reimbursable under FSAs, HRAs and HSAs, participants may have become accustomed to purchasing at-home COVID-19 tests in this way (for example, with a health FSA debit card).  Plan administrators should consider reminding participants of this rule against “double dipping” so they understand the new rules of the road.

District Court Enforces 403(b) Plan Arbitration Clause With Class Action Waiver But Allows For Plan-Wide Non-Monetary Relief

A federal district court in Florida sent a proposed ERISA breach of fiduciary duty class action to individual arbitration on the basis of a plan arbitration clause that allowed for individual relief and plan-wide injunctive relief.  The case is Holmes v. Baptist Health South Florida, Inc., No. 21-cv-22986, 2022 WL 180638 (S.D. Fla. Jan. 20, 2022).

Plaintiffs, a proposed class of current and former Baptist Health employees, sued the nonprofit health care organization in the Southern District of Florida, alleging that defendants breached their fiduciary duties in their management and selection of investments for the organization’s 403(b) retirement plan.  In response, defendants invoked the plan’s arbitration clause, which required individual arbitration of claims relating to the plan and prohibited individuals from receiving “remedial or equitable relief” that would provide “additional benefits or monetary relief to any person . . . other than the Claimant[.]”  The district court granted defendants’ motion to compel arbitration, holding that the clause was enforceable under the Federal Arbitration Act (the “FAA”).

In doing so, the court held that the arbitration clause did not fall within the “effective vindication” doctrine, a rarely invoked exception to the FAA.  The doctrine—a judge-made exception to the FAA—permits courts to invalidate arbitration agreements that prospectively waive a party’s right to pursue statutory remedies.  Plaintiffs argued that the exception applied because the clause prospectively waived plan-wide relief specifically authorized by ERISA.  The district court rejected this argument, finding that the Eleventh Circuit has never applied the doctrine and has expressed a hesitancy to do so.

In rejecting the application of the “effective vindication” doctrine, the district court distinguished the arbitration clause from one recently invalidated by the Seventh Circuit in Smith v. Bd. of Directors of Triad Mfg., Inc., 13 F.4th 613 (7th Cir. 2021).  Unlike the clause in Smith, which barred certain relief entirely, the clause in Baptist Health’s plan still allowed individual claimants to recover through arbitration the loss to their individual accounts, as well as plan-wide relief, so long as it would not provide “additional benefits or monetary relief” to any other person.

The district court also held that Baptist Health’s plan amendment adding the arbitration clause after the participant ceased being a plan participant did not render the clause unenforceable.  Instead, the district court noted that the relevant inquiry is whether the plan agreed to arbitration, because plaintiffs’ fiduciary-breach claims were brought on behalf of the plan under ERISA § 502(a)(2).  Here, because the plan expressly provided for unilateral amendment by the plan sponsor, the plan validly consented to the arbitration clause even if the plaintiffs did not.

Proskauer’s Perspective

The court’s decision in Holmes is significant in at least two respects.  First, the district court’s interpretation of the provision as permitting claimants to obtain non-monetary relief for the plan through arbitration may lead to outcomes that circumvent arbitration’s individual nature.  As discussed in a previous post, the Ninth Circuit previously enforced a similar arbitration provision in a 401(k) plan but limited any potential relief to only the losses to the plaintiff’s individual 401(k) plan account.  See Dorman v. Charles Schwab Corp., 780 F. App’x 510 (9th Cir. 2019).  Although the ruling in Holmes limits defendants’ monetary exposure, it allows for broader and potentially impactful non-monetary relief, such as the removal of a plan fiduciary or a particular plan investment option.

Second, insofar as the outcome here diverges from the outcome in Smith, an appeal of the district court ruling could give rise to a split between the Eleventh and Seventh Circuits regarding the application of the effective vindication exception.

District Court Declines to Dismiss 401(k) Fee Litigation Case in First Decision Post-Hughes

In the first decision since the Supreme Court’s ruling in Hughes v. Northwestern Univ., No. 19-1401, 595 U.S. ___ (U.S. Jan. 24, 2022) (discussed further here), a Georgia federal district court held in favor of plaintiffs and declined to dismiss allegations that defendant’s 401(k) plan included costly and underperforming funds and charged excessive recordkeeping fees. Specifically, plaintiffs alleged that defendants breached ERISA’s fiduciary duty of prudence by: (1) offering retail share class mutual funds despite the availability of identical lower-cost institutional share classes of these same funds; (2) including actively managed mutual funds which were more expensive than available passively managed funds; (3) selecting and maintaining underperforming funds; and (4) overpaying for recordkeeping services.

In declining to dismiss plaintiffs’ investment management fee claims, the district court relied heavily on Hughes. The court expressed its view that Hughes “suggested” that a defined contribution plan participant may state a prudence claim by merely alleging that the plan offered higher priced retail class mutual funds instead of available identical lower-cost institutional class funds. The district court also rejected defendant’s argument that plaintiffs’ claims should be dismissed in part because the plan offered a variety of investment options that participants could select, including lower-cost passive investment options. The district court explained that Hughes rejected this exact argument in holding that a fiduciary’s decisions are not insulated merely by giving participants choice over their investments and that fiduciaries have a continuing duty to monitor plan investments.

The court declined to dismiss plaintiffs’ recordkeeping claims because plaintiffs plausibly alleged that the plan paid nearly double the fees charged by similarly sized plans and that defendant failed to monitor those costs. In regards to plaintiffs’ underperformance claims, the court held that the existence and extent of the alleged underperformance was better left for summary judgment given the parties’ differing views on the issue.

Proskauer’s Perspective

While plaintiffs seemingly scored a victory in the first decision since Hughes, the decision does not indicate that this will (or should be) the trend. First, the district court issued its decision one day after Hughes was decided without the benefit of additional briefing, which would have likely included briefing on the Supreme Court’s direction that district courts give “due regard” to the reasons why a fiduciary made the challenged decisions. Second, the district court appears to have, at a minimum, over-emphasized the Supreme Court’s holding as to the plausibility of mutual fund retail share class claims; the Supreme Court did not hold directly or in dicta that a plaintiff may survive dismissal merely by alleging the availability of identical lower-cost mutual fund share classes.

The case is Goodman v. Columbus Reg’l Healthcare Sys., 2022 U.S. Dist. LEXIS 13489 (M.D. Ga. Jan. 25, 2022).

The Supreme Court Declines to Establish Pleading Standard for Defined Contribution Plan Excessive Fee Litigation

To the disappointment of many in the ERISA community, the Supreme Court issued a six-page opinion on January 24th that declined to opine on most of the issues that were before the Court in Hughes v. Northwestern University, No. 19-1401 (U.S. Jan. 24, 2022). In a unanimous opinion authored by Justice Sotomayor, in which Justice Barrett took no part, the Court vacated and remanded the Seventh Circuit’s decision upholding the dismissal of plaintiffs’ claims of excessive recordkeeping and investment management fees in Northwestern University’s 403(b) plans. The Court stated that the Seventh Circuit erred insofar as the dismissal was based in part on the statement that offering expensive options was not imprudent because plaintiffs had the option of investing in less expensive alternatives. The Court found this reasoning to be inconsistent with Tibble v. Edison Int’l, 575 U.S. 523 (2015), which demands that fiduciaries continuously monitor each investment option in a plan to ensure that it is prudent and remove imprudent funds within a reasonable time. The Court remanded the case with instructions to follow the requirements of Tibble and apply the pleading standards of Bell Atlantic v. Twombly, 550 U.S. 554 (2007) and Ashcroft v. Iqbal, 566 U.S. 662 (2009).

By focusing on, and rejecting, the Seventh Circuit’s “investor choice” rationale, the Supreme Court avoided the need to address the various other issues that have divided lower courts wrestling with the massive surge of excessive fee and investment prudence litigation brought against the fiduciaries of 401(k) and 403(b) plans since 2015. By way of example, the Court did not address whether it is sufficient at the pleading stage for a plaintiff to merely allege that a plan offered retail share class mutual funds instead of lower cost institutional share class funds, when the retail share class might generate revenue sharing credits that paid for recordkeeping fees; or that the plans paid recordkeeping fees through an asset-based arrangement that resulted in a higher per participant fee than other allegedly comparable plans, when the higher costs might have paid for services not provided to other plans.

While the Court did not reach these issues specifically, it did provide some broad guidance that may turn out to be instructive in future cases.  First, as noted, the Court directed the Seventh Circuit to apply the pleading standard set forth in Twombly, which allowed for the consideration of obvious and lawful explanations for the alleged wrongdoing.  Second, the Court directed that the lower courts consider its previous decision in Fifth Third Bancorp v. Dudenhoeffer, 573 U.S. 409 (2014), an ERISA breach of fiduciary duty stock drop case, which stated that at the pleading stage courts must conduct a “context specific” inquiry to determine if plaintiff has plausibly alleged a breach of the duty of prudence.  Lastly, the Court concluded its decision by stating that “due regard” must be given to the “reasonable judgments a fiduciary may make based on her experience and expertise.”


It would be an understatement to say that the decision did not live up to the expectations of the ERISA bar when certiorari was granted. But the limited guidance offered at the end of the Court’s opinion may provide some added ammunition at the district court level, as the defense bar continues its battle to slow down the current tidal wave of fee and investment litigation.

District Court Rejects Demand for Jury Trial in 401(k) Investment Litigation

A South Carolina federal district court denied plaintiffs’ demand for a jury trial in an ERISA fiduciary-breach action.  The court held that, because federal courts in the Fourth Circuit and elsewhere have consistently held that ERISA claims are equitable in nature even when plaintiffs seek monetary relief, jury trials are unavailable.  The case is Williams et al. v. Centerra Grp., LLC et al., 1:20-cv-04220, 2022 WL 88586 (D.S.C. Jan. 7, 2022).

Plaintiffs were participants in Centerra’s 401(k) plan who alleged that the defendants breached their fiduciary duties in connection with the monitoring of various investment options that had excessive fees and underperformed.  The complaint included a demand for a jury trial under Fed. R. Civ. P. 39 and the U.S. Constitution, or, alternatively, for an advisory jury under Fed. R. Civ. P. 39(c)(1).

After denying the defendants’ motion to dismiss last fall, the court recently granted defendants’ motion to strike plaintiffs’ jury demand.  First, the court concluded that ERISA does not provide a statutory right to a jury trial because plaintiffs’ claims were equitable in nature; they were most akin to those actions traditionally adjudicated in a court of equity based on ERISA’s derivation from the equitable law of trusts.

Second, the court observed that the Seventh Amendment only provides a right to a jury trial for suits at common law, i.e., cases implicating legal, rather than equitable, rights.  To determine whether a claim is legal or equitable under the Seventh Amendment, courts examine (1) the nature of the issues involved and (2) the remedy sought.  Here, the court held that both prongs weighed in favor of striking plaintiffs’ jury demand.  In particular, plaintiffs sought an injunction and surcharge, both equitable remedies under ERISA § 502(a)(3).  While plaintiffs sought compensatory damages, a traditionally legal remedy, for their fiduciary-breach claims under ERISA § 502(a)(2), the court reasoned that monetary relief is considered equitable when sought from ERISA fiduciaries.

Finally, the court denied plaintiffs’ request to empanel an advisory jury to hear the case and issue an advisory ruling.  The court reasoned that while Fed. R. Civ. P. 39(c)(1) permits the court to try any issue by advisory jury in cases not triable by jury as of right, doing so in this case would prolong the proceedings and increase trial costs, provide little or no value to the court, and risk unfairness to defendants.

DOL Announces Temporary Enforcement Policy and Guidance to Address New Compensation Disclosure Requirements for Service Providers to Group Health Plans

On December 30, 2021, the U.S. Department of Labor (“DOL”) issued Field Assistance Bulletin No. 2021-03 (“FAB”), announcing its temporary enforcement policy for group health plan service provider disclosures under ERISA section 408(b)(2)(B).

The Consolidated Appropriations Act of 2021 (“CAA”) amended ERISA section 408(b)(2) to require “covered service providers” to disclose all direct or indirect compensation, totaling $1,000 or more, that the service provider reasonably expects to receive in connection with providing “brokerage services” or “consulting” to group health plans.  These new disclosure rules, described in more detail here, became effective on December 27, 2021 (one year after the date of the CAA’s December 27, 2020 enactment).  Recognizing that service providers and group health plan fiduciaries have questions about certain provisions of the new law, the DOL issued the FAB to provide a temporary enforcement policy, rather than issuing regulatory guidance.

Field Assistance Bulletin

The guiding principle of the temporary enforcement policy under the FAB is for service providers and plan fiduciaries to implement the new disclosure requirements using a good faith, reasonable interpretation of the law.  When analyzing whether a service provider’s efforts comply with the requirements, the DOL will determine whether the service provider’s disclosure of information follows the transparency goals underlying the law.  Moreover, the DOL will allow covered service providers to adopt “various methods” for making the required disclosures, recognizing that provider arrangements and compensation structures are unique and often complicated, and a model form would not be feasible.

Does the Prior Guidance on Retirement Plan Disclosures Have Effect?

The DOL confirmed that “covered service providers” should look to the prior guidance on retirement plan service provider disclosures.  Although acknowledging that compensation arrangements under group health plans may differ from those under pension plans, because many of the requirements in section 408(b)(2)(B) and its regulation on retirement plan disclosures are identical, the DOL stated that its retirement plan guidance may be useful when analyzing the new health plan disclosure provisions.

Which Plans are “Covered Plans”?

The disclosure provisions apply to group health plans, as defined in ERISA section 733(a), which includes both insured and self-insured group health plans, as well as limited scope dental and vision plans, grandfathered health plans, and all group health plans regardless of size, even if the health plan is exempt from filing a Form 5500.  The only arrangements not subject to the new disclosure requirements are qualified small employer health reimbursement arrangements, which are expressly excluded from the group health plan definition in 733(a)(1).

Who is a “Covered Service Provider”?

The CAA does not define “brokerage services” or “consulting.”  Rather, the terms are referenced within the broader definition of “covered service providers” subject to disclosure under the new law.  Because service providers have considerable discretion over how they describe and market their services and label their fees, the DOL clarified in the FAB that the terms “brokers” and “consultants” are not limited to service providers who are licensed as or who market themselves in these categories.  Also, the DOL recognized that these categories may overlap in some instances.  Further, the DOL noted that the terms are described in ERISA 408(b)(2)(B) in relationship to a list of sub-services that constitute the subject matter of the brokerage services or consulting.  Thus, pending further guidance, the FAB provided that the new disclosure requirements apply to any parties who reasonably and in good faith determine their status as a covered service provider under ERISA 408(b)(2)(B).

How Should a Covered Service Provider Disclose Compensation that is Unknown When the Contract is Entered Into?

Regarding the disclosure of compensation amounts that are unknown prior to entering into a contract or arrangement—for example, contracts using disclosures of estimates or formulas—the FAB highlighted that ERISA 408(b)(2)(B) expressly acknowledges this potential challenge and grants covered service providers flexibility in how to disclose such information.  Accordingly, recognizing the diverse service compensation structure in group health plans, the DOL noted that, pending further guidance, it may be reasonable in certain circumstances for covered service providers to disclose compensation using monetary ranges.  However, such ranges should be reasonable and as specific as possible.

Ultimately, the FAB suggested that the covered service provider should remember the overall goal of the law—fee transparency and providing information to group health plans—when determining the adequacy of their disclosures.  Furthermore, it highlighted that determining adequate disclosure depends on the facts and circumstances of the service contract or arrangement.

Is the Contract or Arrangement Subject to the New Requirements Under ERISA 408(b)(2)(B)?

The CAA provided a transitional rule to the applicability of the new disclosure requirements, stating that contracts entered into before December 27, 2021 would not be subject to these requirements.  Thus, the FAB clarified that only contracts entered into, extended, or renewed on or after December 27, 2021 and subject to the requirements of ERISA 408(b)(2)(B) are required to comply with the new disclosure requirements.  The FAB further explained that the date on which a contract is entered into is the date it is executed, as opposed to the effective date of the contract.


Group health plans should begin working in coordination with covered service providers to review the temporary enforcement policy and guidelines to ensure that they are implementing the new requirements by using the DOL’s good faith and reasonable interpretation of ERISA section 408(b)(2).

DOL Statement on Private Equity Investment Emphasizes Fiduciary Responsibility

On December 21, 2021, the Department of Labor (the “DOL”) published a Supplemental Statement (the “Supplemental Statement”) to its June 3, 2020 Information Letter (the “2020 Letter”) addressing fiduciary considerations for including private equity within an investment option under an ERISA-covered defined contribution plan (e.g., a 401(k) or 403(b) plan).  In response to questions and reactions that the DOL received from a “range of stakeholders” regarding the 2020 Letter, as well as a “Risk Alert” that the SEC issued in June 2020 regarding compliance issues for managers of private equity and hedge funds, the Supplemental Statement advised that the 2020 Letter should not be “misread[] . . . as saying that PE – as a component of a designated investment alternative – is generally appropriate for a typical 401(k) plan.”

So how did we get here, and what does this mean?

Many investment options under defined contribution plans include exposure to private equity, and plan fiduciaries often consider adding new asset classes to plan lineups, or to investments within plan lineups, for diversification and potential upside.  For a long time, stakeholders have craved clarity on how ERISA’s fiduciary rules apply to these investments; and challenges to the prudence of alternative investment strategies are actively being litigated.

The 2020 Letter was welcomed by many because the DOL stated affirmatively that an investment option under a defined contribution plan could have an allocation to private equity—albeit “limited,” which the DOL suggested meant not more than 15%.  However, the 2020 Letter also had many caveats, including a statement that it did not address private equity being offered as a standalone investment option (noting that direct investments in private equity present “distinct legal and operational issues”), and highlighting a range of considerations for plan fiduciaries to address, with no safe harbor.  Still, its positive tone generated increased interest from plan fiduciaries and asset managers.

The Supplemental Statement is more cautionary, emphasizing that the DOL “did not endorse or recommend” offering designated investment alternatives with private equity components, and that it wanted “to ensure that plan fiduciaries do not expose plan participants and beneficiaries to unwarranted risks by misreading” the 2020 Letter as saying that these investments are “generally appropriate for a typical 401(k) plan.”

The Supplemental Statement highlights the following key points:

  • The DOL agrees with some stakeholders that representations in the 2020 Letter about the benefits of private equity investments were void of counter-arguments and research data from independent sources outside of the private equity industry.
  • Plan fiduciaries have a responsibility to be prudent in selecting and monitoring any investment alternative. Understanding and evaluating exposure to private equity is part of this responsibility.
  • As explained in the 2020 Letter, prudent evaluation of private equity requires specialized expertise. Fiduciaries considering private equity must have this expertise or seek it from qualified managers or advisers.  The DOL is concerned that a “typical” plan fiduciary might not have the expertise.

Ultimately, the Supplemental Statement does not change the bottom line from the 2020 Letter.  Limited private equity allocations within a defined contribution plan investment are still permitted.  The Supplemental Statement simply highlights the importance of rigorous analysis when evaluating the prudence of an investment, and it stresses the particular complexity of private equity.

*          *          *

We doubt the Supplemental Statement will be the last word on this topic.  We will continue to monitor developments.



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