Employee Benefits Security Administration requires pharmacy benefit managers to disclose detailed compensation to large self-insured health plans
As of our last check on November 3, 2026, this is final but not yet in effect. It takes effect January 4, 2027.
We check the Federal Register daily for later actions. We check federal court opinions for rulings on published rules weekly, on Mondays. A ruling can take time to reach us, so not finding one here does not mean there is none.
In short
- What changed
- The Employee Benefits Security Administration (EBSA), part of the Department of Labor, issued a final rule under the Employee Retirement Income Security Act (ERISA). It requires pharmacy benefit managers (PBMs) and their affiliated brokers and consultants to give detailed compensation disclosures to fiduciaries of large self-insured group health plans: before a contract is entered or renewed, then every six months, with a yearly audit right for the plan.
- Who's affected
- The rule covers self-insured group health plans of employers with an average of at least 100 employees, or plans with at least 100 participants, and the PBMs that serve them. Fully insured plans, smaller plans and plans of sponsors in the drug supply chain are outside the rule's detailed disclosures.
- What to do
- The new disclosure and audit duties fall on PBMs, starting with plan years beginning on or after July 1, 2027. For employers acting as plan fiduciaries, the one new step applies only if a PBM fails to comply and the fiduciary wants the rule's exemption. In that case the fiduciary must ask for a fix in writing, notify the Department of Labor if the PBM does not fix it within 90 days, and document whether it keeps the contract.
What changed
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From the sourceSUMMARY
a final regulation that will require providers of pharmacy benefit management services and affiliated providers of brokerage and consulting services to disclose information about their compensation to fiduciaries of large, self-insured group health plans
Also: SUMMARY
As directed in section 12 of President Trump's Executive Order 14273, Lowering Drug Prices by Once Again Putting Americans First, the Department is issuing this rule
The Department of Labor issued a final rule that requires providers of pharmacy benefit management services, and affiliated brokers and consultants, to disclose their compensation to fiduciaries of large self-insured group health plans. The rule responds to Executive Order 14273.
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From the source29 CFR 2550.408b-22(e)
A covered service provider shall disclose to a responsible plan fiduciary, in writing
Also: 29 CFR 2550.408b-22(e)
(for extensions and renewals, 90 calendar days in advance is deemed to be a reasonable period of time)
Covered providers must give the plan's responsible fiduciary a written initial disclosure reasonably before a contract is entered, extended or renewed. For extensions and renewals, 90 calendar days in advance counts as reasonable.
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From the sourceSupplementary Information, E.3.4
there are four subparagraphs listing disclosure obligations as follows: (i) payments from drug manufacturers, (ii) spread compensation, (iii) pharmacy recoupment, and (iv) price protection agreements.
Also: 29 CFR 2550.408b-22(e)(6)(i)
A description of any formulary placement incentives and arrangements that the covered service provider, an affiliate, an agent, or a subcontractor has entered with any drug manufacturer
Also: 29 CFR 2550.408b-22(e)(7)
A description of the net price per course of treatment or single fill, such as a 30-day supply or 90-day supply, to the covered plan of each drug on the formulary
The initial disclosure covers direct compensation and indirect compensation: drug manufacturer payments, spread compensation, pharmacy recoupment and price protection agreements. It also covers formulary placement incentives, the net price per fill of each drug on the formulary, any fiduciary status and the plan's audit right.
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From the source29 CFR 2550.408b-22(g)
on a semiannual basis (or at the request of the covered plan, quarterly) no later than 30 calendar days after the end of each six-month period or quarter beginning on the date the service contract or arrangement is entered
Also: 29 CFR 2550.408b-22(g)(4)
the term ``materially'' means 5 percent or more, or such lower percentage or dollar amount as may be agreed to by the responsible plan fiduciary and set forth in writing in the contract or arrangement.
Providers must also disclose compensation every six months (or quarterly at the plan's request), no later than 30 calendar days after each period ends. They must explain any category that exceeds its estimate by 5 percent or more, or by a lower threshold agreed in writing.
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From the source29 CFR 2550.408b-22(j)(1)
Not less than once per year, at the written request of the covered plan, the covered service provider shall allow for an audit of the covered service provider for accuracy of any disclosure made to comply with this section.
Also: 29 CFR 2550.408b-22(j)(2)
A responsible plan fiduciary of the covered plan shall have the right to select an auditor.
Also: 29 CFR 2550.408b-22(j)(5)
but in no event later than 60 calendar days absent extraordinary circumstances beyond their control.
Covered plans get the right to an audit of the disclosures at least once a year, with an auditor the plan's fiduciary selects. The provider must supply the requested information within 60 calendar days, absent extraordinary circumstances.
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From the source29 CFR 2550.408b-22(k)(2)
Descriptions of compensation or amounts required under this section must be expressed as a monetary amount (e.g., $1,000)
Also: 29 CFR 2550.408b-22(k)(3)
Upon request of a responsible plan fiduciary of a covered plan, descriptions of compensation required under this section must also be provided, within a reasonable time after such request, in a standard machine-readable file.
Compensation must be stated as a dollar amount, and must be provided in a machine-readable file when the fiduciary requests it.
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From the sourceSupplementary Information, E.1.2
While the proposed rule applied to all self-insured group health plans, the final rule further limited the scope to large self-insured group health plans
Also: Supplementary Information, E.3.12.2
The Department decided not to include the conflict disclosure in the final rule.
Also: Supplementary Information, E.16
In the proposal, the Department stated that the rule would be effective 60 days after publication and applicable for plan years beginning on or after July 1, 2026.
Compared with the proposal, the final rule covers only large self-insured plans, drops the separate conflict-of-interest disclosure, and moves the applicability date. The proposal had a date of plan years beginning on or after July 1, 2026; the final rule uses July 1, 2027.
Who is affected
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From the source29 CFR 2550.408b-22(b)
a ``covered plan'' means a group health plan as defined in section 733(a) of the Act that is offered by a specified large employer or that is a specified large plan
Also: 29 CFR 2550.408b-22(b)(1)
A group health plan in which all of the benefits are provided exclusively through a contract or policy of insurance issued by a health insurance issuer
Also: 29 CFR 2550.408b-22(b)(2)
A group health plan established by a plan sponsor that is, or that is affiliated with, a drug manufacturer, distributor, wholesaler, pharmacy benefit manager, rebate aggregator
A covered plan is a group health plan offered by a specified large employer, or one that is a specified large plan. Plans whose benefits are all provided through insurance are excluded, as are plans of sponsors in the drug supply chain.
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From the source29 CFR 2550.408b-22(m)(6)
an employer who employed an average of at least 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the calendar year
Also: 29 CFR 2550.408b-22(m)(6)
Whether an employer is a specified large employer shall be determined in accordance with the rules for counting employees and employer aggregation under section 4980H of the Internal Revenue Code
Also: 29 CFR 2550.408b-22(m)(7)
had an average of at least 100 participants on business days during the preceding plan year
A specified large employer averaged at least 100 employees on business days in the preceding calendar year, counted under the Internal Revenue Code section 4980H rules. A specified large plan had an average of at least 100 participants in the preceding plan year.
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From the sourceSupplementary Information, E.1.2
The definition of covered plans includes excepted benefits, such as limited scope dental and vision plans.
Also: Supplementary Information, E.1.2.3
the definition of group health plan does not exclude Taft-Hartley plans, and such plans are covered plans under ERISA section 408(b)(2)(B) and this regulation if they meet the size criteria.
Excepted benefits such as limited scope dental and vision plans are included. Taft-Hartley plans are included if they meet the size criteria.
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From the sourceSupplementary Information, E.1.2.2
these group health plans remain covered plans under ERISA section 408(b)(2)(B) and therefore covered service providers serving fully insured plans that wish to rely on the statutory prohibited transaction exemption are required to provide the generalized statutory disclosures.
Also: Supplementary Information, E.1.2.1
Accordingly, covered service providers not addressed in this rule must provide the generalized compensation disclosures specified in the statute to rely on the prohibited transaction exemption.
Providers serving fully insured plans and smaller self-insured plans do not owe the rule's detailed disclosures. They still owe the general disclosures in the statute if they want to rely on the exemption.
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From the source29 CFR 2550.408b-22(c)(1)
a service provider that enters a contract or arrangement with the covered plan and reasonably expects $1,000 or more in compensation, direct or indirect, to be received in connection with
Also: Supplementary Information, E.1.4
If the TPA contracts with the covered plan to provide pharmacy benefit management services, the TPA would be a covered service provider under this regulation, even if it intends to rely on another provider to perform those services.
A covered service provider is one that contracts with the covered plan and expects $1,000 or more in compensation for pharmacy benefit management services or related advice. A third-party administrator (TPA) that contracts to provide these services is covered even if another firm performs them.
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Our analysisFootnote 119
Title I of ERISA specifically does ``not apply to any employee benefit plan if . . . such plan is a governmental plan.''
Government employers' health plans are likely outside the rule, because Title I of ERISA does not apply to governmental plans.
What it means in practice
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Our analysisSupplementary Information, E.1.2.1
the detailed disclosures required under the final rule may be most useful to responsible plan fiduciaries of larger employers, who are more likely to have compliance staff and sufficient resources to analyze the disclosures and take appropriate action.
Also: Supplementary Information, E.8
responsible plan fiduciaries must periodically monitor compliance by covered service providers with the terms of their agreements and the reasonableness of their compensation under the agreements
Benefits and compliance teams at large employers will receive far more detailed pharmacy cost data. They will need time and resources to review it when selecting, renewing and monitoring a PBM.
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From the sourceFootnote 198
Without an exemption, the covered service provider's failure would result in a prohibited transaction by both the service provider and the responsible plan fiduciary.
If a provider fails to comply, both the provider and the responsible plan fiduciary would be in a prohibited transaction unless an exemption applies. That is why the rule offers fiduciaries an exemption with conditions.
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From the source29 CFR 2550.408b-22(j)(4)
The covered plan shall bear responsibility for all expenses related to the selection and retention of the auditor. The covered service provider shall bear the cost of providing the requested information.
If the plan uses its audit right, it pays for selecting and retaining the auditor. The provider pays the cost of supplying the information.
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From the source29 CFR 2550.408b-22(k)(4)(ii)
Neither this paragraph (k)(4) nor paragraph (j)(3) of this section restrict a covered plan, auditor, or a third party hired by the plan, or their subcontractors, from sharing information with State or Federal Government regulators or with legal counsel
Providers cannot use confidentiality terms to stop a plan, its auditor or its advisers from sharing information with government regulators or legal counsel.
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Our analysis29 CFR 2550.408b-22(g)(4)
the term ``materially'' means 5 percent or more, or such lower percentage or dollar amount as may be agreed to by the responsible plan fiduciary and set forth in writing in the contract or arrangement.
Also: 29 CFR 2550.408b-22(e)(6)(iii)
the responsible plan fiduciary will be notified reasonably in advance of any modifications that, individually or in the aggregate, are reasonably expected to have a material impact on the reasonableness of compensation under the service contract or arrangement
Contract terms will matter. Fiduciaries can negotiate a lower materiality threshold for overage explanations and formulary change notices, and can ask for quarterly rather than semiannual reporting.
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From the sourceSupplementary Information, A. Executive Summary
effective for plan years beginning on or after August 3, 2028, PBMs must pass through rebates, fees, alternative discounts, and other remuneration received from drug manufacturers and other entities to the group health plans
More statutory changes follow for plan years beginning on or after August 3, 2028: a rebate pass-through requirement and new retrospective drug spending reports.
What to do
AmendSignal analysis sorts these by whether this document changes them.
New or changed
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From the source29 CFR 2550.408b-22(n)(5)
the responsible plan fiduciary shall determine whether to terminate or continue the service contract or arrangement consistent with its duty of prudence under section 404 of the Act and shall document the basis for that determination.
Also: Supplementary Information, E.13.3
The Department is revising paragraph (n) to add this documentation requirement.
If the provider has not complied within 90 calendar days of the written request, the responsible plan fiduciary must decide, consistent with its duty of prudence, whether to end or continue the contract. It must document the basis for that decision.
Required
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From the source29 CFR 2550.408b-22(n)(1)(ii)
The responsible plan fiduciary, upon discovering that the covered service provider failed to meet any requirement in paragraphs (e) through (l) of this section, requests in writing that the covered service provider correct the failure
Also: 29 CFR 2550.408b-22(n)(1)(iii)
If the covered service provider fails to comply with the written request described in paragraph (n)(1)(ii) of this section within 90 calendar days of the request, the responsible plan fiduciary notifies the Secretary of the covered service provider's failure
Also: 29 CFR 2550.408b-22(n)(3)
The notice described in paragraph (n)(2) of this section shall be filed with the Department not later than 30 calendar days following the earlier of:
To keep the rule's exemption when a covered service provider fails to meet the disclosure or audit requirements, the responsible plan fiduciary must first ask the provider in writing to correct the failure. If the provider does not comply within 90 calendar days, the fiduciary must notify the Department of Labor, filing within 30 calendar days.
Worth considering
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Our suggestion29 CFR 2550.408b-22(m)(6)
Whether an employer is a specified large employer shall be determined in accordance with the rules for counting employees and employer aggregation under section 4980H of the Internal Revenue Code
Consider confirming whether your plan is a covered plan: whether it is self-insured, and whether your employer averaged at least 100 employees under the Internal Revenue Code section 4980H counting rules.
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Our suggestion29 CFR 2550.408b-22(e)
(for extensions and renewals, 90 calendar days in advance is deemed to be a reasonable period of time)
Consider reviewing PBM contracts that renew in 2027 and later, and building the 90-day advance disclosure window into your renewal and bidding calendar.
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Our suggestion29 CFR 2550.408b-22(g)(4)
the term ``materially'' means 5 percent or more, or such lower percentage or dollar amount as may be agreed to by the responsible plan fiduciary and set forth in writing in the contract or arrangement.
Consider negotiating contract terms the rule allows: a materiality threshold below 5 percent, quarterly reporting, and timing for advance notice of formulary changes.
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Our suggestion29 CFR 2550.408b-22(g)
on a semiannual basis (or at the request of the covered plan, quarterly) no later than 30 calendar days after the end of each six-month period or quarter beginning on the date the service contract or arrangement is entered
Consider setting up a process to track the semiannual disclosures and spot missing or late ones. The process can also send written correction requests and keep the records the exemption calls for.
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Our suggestion29 CFR 2550.408b-22(j)(4)
The covered plan shall bear responsibility for all expenses related to the selection and retention of the auditor.
Consider budgeting for an auditor if you plan to use the yearly audit right, since the plan pays the auditor.
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Our suggestionSupplementary Information, E.1.2.1
Accordingly, covered service providers not addressed in this rule must provide the generalized compensation disclosures specified in the statute to rely on the prohibited transaction exemption.
If your plan is fully insured or below the size thresholds, consider confirming that your providers give you the general compensation disclosures the statute calls for.
Open questions
The source leaves these open. We'll update this record if a later document answers them.
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For contracts already in place, and for renewals that fall shortly before a plan year beginning on or after July 1, 2027, when must the first initial disclosure arrive?
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What does the Department's temporary enforcement policy say for service providers outside this rule, such as third-party administrators and independent brokers?
Related changes
History
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Improving Transparency Into Pharmacy Benefit Manager Fee Disclosure Source (opens in a new tab)