[House Report 118-259]
[From the U.S. Government Publishing Office]
118th Congress } { Report
HOUSE OF REPRESENTATIVES
1st Session } { 118-259
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HIDDEN FEE DISCLOSURE ACT OF 2023
_______
November 1, 2023.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Foxx, from the Committee on Education and the Workforce,
submitted the following
R E P O R T
[To accompany H.R. 4508]
The Committee on Education and the Workforce, to whom was
referred the bill (H.R. 4508) to amend the Employee Retirement
Income Security Act of 1974 to clarify and strengthen the
application of certain employer-sponsored health plan
disclosure requirements, having considered the same, reports
favorably thereon with an amendment and recommends that the
bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Hidden Fee Disclosure Act of 2023''.
SEC. 2. CLARIFICATION OF THE APPLICATION OF FEE DISCLOSURE REQUIREMENTS
TO COVERED SERVICE PROVIDERS.
(a) Services.--Clause (ii)(I)(bb) of section 408(b)(2)(B) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1108(b)(2)(B)) is amended--
(1) in subitem (AA) by striking ``Brokerage services,'' and
inserting ``Services (including brokerage services),''; and
(2) in subitem (BB)--
(A) by striking ``Consulting,'' and inserting ``Other
services,''; and
(B) by inserting ``any of the following:'' before
``plan design''.
(b) Disclosures.--Clause (iii)(III) of section 408(b)(2)(B) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1108(b)(2)(B)) is amended by striking ``, either in the aggregate or by
service,'' and inserting ``by service''.
SEC. 3. STRENGTHENING DISCLOSURE REQUIREMENTS WITH RESPECT TO PHARMACY
BENEFIT MANAGERS AND THIRD PARTY ADMINISTRATORS FOR
GROUP HEALTH PLANS.
(a) Certain Arrangements for PBM Services Considered as Indirect.--
(1) In general.--Clause (i) of section 408(b)(2)(B) of the
Employee Retirement Income Security Act of 1974 (29 U.S.C.
1108(b)(2)(B)) is amended--
(A) by striking ``requirements of this clause'' and
inserting ``requirements of this subparagraph''; and
(B) by adding at the end the following: ``For
purposes of applying section 406(a)(1)(C) with respect
to a transaction described under this subparagraph, a
contract or arrangement for services between a covered
plan and a health insurance issuer providing health
insurance coverage in connection with the covered plan
in which the health insurance issuer contracts, in
connection with such plan, with a service provider for
pharmacy benefit management services shall be
considered to constitute an indirect furnishing of
goods, services, or facilities between the plan and the
service provider acting as the party in interest.''.
(2) Health insurance issuer and health insurance coverage
defined.--Clause (ii)(I)(aa) of section 408(b)(2)(B) of the
Employee Retirement Income Security Act of 1974 ((29 U.S.C.
1108(b)(2)(B)) is amended by inserting before the period at the
end ``and the terms `health insurance coverage' and `health
insurance issuer' have the meanings given such terms in section
733(b)''.
(b) Specific Disclosure Requirements With Respect to Pharmacy Benefit
Management Services.--
(1) In general.--Clause (iii) of section 408(b)(2)(B) of such
Act (29 U.S.C. 1108(b)(2)(B)) is amended by adding at the end
the following:
``(VII) With respect to a contract or arrangement
with the covered plan in connection with the provision
of pharmacy benefit management services, as part of the
description required under subclauses (III) and (IV)--
``(aa) all compensation described in clause
(ii)(I)(dd)(AA), including fees, rebates,
alternative discounts, co-payment offsets, and
other remuneration expected to be received by
the covered service provider, an affiliate, or
a subcontractor from a pharmaceutical
manufacturer, distributor, rebate aggregator,
group purchasing organization, or any other
third party; and
``(bb) the amount and form of any rebates,
discounts, or price concessions, including the
amount expected to be passed through to the
plan sponsor or the participants and
beneficiaries under the covered plan;
``(cc) all compensation expected to be
received by the covered service provider as a
result of paying a lower amount for the drug
than the amount charged as a copayment,
coinsurance amount, or deductible;
``(dd) all compensation expected to be
received by the covered service provider as a
result of paying pharmacies less than what is
charged the health plan, plan sponsor, or
participants and beneficiaries under the
covered plan;
``(ee) all compensation expected to be
received by the covered service provider from
drug manufacturers and any other third party in
exchange for--
``(AA) administering, invoicing,
allocating, or collecting rebates
related to the covered plan;
``(BB) providing business services
and activities, including providing
access to drug utilization data;
``(CC) keeping a percentage of the
list price of a drug; or
``(DD) any other reason related to
the role of a covered service provider
as a conduit between the drug
manufacturers or any other third party
and the covered plan.''.
(2) Annual disclosure.--
(A) Clause (v) of section 408(b)(2)(B) of such Act
(29 U.S.C. 1108(b)(2)(B)) is amended by adding at the
end the following:
``(III) A covered service provider, with respect to a
contract or arrangement with the covered plan in connection
with providing pharmacy benefit management services, shall
disclose, on an annual basis not later than 60 days after the
beginning of the current plan year, to a responsible plan
fiduciary, in writing, the following with respect to the twelve
months preceding the current plan year:
``(aa) All direct compensation described in subclause
(III) of clause (iii) and indirect compensation
described in subclause (IV) of clause (iii) received by
the covered service provider (including such
compensation described in subclause (VII) of clause
(iii)).
``(bb) For each drug covered under the covered plan,
the amount by which the price for the drug paid by the
plan exceeds the amount paid to pharmacies by the
covered service provider.
``(cc) The total gross spending by the covered plan
on drugs (excluding rebates, discounts, or other price
concessions).
``(dd) The total net spending by the covered plan on
drugs.
``(ee) The total gross spending at all pharmacies
wholly or partially owned by the covered service
provider, including mail-order, specialty and retail
pharmacies, with a breakdown by individual pharmacy
location.
``(ff) The aggregate amount of clawback from
pharmacies, including mail-order, specialty, and retail
pharmacies.
``(AA) categorical explanations (grouped by
the reason for clawback, such as contractual
true-up provisions, overpayments, or non-
covered medication dispensed, and including
information on the amount in each category that
was passed through to the covered plan and to
participants and beneficiaries of the covered
plan); or
``(BB) individual explanations for such
clawbacks.
``(gg) Total aggregate amounts of fees collected by
the covered service provider in connection with the
provision of pharmacy benefit management services to
the covered plan.
``(hh) Any other information specified by the
Secretary through regulations or guidance that may be
necessary for a responsible plan fiduciary to consider
the merits of the contract or arrangement with the
covered service provider and any conflicts of interest
that may exist.''.
(3) Pharmacy benefit management services defined.--Clause
(ii)(I) of section 408(b)(2)(B) of such Act (29 U.S.C.
1108(b)(2)(B)) is amended by adding at the end the following:
``(gg) The term `pharmacy benefit management
services' includes any services provided by a covered
service provider to a covered plan with respect to the
administration of prescription drug benefits under the
covered plan, including--
``(AA) the processing and payment of claims;
``(BB) design of pharmacy networks;
``(CC) negotiation, aggregation, and
distribution of rebates, discounts, and other
price concessions;
``(DD) formulary design and maintenance;
``(EE) operation of pharmacies (whether
retail, mail order, specialty drug, or
otherwise); recordkeeping;
``(FF) utilization review;
``(GG) adjudication of claims; and
``(HH) any other services specified by the
Secretary through guidance or rulemaking.''.
(4) Clawback defined.--Clause (ii)(I) of section 408(b)(2)(B)
of such Act (29 U.S.C. 1108(b)(2)(B)), as amended by paragraph
(3), is amended by adding at the end the following:
``(hh) The term `clawback' means amounts collected by
a pharmacy benefit manager from a pharmacy for
copayments collected from a participant or beneficiary
in excess of the contracted rate.''.
(c) Specific Disclosure Requirements With Respect to Third Party
Administration Services for Group Health Plans.--
(1) In general.--Clause (iii) of section 408(b)(2)(B) of such
Act (29 U.S.C. 1108(b)(2)(B)), as amended by subsection (b)(1),
is amended by adding at the end the following:
``(VIII) With respect to a contract or arrangement with the
covered plan in connection with the provision of third party
administration services for group health plans, as part of the
description required under subclauses (III) and (IV)--
``(aa) the amount and form of any rebates, discounts,
savings fees, refunds, or amounts received from
providers and facilities, including the amounts that
will be retained by the covered service provider as a
fee;
``(bb) the amount and form of fees expected to be
received from other service providers in relation to
the covered plan, including the amounts that will be
retained by the covered service provider as a fee; and
``(cc) the amount and form of expected recoveries by
the covered service provider, including the amounts
that will be retained by the covered service provider
as a fee (disaggregated by category), as a result of--
``(AA) overpayments;
``(BB) erroneous payments;
``(CC) uncashed checks or incomplete
payments;
``(DD) billing errors;
``(EE) subrogation;
``(FF) fraud; or
``(GG) any other reason on behalf of the
covered plan.''.
(2) Annual disclosure.--Clause (v) of section 408(b)(2)(B) of
such Act (29 U.S.C. 1108(b)(2)(B)), as amended by subsection
(b)(2), is amended by adding at the end the following:
``(IV) A covered service provider, with respect to a contract
or arrangement with the covered plan in connection with
providing third party administration services for group health
plans, shall disclose, on an annual basis not later than 60
days after the beginning of the current plan year, to a
responsible plan fiduciary, in writing, the following with
respect to the twelve months preceding the current plan year:
``(aa) All direct compensation described in subclause
(III) of clause (iii).
``(bb) All indirect compensation described in
subclause (IV) of clause (iii) received by the covered
service provider (including such compensation described
in subclause (VIII) of clause (iii)).
``(cc) The aggregate amount for which the covered
service provider received indirect compensation and the
estimated amount of cost-sharing incurred by plan
participants and beneficiaries as a result.
``(dd) The total gross spending by the covered plan
on all costs and fees arising under or paid under the
administrative services agreement with the third-party
administrator (not including any amounts described in
items (aa) through (cc) of clause (iii)(VIII).
``(ee) The total net spending by the covered plan on
all costs and fees arising under or paid under the
administrative services agreement with the covered
service provider.
``(ff) The aggregate fees collected by the covered
service provider.
``(gg) Any other information specified by the
Secretary through regulations or guidance that may be
necessary for a responsible plan fiduciary to consider
the merits of the contract or arrangement with the
covered service provider and any conflicts of interest
that may exist.''.
(3) Third party administration services for group health
plans defined.--Clause (ii)(I) of section 408(b)(2)(B) of such
Act (29 U.S.C. 1108(b)(2)(B)), as amended by paragraphs (3) and
(4) of subsection (b), is amended by adding at the end the
following:
``(ii) The term `third party administration services
for group health plans' includes any services provided
by a covered service provider to a covered plan with
respect to the administration of health benefits under
the covered plan, including--
``(AA) the processing, repricing, and payment
of claims;
``(BB) design, creation, and maintenance of
provider networks;
``(CC) negotiation of discounts off gross
rates;
``(DD) benefit and plan design; negotiation
of payment rates;
``(EE) recordkeeping;
``(FF) utilization review;
``(GG) adjudication of claims;
``(HH) regulatory compliance; and
``(II) any other services set forth in an
administrative services agreement or similar
agreement or specified by the Secretary through
guidance or rulemaking.''.
(d) Rule of Construction.--Nothing in the amendments made by this
section shall be construed to imply that a practice in relation to
which a covered service provider is required to provide information as
a result of such amendments is permissible under Federal law.
(e) Effective Date.--The amendments made by this section shall take
effect on January 1, 2025.
SEC. 4. IMPLEMENTATION.
Not later than 1 year after the date of enactment of this Act, the
Secretary of Labor shall issue notice and comment rulemaking as
necessary to implement the provisions of this Act. The Secretary shall
ensure that such rulemaking--
(1) accounts for the varied compensation practices of covered
service providers (as defined under section 408(b)(2)(B); and
(2) establishes standards for the disclosure of expected
compensation by such covered service providers.
Purpose
H.R. 4508, the Hidden Fee Disclosure Act, amends the
Employee Retirement Income Security Act of 1974 (ERISA) \1\ to
clarify and strengthen the application of certain employer-
sponsored health plan disclosure requirements. The bill
clarifies the services under current law for which covered
service providers must disclose direct and indirect
compensation. The bill also requires pharmacy benefit managers
(PBMs) and third-party administrators (TPAs) to provide
specific reports to responsible plan fiduciaries on direct and
indirect compensation. This legislation will give plan
fiduciaries the tools needed to avoid excessive fees and
conflicts of interest that raise costs for employers, workers,
and their families.
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\1\1A 29 U.S.C. Sec. 1001 et seq.
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Committee Action
116TH CONGRESS
Subcommittee Hearing on Making Health Care More Affordable: Lowering
Drug Prices and Increasing Transparency
On September 26, 2019, the Subcommittee on Health,
Employment, Labor, and Pensions (HELP) held a hearing entitled
``Making Health Care More Affordable: Lowering Drug Prices and
Increasing Transparency,'' which examined the impact of rising
prescription drug prices on workers and businesses and the need
for greater transparency in health care. The witnesses were Mr.
Frederick Isasi, Executive Director, Families USA, Washington,
D.C.; Mr. David Mitchell, Founder, Patients for Affordable
Drugs, Washington, D.C.; Ms. Bari Talente, Executive Vice
President, National Multiple Sclerosis Society, Washington,
D.C.; Dr. Mariana Socal, Assistant Scientist, Johns Hopkins
University Bloomberg School of Public Health, Department of
Health Policy and Management, Baltimore, Maryland; Mr.
Christopher Holt, Director of Health Care Policy, American
Action Forum, Washington, D.C.; and Dr. Craig Garthwaite,
Associate Professor of Strategy, Northwestern University
Kellogg School of Management, Evanston, Illinois.
Full Committee Markup of H.R. 5800, the Ban Surprise Billing Act
On February 11, 2020, the Committee met to mark up H.R.
5800, the Ban Surprise Billing Act. The legislation included
provisions to amend ERISA to require covered service providers
to disclose direct or indirect compensation to responsible plan
fiduciaries. The Committee favorably reported the bill, as
amended, by a vote of 32 yeas and 13 nays.
117TH CONGRESS
Subcommittee Hearing on Lower Drug Costs Now: Expanding Access to
Affordable Health Care
On May 5, 2021, the HELP Subcommittee held a hearing
entitled ``Lower Drug Costs Now: Expanding Access to Affordable
Health Care,'' which examined the causes of rising health care
costs. The witnesses were Dr. Douglas Holtz-Eakin, President,
American Action Forum, Washington, D.C.; Mr. Frederick Isasi,
Executive Director, Families USA, Washington, D.C.; Mr. David
Mitchell, Founder, Patients for Affordable Drugs, Washington,
D.C.; and Dr. Mariana Socal, Assistant Scientist, Johns Hopkins
University Bloomberg School of Public Health, Baltimore,
Maryland. The hearing included discussion regarding how the
lack of PBM transparency contributes to higher costs for plans
and consumers.
118TH CONGRESS
Subcommittee Hearing on Reducing Health Care Costs for Working
Americans and Their Families
On April 26, 2023, the HELP Subcommittee held a hearing
entitled ``Reducing Health Care Costs for Working Americans and
Their Families,'' which examined lowering health care costs,
including through expanding oversight of PBMs. Witnesses were
Mr. Joel White, President, Council for Affordable Health
Coverage (CAHC), Washington, D.C.; Mrs. Tracy Watts, Senior
Partner, Mercer, Washington, D.C.; Ms. Marcie Strouse, Partner,
Capitol Benefits Group, Des Moines, Iowa; and Ms. Sabrina
Corlette, J.D., Research Professor and Co-Director, Center on
Health Insurance Reforms, Georgetown University McCourt School
of Public Policy, Washington, D.C.
Subcommittee Hearing on Competition and Transparency: The Pathway
Forward for a Stronger Health Care Market
On June 21, 2023, the HELP Subcommittee held a hearing
entitled ``Competition and Transparency: The Pathway Forward
for a Stronger Health Care Market,'' which examined the role of
PBMs and the need for transparency. The witnesses were Dr.
Gloria Sachdev, President and CEO, Employers' Forum of Indiana,
Carmel, Indiana; Ms. Sophia Tripoli, Senior Director of Health
Policy and Director of the Center for Affordable Whole-Person
Care, Families USA, Washington, D.C.; Mr. Greg Baker, CEO,
AffirmedRx, Louisville, Kentucky; Ms. Christine Monahan,
Assistant Research Professor, Center on Health Insurance
Reforms, Georgetown University McCourt School of Public Policy,
Washington, D.C.; and Mr. Juan Carlos ``JC'' Scott, President
and CEO, Pharmaceutical Care Management Association,
Washington, D.C. The hearing included extensive discussion on
the role of PBMs and the impacts of transparency, or lack
thereof. Witnesses testified to the impacts of hospital
consolidation and acquisition of outpatient departments on
raising health care costs for employers and the need to combat
unwarranted hospital facility fees applied to outpatient
services, including requiring that each separate hospital
outpatient facility obtain and use a unique national provider
identifier (NPI). Members and witnesses further discussed the
need to codify the Transparency in Coverage rule, prohibit gag
clauses in contracts between PBMs and TPAs, and require PBMs
and TPAs to disclose their compensation.
Full Committee Markup of H.R. 4508, the Hidden Fee Disclosure Act,
On July 10, 2023, Rep. Joe Courtney (D-CT-2) introduced
H.R. 4508, the Hidden Fee Disclosure Act, with Rep. Erin
Houchin (R-IN-9) as an original cosponsor. The bill clarifies
the application of existing ERISA group health plan disclosure
requirements to covered service providers providing services
specified in current law and further improves specific
disclosure requirements for PBMs and TPAs, particularly with
respect to indirect compensation. On July 12, 2023, the
Committee met to mark up H.R. 4508 and adopted an Amendment in
the Nature of a Substitute offered by Rep. Courtney that made
technical corrections to H.R. 4508. The Committee reported the
bill favorably, as amended, to the House of Representatives by
a vote of 39 yeas and 1 nay.
Committee Views
PHARMACY BENEFIT MANAGERS
PBMs serve as intermediaries between pharmaceutical
manufacturers and health insurers, Medicare Part D drug plans,
employers, and other payers. PBMs create formularies, negotiate
rebates with manufacturers, process claims, create pharmacy
networks, and review drug utilization. Although the
Congressional Budget Office (CBO) found that PBMs' ability to
negotiate larger rebates from manufacturers may have lowered
program costs and copays for plan enrollees in Medicare Part D
and Medicaid,\2\ in light of rising health care costs, PBMs
have faced growing scrutiny of their role in prescription drug
costs and spending.
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\2\ https://www.cbo.gov/system/files/2019-05/55151-
SupplementalMaterial.pdf.
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By negotiating with drug manufacturers and pharmacies to
control drug costs, PBMs have a significant behind-the-scenes
impact in determining total drug costs for payers, shaping
patients' access to medications, and determining how much
pharmacies are paid. PBMs primarily earn profits through
administrative fees charged for their services, spread pricing,
and shared savings, where the PBM keeps part of the rebates or
discounts negotiated with drug manufacturers. There has been
increasing concern that the current structure creates a
perverse incentive as higher drug list prices often translate
into higher compensation for PBMs, who often earn a percentage
of reductions negotiated off of the list prices.\3\
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\3\ Id.
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PBM reimbursement methods can be complex and unclear. Two
practices of particular concern are rebate pricing models and
spread pricing. One study found a direct correlation between
rebate increases and manufacturer price increases: a $1
increase in rebates corresponds with a $1.17 increase in drug
list price, suggesting that rebates play a role in increasing
list prices.\4\ PBMs may retain manufacturer rebates as profits
rather than passing them through to their health plan clients.
When health plans lack full transparency and cannot see how
much manufacturers paid in rebates, they do not know how much
their PBM retained as profits. Spread pricing occurs when PBMs
charge health plans and payers more for a prescription drug
than what they reimburse to the pharmacy and then they keep the
difference. Because neither the plan nor the pharmacy knows
what the other side was paid or charged, the practice hides the
PBM's margins.
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\4\ https://healthpolicy.usc.edu/research/the-association-between-
drug-rebates-and-list-prices/.
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THIRD PARTY ADMINISTRATORS
A self-funded group health plan may contract with an
entity, known as a third-party administrator (TPA), for the
purpose of providing a number of services to the plan. Among
these services include claims processing, recordkeeping,
communicating with participants and beneficiaries, and ensuring
compliance with reporting requirements under ERISA and other
laws.\5\ Although often an insurance company, a TPA does not
itself act as an insurer with respect to the plan; instead, the
plan sponsor bears the financial responsibility of paying
claims incurred under the plan. The lack of transparency with
respect to the compensation of TPAs has raised concerns that
their practices might not be in the best interests of plan
sponsors or participants and beneficiaries.\6\ These concerns
have prompted bipartisan reforms such as the recent ban on
``gag clauses'' that restrict plan fiduciaries from accessing
plan data held by TPAs and other service providers.\7\
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\5\ https://content.next.westlaw.com/practical-law/document/
I8b78d20587b211e9adfea82903531a62/Third-Party-Administrator- TPA.
\6\ https://chirblog.org/questionable-conduct-allegations-insurers-
acting-third-party-administrat ors/.
\7\ 29 U.S.C. Sec. 1185m.
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ERISA FEE DISCLOSURE REQUIREMENTS
Under ERISA, an employee benefit plan may enter into
reasonable contracts or arrangements for the provision of
certain services ``necessary for the establishment or operation
of the plan. . . . if no more than reasonable compensation is
paid therefor.'' \8\ This allows a plan to contract with
entities such as PBMs, TPAs, brokerage firms, benefits
consultants, and others, while ensuring that plan fiduciaries
continuously monitor the reasonableness of such arrangements
and the compensation received by service providers.\9\ However,
without clear disclosures to plan fiduciaries of the services
provided and the compensation earned, either directly or
indirectly, it is essentially impossible to monitor service
providers and ensure they are acting in the best interest of
the plan. A lack of meaningful oversight could lead to higher
costs for plans and, with respect to indirect compensation,
creates the risk that service providers may have conflicts of
interest.\10\
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\8\ 29 U.S.C. Sec. 1108(b)(2).
\9\ 29 U.S.C. Sec. 1104(a)(1).
\10\ https://www.propublica.org/article/health-insurance-brokers-
cost-commissions-bonuses.
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Although no final regulatory action has been taken, there
have been several efforts to improve the disclosure of fees
with respect to ERISA-covered group health plans. In 2007, the
U.S. Department of Labor (the Department) proposed regulations
that would have required disclosure of compensation earned by
service providers that contract with employee benefit plans,
including group health plans.\11\ This would have provided plan
fiduciaries with important information from a broad range of
service providers, which would have greatly facilitated the
ability of fiduciaries to monitor the reasonableness of their
contracts.\12\ This proposal was never finalized with respect
to group health plans. Similarly, in 2014, the Advisory Council
on Employee Welfare and Pension Benefit Plans recommended the
Department consider issuing fee disclosure regulations
regarding contracts and arrangements between group health plans
and PBMs, which would have specifically included rebates
received by PBMs as indirect compensation.\13\ To date, the
Department has not issued a proposed rule on this topic.
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\11\ https://www.federalregister.gov/documents/2007/12/13/E7-24064/
reasonable-contract-or-arran gement-under-section-408b2-fee-disclosure.
\12\ Id.
\13\ https://www.dol.gov/sites/dolgov/files/ebsa/about-ebsa/about-
us/erisa-advisory-council/2014AC report1.pdf.
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DIRECT AND INDIRECT COMPENSATION DISCLOSURE REQUIREMENTS
The No Surprises Act, enacted as part of the Consolidated
Appropriations Act, 2021 (CAA),\14\ protected patients from
surprise medical bills for emergency and out-of-network
services and created a process by which providers and plans
could reconcile billing disputes. In addition, the CAA sought
to limit growth in health care spending through increased
transparency. Importantly, Section 202 of Title II of Division
BB of the CAA requires entities providing brokerage and
consulting services to disclose direct or indirect compensation
to group health plan fiduciaries (a similar provision extended
broker disclosure requirements to individual market consumers).
This provision amended section 408(b)(2) of ERISA to provide
that any ``covered service provider'' that enters into a
contract or arrangement with a group health plan must disclose
to a responsible plan fiduciary a description of the direct and
indirect compensation they expect to receive in connection with
the services they provide to the plan.\15\ This disclosure
requirement applies to the provision of brokerage services and
broadly to entities providing consulting, including the
``development or implementation of'' pharmacy benefit
management services and third-party administration services.
Although the text of this statute clearly encompasses the
activities of TPAs and PBMs, many service providers have failed
to comply with the law and may not be providing the required
disclosures to plan fiduciaries.
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\14\ Pub. L. No. 116-260 (2020).
\15\ ERISA Sec. 408(b)(2), 29 U.S.C. Sec. 1108.
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While the Department's Employee Benefits Security
Administration (EBSA) has previously issued guidance that
service providers may assess the applicability of these
requirements consistent with similar regulations applicable to
retirement plans (which explicitly apply to TPAs),\16\
additional action is needed to clarify the scope of entities
subject to the requirements under the law. Because higher-cost
drugs often offer higher rebates and, in turn, contribute to
rising prescription drug spending, detailed disclosures of
these and other compensation practices will assist plan
fiduciaries in assessing their contracts with service
providers. In December 2022, then-Chairman Scott (D-VA-3) and
then-Ranking Member Foxx (R-NC-5) of the Committee on Education
and Labor sent a bipartisan letter urging EBSA to issue
additional, clarifying guidance, but the agency has to date
taken no action.\17\
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\16\ https://www.dol.gov/agencies/ebsa/employers-and-advisers/
guidance/field-assistance-bulletins /2021-03.
\17\ https://democrats-edworkforce.house.gov/imo/media/doc/
bipartisan_scott-foxx_letter_to_ebsa_ re_health_transparency.pdf.
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H.R. 4508, THE HIDDEN FEE DISCLOSURE ACT
H.R. 4508 will help ensure that plan sponsors and plan
fiduciaries have the information they need to make informed
choices on behalf of plan participants. By receiving
information on the nature and amount of compensation that PBMs
and TPAs receive, plan fiduciaries can better evaluate the
reasonableness of their compensation and whether PBMs and TPAs
are acting in the best interest of the plan. Plans can measure
whether savings are being appropriately passed through and can
confirm that PBMs and TPAs are not unduly benefitting from
rebate decisions at the expense of the plan. H.R. 4508 will
improve accountability and competition among PBMs and TPAs and
empower plans to make better decisions on behalf of employees,
leading to lower spending.
H.R. 4508 Section-by-Section Summary
Section 1. Short title
Section 1 provides that the short title is ``Hidden Fee
Disclosure Act.''
Section 2. Clarification of the application of fee disclosure
requirements to covered service providers
Section 2(a) amends ERISA to clarify that compensation
disclosure requirements apply to all services specified in
current law.
Section 2(b) amends ERISA to provide that direct
compensation must be described by service, rather than in the
aggregate.
Section 3. Strengthening disclosure requirements for PBMs and TPAs
Section 3(a) amends ERISA to provide that PBM services
provided to a health insurance issuer on behalf of a group
health plan shall be considered an indirect furnishing of
goods, services, or facilities, thereby ensuring disclosures
are provided to responsible plan fiduciaries of fully insured
plans.
PBM Disclosure Requirements. Section 3(b)(1) requires that
PBMs report to responsible plan fiduciaries (as part of
disclosure requirements under current law) the following
information:
All compensation, including fees, rebates,
discounts, or price concessions, co-payment offsets,
and other remuneration;
The amount and form of rebates, discounts,
or price concessions that are passed through to the
plan sponsor or participants and beneficiaries;
The amount of compensation received as a
result of the PBM paying less for a drug than the
amount charged to the participant or beneficiary;
The amount of compensation received from
paying pharmacies less than what was charged to the
plan or participant or beneficiary; and
The amount of compensation expected to be
received from drug manufacturers, including
compensation gained in exchange for administering the
plan, for providing business services and drug
utilization data, and for gaining compensation through
high rebates or a percentage of the list price.
The PBM must report this information when it enters a
contract with the plan, and it is required to disclose any
changes as soon as practicable but no later than within 60
days.
PBM Annual Reporting. Section 3(b)(2) requires that PBMs
annually report to responsible plan fiduciaries the following
information:
All direct and indirect compensation;
For each drug covered under the plan, the
amount by which the price for the drug paid by the plan
exceeds the amount paid to the pharmacy;
The total gross spending by the plan on
drugs (excluding rebates, discounts, or other price
concessions);
The total net spending by the plan on drugs;
The total gross spending at all PBM-owned
pharmacies, with a breakdown by individual pharmacy
location;
The aggregate amount of clawback from
pharmacies, including an explanation for the clawback;
The total aggregate amount of fees
collected; and
Any other information specified by the
Secretary of Labor.
TPA Disclosure Requirements. Section 3(c)(1) requires that
TPAs report to responsible plan fiduciaries (as part of
disclosure requirements under current law) the following
information:
The amount of, and a description of, any
rebates, discounts, savings fees, refunds, and amounts
received from providers and facilities;
The amount of, and a description of, fees
received from other service providers; and
The amount of, and a description of,
compensation recovered by the TPA from overpayments,
erroneous payments, uncashed checks, incomplete
payments, billing errors, subrogation, or fraud.
The TPA must report this information when it enters a
contract with the plan, and it is required to disclose any
changes as soon as practicable but no later than within 60
days.
TPA Annual Reporting. Section 3(c)(2) requires that TPAs
report to responsible plan fiduciaries annually the following
information:
All direct and indirect compensation;
The aggregate amount for which the TPA
received indirect compensation and the estimated amount
of cost-sharing incurred by beneficiaries as a result;
The total gross spending by the plan on all
cost and fees;
The total net spending by the plan on all
cost and fees;
The aggregate fees collected by the TPA; and
Any other information specified by the
Secretary of Labor.
The amendments made by Section 3 take effect on January 1,
2025.
Section 4. Implementation
Section 4 requires the Secretary of Labor to conduct notice
and comment rulemaking within one year of enactment of the Act.
Explanation of Amendments
The amendments, including the amendment in the nature of a
substitute, are explained in the body of this report.
Application of Law to the Legislative Branch
Section 102(b)3 of Public Law 104-1 requires a description
of the application of this bill to the legislative branch. H.R.
4508 takes important steps to preserve and expand access to
affordable, high-quality health care by ensuring that plan
sponsors and plan fiduciaries have the information they need to
make informed choices on behalf of plan participants. H.R. 4508
is applicable only to group health plans subject to ERISA and
therefore does not affect the legislative branch.
Unfunded Mandate Statement
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act of 1974, Pub. L. No. 93-344 (as amended
by Section 101(a)(2) of the Unfunded Mandates Reform Act of
1995, Pub. L. No. 104-4), the Committee adopts as its own the
cost estimate prepared by the Congressional Budget Office (CBO)
pursuant to section 402 of the Congressional Budget and
Impoundment Control Act of 1974.
Earmark Statement
H.R. 4508 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI of the Rules of the House of
Representatives.
Roll Call Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee Report to include for
each record vote on a motion to report the measure or matter
and on any amendments offered to the measure or matter the
total number of votes for and against and the names of the
Members voting for and against.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Statement of General Performance Goals and Objectives
In accordance with clause (3)(c) of House rule XIII, the
goal of H.R. 4508 is to improve accountability and competition
among PBM and TPAs by requiring PBMs and TPAs to disclose
compensation information to plan fiduciaries to allow plans to
make informed contracting decisions.
Duplication of Federal Programs
No provision of H.R. 4508 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Statement of Oversight Findings and Recommendations
of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the committee's oversight findings and recommendations are
reflected in the body of this report.
Required Committee Hearing and Related Hearings
In compliance with clause 3(c)(6) of rule XIII of the Rules
of the House of Representatives, the following hearing held
during the 118th Congress was used to develop or consider H.R.
4508: ``Competition and Transparency: The Pathway Forward for a
Stronger Health Care Market.''
New Budget Authority and CBO Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause 3(c)(3) of rule XIII of the Rules of
the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee requested a
cost estimate from the Congressional Budget Office. The
Committee adopts the following estimate for H.R. 4508 provided
by the Congressional Budget Office to Majority staff via email
on September 12, 2023: ``We have completed our estimate of H.R.
4508. We estimate the bill would reduce the deficit by $1.3
billion over the 2023-2033 window. Please note that the savings
is driven by the PBM transparency provisions and there is an
interaction with section 3 of H.R. 4507.''
Committee Cost Estimate
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 4508.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when, as with the present report,
the committee adopts as its own the cost estimate of the bill
prepared by the Congressional Budget Office under section 402
of the Congressional Budget Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
EMPLOYEE RETIREMENT INCOME
SECURITY ACT OF 1974
* * * * * * *
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
* * * * * * *
Part 4--Fiduciary Responsibility
* * * * * * *
EXEMPTIONS FROM PROHIBITED TRANSACTIONS
Sec. 408. (a) The Secretary shall establish an exemption
procedure for purposes of this subsection. Pursuant to such
procedure, he may grant a conditional or unconditional
exemption of any fiduciary or transaction, or class of
fiduciaries or transactions, from all or part of the
restrictions imposed by sections 406 and 407(a). Action under
this subsection may be taken only after consultation and
coordination with the Secretary of the Treasury. An exemption
granted under this section shall not relieve a fiduciary from
any other applicable provision of this Act. The Secretary may
not grant an exemption under this subsection unless he finds
that such exemption is--
(1) administratively feasible,
(2) in the interests of the plan and of its
participants and beneficiaries, and
(3) protective of the rights of participants and
beneficiaries of such plan.
Before granting an exemption under this subsection from section
406(a) or 407(a), the Secretary shall publish notice in the
Federal Register of the pendency of the exemption, shall
require that adequate notice be given to interested persons,
and shall afford interested persons opportunity to present
views. The Secretary may not grant an exemption under this
subsection from section 406(b) unless he affords an opportunity
for a hearing and makes a determination on the record with
respect to the findings required by paragraphs (1), (2), and
(3) of this subsection.
(b) The prohibitions provided in section 406 shall not apply
to any of the following transactions:
(1) Any loans made by the plan to parties in interest
who are participants or beneficiaries of the plan if
such loans (A) are available to all such participants
and beneficiaries on a reasonably equivalent basis, (B)
are not made available to highly compensated employees
(within the meaning of section 414(q) of the Internal
Revenue Code of 1986) in an amount greater than the
amount made available to other employees, (C) are made
in accordance with specific provisions regarding such
loans set forth in the plan, (D) bear a reasonable rate
of interest, and (E) are adequately secured. A loan
made by a plan shall not fail to meet the requirements
of the preceding sentence by reason of a loan repayment
suspension described under section 414(u)(4) of the
Internal Revenue Code of 1986.
(2)(A) Contracting or making reasonable arrangements
with a party in interest for office space, or legal,
accounting, or other services necessary for the
establishment or operation of the plan, if no more than
reasonable compensation is paid therefor.
(B)(i) No contract or arrangement for services
between a covered plan and a covered service provider,
and no extension or renewal of such a contract or
arrangement, is reasonable within the meaning of this
paragraph unless the [requirements of this clause]
requirements of this subparagraph are met. For purposes
of applying section 406(a)(1)(C) with respect to a
transaction described under this subparagraph, a
contract or arrangement for services between a covered
plan and a health insurance issuer providing health
insurance coverage in connection with the covered plan
in which the health insurance issuer contracts, in
connection with such plan, with a service provider for
pharmacy benefit management services shall be
considered to constitute an indirect furnishing of
goods, services, or facilities between the plan and the
service provider acting as the party in interest.
(ii)(I) For purposes of this subparagraph:
(aa) The term ``covered plan'' means a group
health plan as defined section 733(a).
(bb) The term ``covered service provider''
means a service provider that enters into a
contract or arrangement with the covered plan
and reasonably expects $1,000 (or such amount
as the Secretary may establish in regulations
to account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation, direct or indirect, to be
received in connection with providing one or
more of the following services, pursuant to the
contract or arrangement, regardless of whether
such services will be performed, or such
compensation received, by the covered service
provider, an affiliate, or a subcontractor:
(AA) [Brokerage services,] Services
(including brokerage services), for
which the covered service provider, an
affiliate, or a subcontractor
reasonably expects to receive indirect
compensation or direct compensation
described in item (dd), provided to a
covered plan with respect to selection
of insurance products (including vision
and dental), recordkeeping services,
medical management vendor, benefits
administration (including vision and
dental), stop-loss insurance, pharmacy
benefit management services, wellness
services, transparency tools and
vendors, group purchasing organization
preferred vendor panels, disease
management vendors and products,
compliance services, employee
assistance programs, or third party
administration services.
(BB) [Consulting,] Other services,
for which the covered service provider,
an affiliate, or a subcontractor
reasonably expects to receive indirect
compensation or direct compensation
described in item (dd), related to the
development or implementation of any of
the following: plan design, insurance
or insurance product selection
(including vision and dental),
recordkeeping, medical management,
benefits administration selection
(including vision and dental), stop-
loss insurance, pharmacy benefit
management services, wellness design
and management services, transparency
tools, group purchasing organization
agreements and services, participation
in and services from preferred vendor
panels, disease management, compliance
services, employee assistance programs,
or third party administration services.
(cc) The term ``affiliate'', with respect to
a covered service provider, means an entity
that directly or indirectly (through one or
more intermediaries) controls, is controlled
by, or is under common control with, such
provider, or is an officer, director, or
employee of, or partner in, such provider.
(dd)(AA) The term ``compensation'' means
anything of monetary value, but does not
include non-monetary compensation valued at
$250 (or such amount as the Secretary may
establish in regulations to account for
inflation since the date of enactment of the
Consolidated Appropriations Act, 2021, as
appropriate) or less, in the aggregate, during
the term of the contract or arrangement.
(BB) The term ``direct compensation'' means
compensation received directly from a covered
plan.
(CC) The term ``indirect compensation'' means
compensation received from any source other
than the covered plan, the plan sponsor, the
covered service provider, or an affiliate.
Compensation received from a subcontractor is
indirect compensation, unless it is received in
connection with services performed under a
contract or arrangement with a subcontractor.
(ee) The term ``responsible plan fiduciary''
means a fiduciary with authority to cause the
covered plan to enter into, or extend or renew,
the contract or arrangement.
(ff) The term ``subcontractor'' means any
person or entity (or an affiliate of such
person or entity) that is not an affiliate of
the covered service provider and that, pursuant
to a contract or arrangement with the covered
service provider or an affiliate, reasonably
expects to receive $1,000 (or such amount as
the Secretary may establish in regulations to
account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation for performing one or more
services described in item (bb) under a
contract or arrangement with the covered plan.
(gg) The term ``pharmacy benefit management
services'' includes any services provided by a
covered service provider to a covered plan with
respect to the administration of prescription
drug benefits under the covered plan,
including--
(AA) the processing and payment of
claims;
(BB) design of pharmacy networks;
(CC) negotiation, aggregation, and
distribution of rebates, discounts, and
other price concessions;
(DD) formulary design and
maintenance;
(EE) operation of pharmacies (whether
retail, mail order, specialty drug, or
otherwise); recordkeeping;
(FF) utilization review;
(GG) adjudication of claims; and
(HH) any other services specified by
the Secretary through guidance or
rulemaking.
(hh) The term ``clawback'' means amounts
collected by a pharmacy benefit manager from a
pharmacy for copayments collected from a
participant or beneficiary in excess of the
contracted rate.
(ii) The term ``third party administration
services for group health plans'' includes any
services provided by a covered service provider
to a covered plan with respect to the
administration of health benefits under the
covered plan, including--
(AA) the processing, repricing, and
payment of claims;
(BB) design, creation, and
maintenance of provider networks;
(CC) negotiation of discounts off
gross rates;
(DD) benefit and plan design;
negotiation of payment rates;
(EE) recordkeeping;
(FF) utilization review;
(GG) adjudication of claims;
(HH) regulatory compliance; and
(II) any other services set forth in
an administrative services agreement or
similar agreement or specified by the
Secretary through guidance or
rulemaking.
(II) For purposes of this subparagraph, a description
of compensation or cost may be expressed as a monetary
amount, formula, or a per capita charge for each
enrollee or, if the compensation or cost cannot
reasonably be expressed in such terms, by any other
reasonable method, including a disclosure that
additional compensation may be earned but may not be
calculated at the time of contract if such a disclosure
includes a description of the circumstances under which
the additional compensation may be earned and a
reasonable and good faith estimate if the covered
service provider cannot otherwise readily describe
compensation or cost and explains the methodology and
assumptions used to prepare such estimate. Any such
description shall contain sufficient information to
permit evaluation of the reasonableness of the
compensation or cost.
(III) No person or entity is a ``covered service
provider'' within the meaning of subclause (I)(bb)
solely on the basis of providing services as an
affiliate or a subcontractor that is performing one or
more of the services described in subitem (AA) or (BB)
of such subclause under the contract or arrangement
with the covered plan.
(iii) A covered service provider shall disclose to a
responsible plan fiduciary, in writing, the following:
(I) A description of the services to be
provided to the covered plan pursuant to the
contract or arrangement.
(II) If applicable, a statement that the
covered service provider, an affiliate, or a
subcontractor will provide, or reasonably
expects to provide, services pursuant to the
contract or arrangement directly to the covered
plan as a fiduciary (within the meaning of
section 3(21)).
(III) A description of all direct
compensation[, either in the aggregate or by
service,] by service that the covered service
provider, an affiliate, or a subcontractor
reasonably expects to receive in connection
with the services described in subclause (I).
(IV)(aa) A description of all indirect
compensation that the covered service provider,
an affiliate, or a subcontractor reasonably
expects to receive in connection with the
services described in subclause (I)--
(AA) including compensation from a
vendor to a brokerage firm based on a
structure of incentives not solely
related to the contract with the
covered plan; and
(BB) not including compensation
received by an employee from an
employer on account of work performed
by the employee.
(bb) A description of the arrangement between
the payer and the covered service provider, an
affiliate, or a subcontractor, as applicable,
pursuant to which such indirect compensation is
paid.
(cc) Identification of the services for which
the indirect compensation will be received, if
applicable.
(dd) Identification of the payer of the
indirect compensation.
(V) A description of any compensation that
will be paid among the covered service
provider, an affiliate, or a subcontractor, in
connection with the services described in
subclause (I) if such compensation is set on a
transaction basis (such as commissions,
finder's fees, or other similar incentive
compensation based on business placed or
retained), including identification of the
services for which such compensation will be
paid and identification of the payers and
recipients of such compensation (including the
status of a payer or recipient as an affiliate
or a subcontractor), regardless of whether such
compensation also is disclosed pursuant to
subclause (III) or (IV).
(VI) A description of any compensation that
the covered service provider, an affiliate, or
a subcontractor reasonably expects to receive
in connection with termination of the contract
or arrangement, and how any prepaid amounts
will be calculated and refunded upon such
termination.
(VII) With respect to a contract or
arrangement with the covered plan in connection
with the provision of pharmacy benefit
management services, as part of the description
required under subclauses (III) and (IV)--
(aa) all compensation described in
clause (ii)(I)(dd)(AA), including fees,
rebates, alternative discounts, co-
payment offsets, and other remuneration
expected to be received by the covered
service provider, an affiliate, or a
subcontractor from a pharmaceutical
manufacturer, distributor, rebate
aggregator, group purchasing
organization, or any other third party;
and
(bb) the amount and form of any
rebates, discounts, or price
concessions, including the amount
expected to be passed through to the
plan sponsor or the participants and
beneficiaries under the covered plan;
(cc) all compensation expected to be
received by the covered service
provider as a result of paying a lower
amount for the drug than the amount
charged as a copayment, coinsurance
amount, or deductible;
(dd) all compensation expected to be
received by the covered service
provider as a result of paying
pharmacies less than what is charged
the health plan, plan sponsor, or
participants and beneficiaries under
the covered plan;
(ee) all compensation expected to be
received by the covered service
provider from drug manufacturers and
any other third party in exchange for--
(AA) administering,
invoicing, allocating, or
collecting rebates related to
the covered plan;
(BB) providing business
services and activities,
including providing access to
drug utilization data;
(CC) keeping a percentage of
the list price of a drug; or
(DD) any other reason related
to the role of a covered
service provider as a conduit
between the drug manufacturers
or any other third party and
the covered plan.
(VIII) With respect to a contract or
arrangement with the covered plan in connection
with the provision of third party
administration services for group health plans,
as part of the description required under
subclauses (III) and (IV)--
(aa) the amount and form of any
rebates, discounts, savings fees,
refunds, or amounts received from
providers and facilities, including the
amounts that will be retained by the
covered service provider as a fee;
(bb) the amount and form of fees
expected to be received from other
service providers in relation to the
covered plan, including the amounts
that will be retained by the covered
service provider as a fee; and
(cc) the amount and form of expected
recoveries by the covered service
provider, including the amounts that
will be retained by the covered service
provider as a fee (disaggregated by
category), as a result of--
(AA) overpayments;
(BB) erroneous payments;
(CC) uncashed checks or
incomplete payments;
(DD) billing errors;
(EE) subrogation;
(FF) fraud; or
(GG) any other reason on
behalf of the covered plan.
(iv) A covered service provider shall disclose to a
responsible plan fiduciary, in writing a description of
the manner in which the compensation described in
clause (iii), as applicable, will be received.
(v)(I) A covered service provider shall disclose the
information required under clauses (iii) and (iv) to
the responsible plan fiduciary not later than the date
that is reasonably in advance of the date on which the
contract or arrangement is entered into, and extended
or renewed.
(II) A covered service provider shall disclose any
change to the information required under clause (iii)
and (iv) as soon as practicable, but not later than 60
days from the date on which the covered service
provider is informed of such change, unless such
disclosure is precluded due to extraordinary
circumstances beyond the covered service provider's
control, in which case the information shall be
disclosed as soon as practicable.
(III) A covered service provider, with respect to a
contract or arrangement with the covered plan in
connection with providing pharmacy benefit management
services, shall disclose, on an annual basis not later
than 60 days after the beginning of the current plan
year, to a responsible plan fiduciary, in writing, the
following with respect to the twelve months preceding
the current plan year:
(aa) All direct compensation described in
subclause (III) of clause (iii) and indirect
compensation described in subclause (IV) of
clause (iii) received by the covered service
provider (including such compensation described
in subclause (VII) of clause (iii)).
(bb) For each drug covered under the covered
plan, the amount by which the price for the
drug paid by the plan exceeds the amount paid
to pharmacies by the covered service provider.
(cc) The total gross spending by the covered
plan on drugs (excluding rebates, discounts, or
other price concessions).
(dd) The total net spending by the covered
plan on drugs.
(ee) The total gross spending at all
pharmacies wholly or partially owned by the
covered service provider, including mail-order,
specialty and retail pharmacies, with a
breakdown by individual pharmacy location.
(ff) The aggregate amount of clawback from
pharmacies, including mail-order, specialty,
and retail pharmacies.
(AA) categorical explanations
(grouped by the reason for clawback,
such as contractual true-up provisions,
overpayments, or non-covered medication
dispensed, and including information on
the amount in each category that was
passed through to the covered plan and
to participants and beneficiaries of
the covered plan); or
(BB) individual explanations for such
clawbacks.
(gg) Total aggregate amounts of fees
collected by the covered service provider in
connection with the provision of pharmacy
benefit management services to the covered
plan.
(hh) Any other information specified by the
Secretary through regulations or guidance that
may be necessary for a responsible plan
fiduciary to consider the merits of the
contract or arrangement with the covered
service provider and any conflicts of interest
that may exist.
(IV) A covered service provider, with respect to a
contract or arrangement with the covered plan in
connection with providing third party administration
services for group health plans, shall disclose, on an
annual basis not later than 60 days after the beginning
of the current plan year, to a responsible plan
fiduciary, in writing, the following with respect to
the twelve months preceding the current plan year:
(aa) All direct compensation described in
subclause (III) of clause (iii).
(bb) All indirect compensation described in
subclause (IV) of clause (iii) received by the
covered service provider (including such
compensation described in subclause (VIII) of
clause (iii)).
(cc) The aggregate amount for which the
covered service provider received indirect
compensation and the estimated amount of cost-
sharing incurred by plan participants and
beneficiaries as a result.
(dd) The total gross spending by the covered
plan on all costs and fees arising under or
paid under the administrative services
agreement with the third-party administrator
(not including any amounts described in items
(aa) through (cc) of clause (iii)(VIII).
(ee) The total net spending by the covered
plan on all costs and fees arising under or
paid under the administrative services
agreement with the covered service provider.
(ff) The aggregate fees collected by the
covered service provider.
(gg) Any other information specified by the
Secretary through regulations or guidance that
may be necessary for a responsible plan
fiduciary to consider the merits of the
contract or arrangement with the covered
service provider and any conflicts of interest
that may exist.
(vi)(I) Upon the written request of the responsible
plan fiduciary or covered plan administrator, a covered
service provider shall furnish any other information
relating to the compensation received in connection
with the contract or arrangement that is required for
the covered plan to comply with the reporting and
disclosure requirements under this Act.
(II) The covered service provider shall disclose the
information required under clause (iii)(I) reasonably
in advance of the date upon which such responsible plan
fiduciary or covered plan administrator states that it
is required to comply with the applicable reporting or
disclosure requirement, unless such disclosure is
precluded due to extraordinary circumstances beyond the
covered service provider's control, in which case the
information shall be disclosed as soon as practicable.
(vii) No contract or arrangement will fail to be
reasonable under this subparagraph solely because the
covered service provider, acting in good faith and with
reasonable diligence, makes an error or omission in
disclosing the information required pursuant to clause
(iii) (or a change to such information disclosed
pursuant to clause (v)(II)) or clause (vi), provided
that the covered service provider discloses the correct
information to the responsible plan fiduciary as soon
as practicable, but not later than 30 days from the
date on which the covered service provider knows of
such error or omission.
(viii)(I) Pursuant to subsection (a), subparagraphs
(C) and (D) of section 406(a)(1) shall not apply to a
responsible plan fiduciary, notwithstanding any failure
by a covered service provider to disclose information
required under clause (iii), if the following
conditions are met:
(aa) The responsible plan fiduciary did not
know that the covered service provider failed
or would fail to make required disclosures and
reasonably believed that the covered service
provider disclosed the information required to
be disclosed.
(bb) The responsible plan fiduciary, upon
discovering that the covered service provider
failed to disclose the required information,
requests in writing that the covered service
provider furnish such information.
(cc) If the covered service provider fails to
comply with a written request described in
subclause (II) within 90 days of the request,
the responsible plan fiduciary notifies the
Secretary of the covered service provider's
failure, in accordance with subclauses (II) and
(III).
(II) A notice described in subclause (I)(cc) shall
contain--
(aa) the name of the covered plan;
(bb) the plan number used for the annual
report on the covered plan;
(cc) the plan sponsor's name, address, and
employer identification number;
(dd) the name, address, and telephone number
of the responsible plan fiduciary;
(ee) the name, address, phone number, and, if
known, employer identification number of the
covered service provider;
(ff) a description of the services provided
to the covered plan;
(gg) a description of the information that
the covered service provider failed to
disclose;
(hh) the date on which such information was
requested in writing from the covered service
provider; and
(ii) a statement as to whether the covered
service provider continues to provide services
to the plan.
(III) A notice described in subclause (I)(cc) shall
be filed with the Department not later than 30 days
following the earlier of--
(aa) The covered service provider's refusal
to furnish the information requested by the
written request described in subclause (I)(bb);
or
(bb) 90 days after the written request
referred to in subclause (I)(cc) is made.
(IV) If the covered service provider fails to comply
with the written request under subclause (I)(bb) within
90 days of such request, the responsible plan fiduciary
shall determine whether to terminate or continue the
contract or arrangement under section 404. If the
requested information relates to future services and is
not disclosed promptly after the end of the 90-day
period, the responsible plan fiduciary shall terminate
the contract or arrangement as expeditiously as
possible, consistent with such duty of prudence.
(ix) Nothing in this subparagraph shall be construed
to supersede any provision of State law that governs
disclosures by parties that provide the services
described in this section, except to the extent that
such law prevents the application of a requirement of
this section.
(3) A loan to an employee stock ownership plan (as
defined in section 407(d)(6)), if--
(A) such loan is primarily for the benefit of
participants and beneficiaries of the plan, and
(B) such loan is at an interest rate which is
not in excess of a reasonable rate.
If the plan gives collateral to a party in interest for
such loan, such collateral may consist only of
qualifying employer securities (as defined in section
407(d)(5)).
(4) The investment of all or part of a plan's assets
in deposits which bear a reasonable interest rate in a
bank or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan and if--
(A) the plan covers only employees of such
bank or other institution and employees of
affiliates of such bank or other institution,
or
(B) such investment is expressly authorized
by a provision of the plan or by a fiduciary
(other than such bank or institution or
affiliate thereof) who is expressly empowered
by the plan to so instruct the trustee with
respect to such investment.
(5) Any contract for life insurance, health
insurance, or annuities with one or more insurers which
are qualified to do business in a State, if the plan
pays no more than adequate consideration, and if each
such insurer or insurers is--
(A) the employer maintaining the plan, or
(B) a party in interest which is wholly owned
(directly or indirectly) by the employer
maintaining the plan, or by any person which is
a party in interest with respect to the plan,
but only if the total premiums and annuity
considerations written by such insurers for
life insurance, health insurance, or annuities
for all plans (and their employers) with
respect to which such insurers are parties in
interest (not including premiums or annuity
considerations written by the employer
maintaining the plan) do not exceed 5 percent
of the total premiums and annuity
considerations written for all lines of
insurance in that year by such insurers (not
including premiums or annuity considerations
written by the employer maintaining the plan).
(6) The providing of any ancillary service by a bank
or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan, and if--
(A) such bank or similar financial
institution has adopted adequate internal
safeguards which assure that the providing of
such ancillary service is consistent with sound
banking and financial practice, as determined
by Federal or State supervisory authority, and
(B) the extent to which such ancillary
service is provided is subject to specific
guidelines issued by such bank or similar
financial institution (as determined by the
Secretary after consultation with Federal and
State supervisory authority), and adherence to
such guidelines would reasonably preclude such
bank or similar financial institution from
providing such ancillary service (i) in an
excessive or unreasonable manner, and (ii) in a
manner that would be inconsistent with the best
interests of participants and beneficiaries of
employee benefit plans.
Such ancillary services shall not be provided at more
than reasonable compensation.
(7) The exercise of a privilege to convert
securities, to the extent provided in regulations of
the Secretary, but only if the plan receives no less
than adequate consideration pursuant to such
conversion.
(8) Any transaction between a plan and (i) a common
or collective trust fund or pooled investment fund
maintained by a party in interest which is a bank or
trust company supervised by a State or Federal agency
or (ii) a pooled investment fund of an insurance
company qualified to do business in a State, if--
(A) the transaction is a sale or purchase of
an interest in the fund,
(B) the bank, trust company, or insurance
company receives not more than reasonable
compensation, and
(C) such transaction is expressly permitted
by the instrument under which the plan is
maintained, or by a fiduciary (other than the
bank, trust company, or insurance company, or
an affiliate thereof) who has authority to
manage and control the assets of the plan.
(9) The making by a fiduciary of a distribution of
the assets of the plan in accordance with the terms of
the plan if such assets are distributed in the same
manner as provided under section 4044 of this Act
(relating to allocation of assets).
(10) Any transaction required or permitted under part
1 of subtitle E of title IV.
(11) A merger of multiemployer plans, or the transfer
of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation
to meet the requirements of section 4231.
(12) The sale by a plan to a party in interest on or
after December 18, 1987, of any stock, if--
(A) the requirements of paragraphs (1) and
(2) of subsection (e) are met with respect to
such stock,
(B) on the later of the date on which the
stock was acquired by the plan, or January 1,
1975, such stock constituted a qualifying
employer security (as defined in section
407(d)(5) as then in effect), and
(C) such stock does not constitute a
qualifying employer security (as defined in
section 407(d)(5) as in effect at the time of
the sale).
(13) Any transfer made before January 1, 2033, of
excess pension assets from a defined benefit plan to a
retiree health account in a qualified transfer
permitted under section 420 of the Internal Revenue
Code of 1986 (as in effect on the date of enactment of
the SECURE 2.0 Act of 2022).
(14) Any transaction in connection with the provision
of investment advice described in section 3(21)(A)(ii)
to a participant or beneficiary of an individual
account plan that permits such participant or
beneficiary to direct the investment of assets in their
individual account, if--
(A) the transaction is--
(i) the provision of the investment
advice to the participant or
beneficiary of the plan with respect to
a security or other property available
as an investment under the plan,
(ii) the acquisition, holding, or
sale of a security or other property
available as an investment under the
plan pursuant to the investment advice,
or
(iii) the direct or indirect receipt
of fees or other compensation by the
fiduciary adviser or an affiliate
thereof (or any employee, agent, or
registered representative of the
fiduciary adviser or affiliate) in
connection with the provision of the
advice or in connection with an
acquisition, holding, or sale of a
security or other property available as
an investment under the plan pursuant
to the investment advice; and
(B) the requirements of subsection (g) are
met.
(15)(A) Any transaction involving the purchase or
sale of securities, or other property (as determined by
the Secretary), between a plan and a party in interest
(other than a fiduciary described in section 3(21)(A))
with respect to a plan if--
(i) the transaction involves a block trade,
(ii) at the time of the transaction, the
interest of the plan (together with the
interests of any other plans maintained by the
same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
(iii) the terms of the transaction, including
the price, are at least as favorable to the
plan as an arm's length transaction, and
(iv) the compensation associated with the
purchase and sale is not greater than the
compensation associated with an arm's length
transaction with an unrelated party.
(B) For purposes of this paragraph, the term ``block
trade'' means any trade of at least 10,000 shares or
with a market value of at least $200,000 which will be
allocated across two or more unrelated client accounts
of a fiduciary.
(16) Any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary), between a plan and a party in interest if--
(A) the transaction is executed through an
electronic communication network, alternative
trading system, or similar execution system or
trading venue subject to regulation and
oversight by--
(i) the applicable Federal regulating
entity, or
(ii) such foreign regulatory entity
as the Secretary may determine by
regulation,
(B) either--
(i) the transaction is effected
pursuant to rules designed to match
purchases and sales at the best price
available through the execution system
in accordance with applicable rules of
the Securities and Exchange Commission
or other relevant governmental
authority, or
(ii) neither the execution system nor
the parties to the transaction take
into account the identity of the
parties in the execution of trades,
(C) the price and compensation associated
with the purchase and sale are not greater than
the price and compensation associated with an
arm's length transaction with an unrelated
party,
(D) if the party in interest has an ownership
interest in the system or venue described in
subparagraph (A), the system or venue has been
authorized by the plan sponsor or other
independent fiduciary for transactions
described in this paragraph, and
(E) not less than 30 days prior to the
initial transaction described in this paragraph
executed through any system or venue described
in subparagraph (A), a plan fiduciary is
provided written or electronic notice of the
execution of such transaction through such
system or venue.
(17)(A) Transactions described in subparagraphs (A),
(B), and (D) of section 406(a)(1) between a plan and a
person that is a party in interest other than a
fiduciary (or an affiliate) who has or exercises any
discretionary authority or control with respect to the
investment of the plan assets involved in the
transaction or renders investment advice (within the
meaning of section 3(21)(A)(ii)) with respect to those
assets, solely by reason of providing services to the
plan or solely by reason of a relationship to such a
service provider described in subparagraph (F), (G),
(H), or (I) of section 3(14), or both, but only if in
connection with such transaction the plan receives no
less, nor pays no more, than adequate consideration.
(B) For purposes of this paragraph, the term
``adequate consideration'' means--
(i) in the case of a security for which there
is a generally recognized market--
(I) the price of the security
prevailing on a national securities
exchange which is registered under
section 6 of the Securities Exchange
Act of 1934, taking into account
factors such as the size of the
transaction and marketability of the
security, or
(II) if the security is not traded on
such a national securities exchange, a
price not less favorable to the plan
than the offering price for the
security as established by the current
bid and asked prices quoted by persons
independent of the issuer and of the
party in interest, taking into account
factors such as the size of the
transaction and marketability of the
security, and
(ii) in the case of an asset other than a
security for which there is a generally
recognized market, the fair market value of the
asset as determined in good faith by a
fiduciary or fiduciaries in accordance with
regulations prescribed by the Secretary.
(18) Foreign exchange transactions.--Any foreign
exchange transactions, between a bank or broker-dealer
(or any affiliate of either), and a plan (as defined in
section 3(3)) with respect to which such bank or
broker-dealer (or affiliate) is a trustee, custodian,
fiduciary, or other party in interest, if--
(A) the transaction is in connection with the
purchase, holding, or sale of securities or
other investment assets (other than a foreign
exchange transaction unrelated to any other
investment in securities or other investment
assets),
(B) at the time the foreign exchange
transaction is entered into, the terms of the
transaction are not less favorable to the plan
than the terms generally available in
comparable arm's length foreign exchange
transactions between unrelated parties, or the
terms afforded by the bank or broker-dealer (or
any affiliate of either) in comparable arm's-
length foreign exchange transactions involving
unrelated parties,
(C) the exchange rate used by such bank or
broker-dealer (or affiliate) for a particular
foreign exchange transaction does not deviate
by more than 3 percent from the interbank bid
and asked rates for transactions of comparable
size and maturity at the time of the
transaction as displayed on an independent
service that reports rates of exchange in the
foreign currency market for such currency, and
(D) the bank or broker-dealer (or any
affiliate of either) does not have investment
discretion, or provide investment advice, with
respect to the transaction.
(19) Cross trading.--Any transaction described in
sections 406(a)(1)(A) and 406(b)(2) involving the
purchase and sale of a security between a plan and any
other account managed by the same investment manager,
if--
(A) the transaction is a purchase or sale,
for no consideration other than cash payment
against prompt delivery of a security for which
market quotations are readily available,
(B) the transaction is effected at the
independent current market price of the
security (within the meaning of section
270.17a-7(b) of title 17, Code of Federal
Regulations),
(C) no brokerage commission, fee (except for
customary transfer fees, the fact of which is
disclosed pursuant to subparagraph (D)), or
other remuneration is paid in connection with
the transaction,
(D) a fiduciary (other than the investment
manager engaging in the cross-trades or any
affiliate) for each plan participating in the
transaction authorizes in advance of any cross-
trades (in a document that is separate from any
other written agreement of the parties) the
investment manager to engage in cross trades at
the investment manager's discretion, after such
fiduciary has received disclosure regarding the
conditions under which cross trades may take
place (but only if such disclosure is separate
from any other agreement or disclosure
involving the asset management relationship),
including the written policies and procedures
of the investment manager described in
subparagraph (H),
(E) each plan participating in the
transaction has assets of at least
$100,000,000, except that if the assets of a
plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group (as defined in
section 407(d)(7)), the master trust has assets
of at least $100,000,000,
(F) the investment manager provides to the
plan fiduciary who authorized cross trading
under subparagraph (D) a quarterly report
detailing all cross trades executed by the
investment manager in which the plan
participated during such quarter, including the
following information, as applicable: (i) the
identity of each security bought or sold; (ii)
the number of shares or units traded; (iii) the
parties involved in the cross-trade; and (iv)
trade price and the method used to establish
the trade price,
(G) the investment manager does not base its
fee schedule on the plan's consent to cross
trading, and no other service (other than the
investment opportunities and cost savings
available through a cross trade) is conditioned
on the plan's consent to cross trading,
(H) the investment manager has adopted, and
cross-trades are effected in accordance with,
written cross-trading policies and procedures
that are fair and equitable to all accounts
participating in the cross-trading program, and
that include a description of the manager's
pricing policies and procedures, and the
manager's policies and procedures for
allocating cross trades in an objective manner
among accounts participating in the cross-
trading program, and
(I) the investment manager has designated an
individual responsible for periodically
reviewing such purchases and sales to ensure
compliance with the written policies and
procedures described in subparagraph (H), and
following such review, the individual shall
issue an annual written report no later than 90
days following the period to which it relates
signed under penalty of perjury to the plan
fiduciary who authorized cross trading under
subparagraph (D) describing the steps performed
during the course of the review, the level of
compliance, and any specific instances of non-
compliance.
The written report under subparagraph (I) shall also
notify the plan fiduciary of the plan's right to
terminate participation in the investment manager's
cross-trading program at any time.
(20)(A) Except as provided in subparagraphs (B) and
(C), a transaction described in section 406(a) in
connection with the acquisition, holding, or
disposition of any security or commodity, if the
transaction is corrected before the end of the
correction period.
(B) Subparagraph (A) does not apply to any
transaction between a plan and a plan sponsor or its
affiliates that involves the acquisition or sale of an
employer security (as defined in section 407(d)(1)) or
the acquisition, sale, or lease of employer real
property (as defined in section 407(d)(2)).
(C) In the case of any fiduciary or other party in
interest (or any other person knowingly participating
in such transaction), subparagraph (A) does not apply
to any transaction if, at the time the transaction
occurs, such fiduciary or party in interest (or other
person) knew (or reasonably should have known) that the
transaction would (without regard to this paragraph)
constitute a violation of section 406(a).
(D) For purposes of this paragraph, the term
``correction period'' means, in connection with a
fiduciary or party in interest (or other person
knowingly participating in the transaction), the 14-day
period beginning on the date on which such fiduciary or
party in interest (or other person) discovers, or
reasonably should have discovered, that the transaction
would (without regard to this paragraph) constitute a
violation of section 406(a).
(E) For purposes of this paragraph--
(i) The term ``security'' has the meaning
given such term by section 475(c)(2) of the
Internal Revenue Code of 1986 (without regard
to subparagraph (F)(iii) and the last sentence
thereof).
(ii) The term ``commodity'' has the meaning
given such term by section 475(e)(2) of such
Code (without regard to subparagraph (D)(iii)
thereof).
(iii) The term ``correct'' means, with
respect to a transaction--
(I) to undo the transaction to the
extent possible and in any case to make
good to the plan or affected account
any losses resulting from the
transaction, and
(II) to restore to the plan or
affected account any profits made
through the use of assets of the plan.
(21) The provision of a de minimis financial
incentive described in section 401(k)(4)(A) or section
403(b)(12)(A) of the Internal Revenue Code of 1986.
(c) Nothing in section 406 shall be construed to prohibit any
fiduciary from--
(1) receiving any benefit to which he may be entitled
as a participant or beneficiary in the plan, so long as
the benefit is computed and paid on a basis which is
consistent with the terms of the plan as applied to all
other participants and beneficiaries;
(2) receiving any reasonable compensation for
services rendered, or for the reimbursement of expenses
properly and actually incurred, in the performance of
his duties with the plan; except that no person so
serving who already receives full time pay from an
employer or an association of employers, whose
employees are participants in the plan, or from an
employee organization whose members are participants in
such plan shall receive compensation from such plan,
except for reimbursement of expenses properly and
actually incurred; or
(3) serving as a fiduciary in addition to being an
officer, employee, agent, or other representative of a
party in interest.
(d)(1) Section 407(b) and subsections (b), (c), and (e) of
this section shall not apply to a transaction in which a plan
directly or indirectly--
(A) lends any part of the corpus or income of the
plan to,
(B) pays any compensation for personal services
rendered to the plan to, or
(C) acquires for the plan any property from, or sells
any property to,
any person who is with respect to the plan an owner-employee
(as defined in section 401(c)(3) of the Internal Revenue Code
of 1986), a member of the family (as defined in section
267(c)(4) of such Code) of any such owner-employee, or any
corporation in which any such owner-employee owns, directly or
indirectly, 50 percent or more of the total combined voting
power of all classes of stock entitled to vote or 50 percent or
more of the total value of shares of all classes of stock of
the corporation.
(2)(A) For purposes of paragraph (1), the following shall be
treated as owner-employees:
(i) A shareholder-employee.
(ii) A participant or beneficiary of an individual
retirement plan (as defined in section 7701(a)(37) of
the Internal Revenue Code of 1986).
(iii) An employer or association of employees which
establishes such an individual retirement plan under
section 408(c) of such Code.
(B) Paragraph (1)(C) shall not apply to a transaction which
consists of a sale of employer securities to an employee stock
ownership plan (as defined in section 407(d)(6)) by a
shareholder-employee, a member of the family (as defined in
section 267(c)(4) of such Code) of any such owner-employee, or
a corporation in which such a shareholder-employee owns stock
representing a 50 percent or greater interest described in
paragraph (1).
(C) For purposes of paragraph (1)(A), the term ``owner-
employee'' shall only include a person described in clause (ii)
or (iii) of subparagraph (A).
(3) For purposes of paragraph (2), the term ``shareholder-
employee'' means an employee or officer of an S corporation (as
defined in section 1361(a)(1) of such Code) who owns (or is
considered as owning within the meaning of section 318(a)(1) of
such Code) more than 5 percent of the outstanding stock of the
corporation on any day during the taxable year of such
corporation.
(e) Sections 406 and 407 shall not apply to the acquisition
or sale by a plan of qualifying employer securities (as defined
in section 407(d)(5)) or acquisition, sale or lease by a plan
of qualifying employer real property (as defined in section
407(d)(4))--
(1) if such acquisition, sale, or lease is for
adequate consideration (or in the case of a marketable
obligation, at a price not less favorable to the plan
than the price determined under section 407(e)(1)),
(2) if no commission is charged with respect thereto,
and
(3) if--
(A) the plan is an eligible individual
account plan (as defined in section 407(d)(3)),
or
(B) in the case of an acquisition or lease of
qualifying employer real property by a plan
which is not an eligible individual account
plan, or of an acquisition of qualifying
employer securities by such a plan, the lease
or acquisition is not prohibited by section
407(a).
(f) Section 406(b)(2) shall not apply to any merger or
transfer described in subsection (b)(11).
(g) Provision of Investment Advice to Participant and
Beneficiaries.--
(1) In general.--The prohibitions provided in section
406 shall not apply to transactions described in
subsection (b)(14) if the investment advice provided by
a fiduciary adviser is provided under an eligible
investment advice arrangement.
(2) Eligible investment advice arrangement.--For
purposes of this subsection, the term ``eligible
investment advice arrangement'' means an arrangement--
(A) which either--
(i) provides that any fees (including
any commission or other compensation)
received by the fiduciary adviser for
investment advice or with respect to
the sale, holding, or acquisition of
any security or other property for
purposes of investment of plan assets
do not vary depending on the basis of
any investment option selected, or
(ii) uses a computer model under an
investment advice program meeting the
requirements of paragraph (3) in
connection with the provision of
investment advice by a fiduciary
adviser to a participant or
beneficiary, and
(B) with respect to which the requirements of
paragraph (4), (5), (6), (7), (8), and (9) are
met.
(3) Investment advice program using computer model.--
(A) In general.--An investment advice program
meets the requirements of this paragraph if the
requirements of subparagraphs (B), (C), and (D)
are met.
(B) Computer model.--The requirements of this
subparagraph are met if the investment advice
provided under the investment advice program is
provided pursuant to a computer model that--
(i) applies generally accepted
investment theories that take into
account the historic returns of
different asset classes over defined
periods of time,
(ii) utilizes relevant information
about the participant, which may
include age, life expectancy,
retirement age, risk tolerance, other
assets or sources of income, and
preferences as to certain types of
investments,
(iii) utilizes prescribed objective
criteria to provide asset allocation
portfolios comprised of investment
options available under the plan,
(iv) operates in a manner that is not
biased in favor of investments offered
by the fiduciary adviser or a person
with a material affiliation or
contractual relationship with the
fiduciary adviser, and
(v) takes into account all investment
options under the plan in specifying
how a participant's account balance
should be invested and is not
inappropriately weighted with respect
to any investment option.
(C) Certification.--
(i) In general.--The requirements of
this subparagraph are met with respect
to any investment advice program if an
eligible investment expert certifies,
prior to the utilization of the
computer model and in accordance with
rules prescribed by the Secretary, that
the computer model meets the
requirements of subparagraph (B).
(ii) Renewal of certifications.--If,
as determined under regulations
prescribed by the Secretary, there are
material modifications to a computer
model, the requirements of this
subparagraph are met only if a
certification described in clause (i)
is obtained with respect to the
computer model as so modified.
(iii) Eligible investment expert.--
The term ``eligible investment expert''
means any person--
(I) which meets such
requirements as the Secretary
may provide, and
(II) does not bear any
material affiliation or
contractual relationship with
any investment adviser or a
related person thereof (or any
employee, agent, or registered
representative of the
investment adviser or related
person).
(D) Exclusivity of recommendation.--The
requirements of this subparagraph are met with
respect to any investment advice program if--
(i) the only investment advice
provided under the program is the
advice generated by the computer model
described in subparagraph (B), and
(ii) any transaction described in
subsection (b)(14)(A)(ii) occurs solely
at the direction of the participant or
beneficiary.
Nothing in the preceding sentence shall
preclude the participant or beneficiary from
requesting investment advice other than that
described in subparagraph (A), but only if such
request has not been solicited by any person
connected with carrying out the arrangement.
(4) Express authorization by separate fiduciary.--The
requirements of this paragraph are met with respect to
an arrangement if the arrangement is expressly
authorized by a plan fiduciary other than the person
offering the investment advice program, any person
providing investment options under the plan, or any
affiliate of either.
(5) Annual audit.--The requirements of this paragraph
are met if an independent auditor, who has appropriate
technical training or experience and proficiency and so
represents in writing--
(A) conducts an annual audit of the
arrangement for compliance with the
requirements of this subsection, and
(B) following completion of the annual audit,
issues a written report to the fiduciary who
authorized use of the arrangement which
presents its specific findings regarding
compliance of the arrangement with the
requirements of this subsection.
For purposes of this paragraph, an auditor is
considered independent if it is not related to the
person offering the arrangement to the plan and is not
related to any person providing investment options
under the plan.
(6) Disclosure.--The requirements of this paragraph
are met if--
(A) the fiduciary adviser provides to a
participant or a beneficiary before the initial
provision of the investment advice with regard
to any security or other property offered as an
investment option, a written notification
(which may consist of notification by means of
electronic communication)--
(i) of the role of any party that has
a material affiliation or contractual
relationship with the fiduciary adviser
in the development of the investment
advice program and in the selection of
investment options available under the
plan,
(ii) of the past performance and
historical rates of return of the
investment options available under the
plan,
(iii) of all fees or other
compensation relating to the advice
that the fiduciary adviser or any
affiliate thereof is to receive
(including compensation provided by any
third party) in connection with the
provision of the advice or in
connection with the sale, acquisition,
or holding of the security or other
property,
(iv) of any material affiliation or
contractual relationship of the
fiduciary adviser or affiliates thereof
in the security or other property,
(v) the manner, and under what
circumstances, any participant or
beneficiary information provided under
the arrangement will be used or
disclosed,
(vi) of the types of services
provided by the fiduciary adviser in
connection with the provision of
investment advice by the fiduciary
adviser,
(vii) that the adviser is acting as a
fiduciary of the plan in connection
with the provision of the advice, and
(viii) that a recipient of the advice
may separately arrange for the
provision of advice by another adviser,
that could have no material affiliation
with and receive no fees or other
compensation in connection with the
security or other property, and
(B) at all times during the provision of
advisory services to the participant or
beneficiary, the fiduciary adviser--
(i) maintains the information
described in subparagraph (A) in
accurate form and in the manner
described in paragraph (8),
(ii) provides, without charge,
accurate information to the recipient
of the advice no less frequently than
annually,
(iii) provides, without charge,
accurate information to the recipient
of the advice upon request of the
recipient, and
(iv) provides, without charge,
accurate information to the recipient
of the advice concerning any material
change to the information required to
be provided to the recipient of the
advice at a time reasonably
contemporaneous to the change in
information.
(7) Other conditions.--The requirements of this
paragraph are met if--
(A) the fiduciary adviser provides
appropriate disclosure, in connection with the
sale, acquisition, or holding of the security
or other property, in accordance with all
applicable securities laws,
(B) the sale, acquisition, or holding occurs
solely at the direction of the recipient of the
advice,
(C) the compensation received by the
fiduciary adviser and affiliates thereof in
connection with the sale, acquisition, or
holding of the security or other property is
reasonable, and
(D) the terms of the sale, acquisition, or
holding of the security or other property are
at least as favorable to the plan as an arm's
length transaction would be.
(8) Standards for presentation of information.--
(A) In general.--The requirements of this
paragraph are met if the notification required
to be provided to participants and
beneficiaries under paragraph (6)(A) is written
in a clear and conspicuous manner and in a
manner calculated to be understood by the
average plan participant and is sufficiently
accurate and comprehensive to reasonably
apprise such participants and beneficiaries of
the information required to be provided in the
notification.
(B) Model form for disclosure of fees and
other compensation.--The Secretary shall issue
a model form for the disclosure of fees and
other compensation required in paragraph
(6)(A)(iii) which meets the requirements of
subparagraph (A).
(9) Maintenance for 6 years of evidence of
compliance.--The requirements of this paragraph are met
if a fiduciary adviser who has provided advice referred
to in paragraph (1) maintains, for a period of not less
than 6 years after the provision of the advice, any
records necessary for determining whether the
requirements of the preceding provisions of this
subsection and of subsection (b)(14) have been met. A
transaction prohibited under section 406 shall not be
considered to have occurred solely because the records
are lost or destroyed prior to the end of the 6-year
period due to circumstances beyond the control of the
fiduciary adviser.
(10) Exemption for plan sponsor and certain other
fiduciaries.--
(A) In general.--Subject to subparagraph (B),
a plan sponsor or other person who is a
fiduciary (other than a fiduciary adviser)
shall not be treated as failing to meet the
requirements of this part solely by reason of
the provision of investment advice referred to
in section 3(21)(A)(ii) (or solely by reason of
contracting for or otherwise arranging for the
provision of the advice), if--
(i) the advice is provided by a
fiduciary adviser pursuant to an
eligible investment advice arrangement
between the plan sponsor or other
fiduciary and the fiduciary adviser for
the provision by the fiduciary adviser
of investment advice referred to in
such section,
(ii) the terms of the eligible
investment advice arrangement require
compliance by the fiduciary adviser
with the requirements of this
subsection, and
(iii) the terms of the eligible
investment advice arrangement include a
written acknowledgment by the fiduciary
adviser that the fiduciary adviser is a
fiduciary of the plan with respect to
the provision of the advice.
(B) Continued duty of prudent selection of
adviser and periodic review.--Nothing in
subparagraph (A) shall be construed to exempt a
plan sponsor or other person who is a fiduciary
from any requirement of this part for the
prudent selection and periodic review of a
fiduciary adviser with whom the plan sponsor or
other person enters into an eligible investment
advice arrangement for the provision of
investment advice referred to in section
3(21)(A)(ii). The plan sponsor or other person
who is a fiduciary has no duty under this part
to monitor the specific investment advice given
by the fiduciary adviser to any particular
recipient of the advice.
(C) Availability of plan assets for payment
for advice.--Nothing in this part shall be
construed to preclude the use of plan assets to
pay for reasonable expenses in providing
investment advice referred to in section
3(21)(A)(ii).
(11) Definitions.--For purposes of this subsection
and subsection (b)(14)--
(A) Fiduciary adviser.--The term ``fiduciary
adviser'' means, with respect to a plan, a
person who is a fiduciary of the plan by reason
of the provision of investment advice referred
to in section 3(21)(A)(ii) by the person to a
participant or beneficiary of the plan and who
is--
(i) registered as an investment
adviser under the Investment Advisers
Act of 1940 (15 U.S.C. 80b-1 et seq.)
or under the laws of the State in which
the fiduciary maintains its principal
office and place of business,
(ii) a bank or similar financial
institution referred to in subsection
(b)(4) or a savings association (as
defined in section 3(b)(1) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(1)), but only if the
advice is provided through a trust
department of the bank or similar
financial institution or savings
association which is subject to
periodic examination and review by
Federal or State banking authorities,
(iii) an insurance company qualified
to do business under the laws of a
State,
(iv) a person registered as a broker
or dealer under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.),
(v) an affiliate of a person
described in any of clauses (i) through
(iv), or
(vi) an employee, agent, or
registered representative of a person
described in clauses (i) through (v)
who satisfies the requirements of
applicable insurance, banking, and
securities laws relating to the
provision of the advice.
For purposes of this part, a person who
develops the computer model described in
paragraph (3)(B) or markets the investment
advice program or computer model shall be
treated as a person who is a fiduciary of the
plan by reason of the provision of investment
advice referred to in section 3(21)(A)(ii) to a
participant or beneficiary and shall be treated
as a fiduciary adviser for purposes of this
subsection and subsection (b)(14), except that
the Secretary may prescribe rules under which
only 1 fiduciary adviser may elect to be
treated as a fiduciary with respect to the
plan.
(B) Affiliate.--The term ``affiliate'' of
another entity means an affiliated person of
the entity (as defined in section 2(a)(3) of
the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(3))).
(C) Registered representative.--The term
``registered representative'' of another entity
means a person described in section 3(a)(18) of
the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(18)) (substituting the entity for the
broker or dealer referred to in such section)
or a person described in section 202(a)(17) of
the Investment Advisers Act of 1940 (15 U.S.C.
80b-2(a)(17)) (substituting the entity for the
investment adviser referred to in such
section).
(h) Provision of Pharmacy Benefit Services.--
(1) In general.--Provided that all of the conditions
described in paragraph (2) are met, the restrictions
imposed by subsections (a), (b)(1), and (b)(2) of
section 406 shall not apply to--
(A) the offering of pharmacy benefit services
to a group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or to
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
(B) the purchase of pharmacy benefit services
by plan participants and beneficiaries of a
group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or of
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
or
(C) the operation or implementation of
pharmacy benefit services by an entity
described in section 3(37)(G)(vi) or by any
other group health plan that is sponsored by a
regional council, local union, or other labor
organization affiliated with such entity,
in any arrangement where such entity described in
section 3(37)(G)(vi) or any related organization or
subsidiary of such entity provides pharmacy benefit
services that include prior authorization and appeals,
a retail pharmacy network, pharmacy benefit
administration, mail order fulfillment, formulary
support, manufacturer payments, audits, and specialty
pharmacy and goods, to any such group health plan.
(2) Conditions.--The conditions described in this
paragraph are the following:
(A) The terms of the arrangement are at least
as favorable to the group health plan as such
group health plan could obtain in a similar
arm's length arrangement with an unrelated
third party.
(B) At least 50 percent of the providers
participating in the pharmacy benefit services
offered by the arrangement are unrelated to the
contributing employers or any other party in
interest with respect to the group health plan.
(C) The group health plan retains an
independent fiduciary who will be responsible
for monitoring the group health plan's
consultants, contractors, subcontractors, and
other service providers for purposes of
pharmacy benefit services described in
paragraph (1) offered by such entity or any of
its related organizations or subsidiaries and
monitors the transactions of such entity and
any of its related organizations or
subsidiaries to ensure that all conditions of
this exemption are satisfied during each plan
year.
(D) Any decisions regarding the provision of
pharmacy benefit services described in
paragraph (1) are made by the group health
plan's independent fiduciary, based on
objective standards developed by the
independent fiduciary in reliance on
information provided by the arrangement.
(E) The independent fiduciary of the group
health plan provides an annual report to the
Secretary and the congressional committees of
jurisdiction attesting that the conditions
described in subparagraphs (C) and (D) have
been met for the applicable plan year, together
with a statement that use of the arrangement's
services are in the best interest of the
participants and beneficiaries in the aggregate
for that plan year compared to other similar
arrangements the group health plan could have
obtained in transactions with an unrelated
third party.
(F) The arrangement is not designed to
benefit any party in interest with respect to
the group health plan.
(3) Violations.--In the event an entity described in
section 3(37)(G)(vi) or any affiliate of such entity
violates any of the conditions of such exemption, such
exemption shall not apply with respect to such entity
or affiliate and all enforcement and claims available
under this Act shall apply with respect to such entity
or affiliate.
(4) Rule of construction.--Nothing in this subsection
shall be construed to modify any obligation of a group
health plan otherwise set forth in this Act.
(5) Group health plan.--In this subsection, the term
``group health plan'' has the meaning given such term
in section 733(a).
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