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408(b)(2) Fee Disclosure Checklist

ERISA plan fiduciaries need to examine and evaluate a plan’s administrative expenses in order to ensure that a plan does not engage in a prohibited transaction by paying unreasonable fees to service providers.

Section 408(b)(2) permits ERISA plans to enter into reasonable arrangements for services necessary to the establishment or operation of the plan if the compensation paid for the services is reasonable.  DOL regulations require “covered service providers” to provide plan fiduciaries with information regarding the nature and cost of the services which they provide. A plan fiduciary who does not receive adequate information from a covered service provider may continue to rely on the protection of Section 408(b)(2) if the fiduciary requests that the service provider furnish the required information and, if the service provider fails to comply, reports the failure to the Department of Labor.

Here is a checklist to help plan fiduciaries to identify whether the initial disclosures received from a plan’s covered service providers comply with the requirements of Section 408(b)(2).  Note that information must be provided not only with respect to services rendered by the covered service provider itself, but also with regard to services provided by its affiliates and subcontractors.  Covered service providers are also required to provide updated information when a contract is renewed  or extended or when certain critical information changes. Read More →

Out-of-Pocket Maximums for Generic vs. Brand Name Prescription Drugs

Under the Affordable Care Act, a non-grandfathered group health plan must limit a participant’s out-of-pocket expenses to a specified amount (currently, $6,350 for employee-only coverage and $12,700 for other coverage options).  The purpose of the out-of-pocket maximum is to ensure that the cost of health care coverage does not fall disproportionately on the participant rather than on the insurer or plan sponsor.

Yet individuals differ in their ability and/or willingness to spend money on certain health care services.  For example, some participants prefer to use brand-name prescription drugs–and are sometimes urged to do so by their physicians–regardless of whether a generic equivalent is available.  Group health plans typically impose great cost-sharing requirements on participants who choose brand-name prescription drugs over a generic equivalent.   If a participant chooses a more expensive brand-name drug, must the full co-payment counted towards his out-of-pocket maximum for the plan year? Read More →

DOL Issues New Model COBRA Notices

The Department of Labor (DOL) has issued two new Model Notices designed to help group health plans inform participants of their rights to continue group health coverage under COBRA.  The Model Notices reflect the requirements applicable to single-employer group health plans and must be modified if they are used to provide notice of rights under other types of plans.

 

According to a notice of proposed rule-making to be published on May 7, 2014, the DOL plans to maintain updated Model Notices on its website.