Our quarterly ERISA newsletter highlights topics of interest, recent agency guidance, and practical insights into areas of employee benefit law and compliance. If you have questions, have a topic you’d like to see us cover or would like to further discuss anything we cover here, we would love to connect.
The government took action in two separate and distinct ways this quarter, demonstrating a clear policy direction toward greater transparency and tighter oversight of the role of pharmacy benefit managers (PBMs) in drug pricing.
As background, generally PBMs administer prescription drug programs of employer-sponsored health plans and perform a variety of services, including negotiating drug prices, negotiating with pharmaceutical companies for rebates and with pharmacies for discounts, designing drug formularies, determining pharmacy network participation, adjudicating claims, and implementing specialty drug management and utilization management tools. Originally established to manage prescription drug benefits and negotiate manufacturer rebates on behalf of plans, PBMs have evolved into vertically integrated entities that influence nearly every stage of the pharmaceutical supply chain — from manufacturer contracting to pharmacy reimbursement and patient access. Their expanding role and escalating drug prices have triggered increasing scrutiny of their compensation structures, resulting in demands for transparency from plan sponsors and regulators.
Department of Labor Proposed Rule
First, on January 30, 2026, the Department of Labor Employee Benefits Security Administration (EBSA) issued a proposed regulation under ERISA Section 408(b)(2) requiring transparency in PBM compensation and referral fees paid to brokers by self-insured health plans subject to ERISA (the Proposed Rule). EBSA reserved guidance applicable to fully insured group health plans for a later date. For general context, ERISA Section 408(b)(2) provides an exemption to ERISA and the code’s prohibited transaction rules for certain arrangements between ERISA-covered plans and service providers if the arrangement is reasonable and necessary for the operation of the plan and no more than reasonable compensation is paid for such services. The regulations issued under ERISA Section 408(b)(2) require service providers to disclose specified information, including anticipated direct and indirect compensation, to plan fiduciaries so that the plan fiduciaries can determine that the arrangement is reasonable, only reasonable compensation is paid by the plan, and the arrangement qualifies for the prohibited transaction exemption. These rules have been in place for retirement plans since July 2012 and were more recently expanded, on a limited basis, to include welfare plans.
The Proposed Rule would provide specifically that PBMs and entities that provide advice, recommendations, or referrals regarding PBM services are “covered service providers” for purposes of the compensation disclosures required by ERISA Section 408(b)(2). Accordingly, these entities would be required to disclose all forms of covered compensation, including rebates, clawbacks from pharmacies, agreements regarding access on a health plan’s drug formulary, and profits from spread pricing. The Proposed Rule would provide plans the right to audit their PBMs and other service providers for consistency with the required disclosures. The Proposed Rule becomes effective 60 days after the final rule is published and applies to plan years beginning on or after July 1, 2026.
The CAA of 2026
The Consolidated Appropriations Act (CAA) of 2026, signed February 3, 2026, introduces several PBM reforms aimed at significantly increasing fiduciary oversight of PBM practices and their impact on group health plans. The changes include the following:
Takeaways for Plan Fiduciaries
Although most of the litigation involving group health plans and their arrangements with their PBMs has not survived the motion-to-dismiss stage, attacks on fees and expenses paid by health plans will likely continue and/or accelerate with new compensation disclosures. Therefore, it becomes imperative for health plan fiduciaries to formally review and analyze these arrangements and to document this process. Plan fiduciaries should review the governance structures of their health plans and consider a committee structure (if there isn’t one already) with periodic meetings and documentation of decisions. In some situations, it will be prudent to engage an outside professional with the necessary expertise to assist in this review. Proactive governance reduces litigation risk and can position employers to achieve measurable drug-spend savings.
One of the many sweeping changes made by the One Big Beautiful Bill Act (OBBBA) passed last summer was the introduction of Trump Accounts under new Internal Revenue Code (the Code) Section 530A and the creation of Section 128 Trump Account Contribution Programs for employers. Following its enactment, the IRS issued Notice 2025-68 (the Notice) on December 2, 2025, and most recently, issued a notice of proposed rulemaking on March 9, 2026 (the IRS Proposed Rule).
The OBBBA added Section 128 to the Code, which would allow employers to contribute up to $2,500 to the Trump Accounts of dependents of employees. The Notice provides the following guidance:
The IRS Proposed Rule states that the Treasury Department and the IRS intend to issue guidance under Section 128 at a later date.
Contributions can start July 4, 2026.
In late March, the Department of Labor (DOL) published guidance that formally reinstates the original five-part test published in 1975 for purposes of determining when a person is a “fiduciary” under ERISA and the Code when providing “investment advice” with respect to retirement assets of an ERISA plan or IRA. This latest move is a return to business as usual following unsuccessful attempts by the DOL over the last decade to expand what it means to provide “investment advice,” particularly in the context of advice on the rollover of assets in a qualified retirement plan to an IRA.
Under ERISA, an individual is a fiduciary with respect to an ERISA plan if this person provides investment advice for a fee or other compensation, whether direct or indirect. In 1975, the DOL issued a regulation promulgating a five-part test to determine when someone provides investment advice. The five-part test provides that an individual is a fiduciary if (1) advice is given to an ERISA plan regarding the value of securities or recommendations are made as to investing ERISA plan assets (2) on a regular basis (3) pursuant to a mutual agreement with the ERISA plan or ERISA fiduciary that (4) serves as the primary basis for investment decisions and (5) the advice is individualized based on the needs of the particular ERISA plan.
Over the last decade, beginning with the Obama administration’s 2016 fiduciary rule and ending most recently with the Biden administration’s 2024 fiduciary rule and related prohibited transaction amendments, the DOL has published subregulatory guidance interpreting elements of the five-part test and various proposed and final regulations attempting to replace the five-part test. These various actions would broaden this test to include any professional making a recommendation or solicitation with respect to ERISA plan assets, not simply those giving ongoing investment advice pursuant to a mutual agreement. However, each attempt has been vacated by a court or withdrawn.
Most recently, two Texas federal district court judges vacated the 2024 final rule and the related 2024 amendments to Prohibited Transaction Exemption 2020-02. In response, the DOL published a notice of court vacatur formally implementing the judicial vacatur of these rules. The DOL indicates that it has no plans to continue to issue new rulemaking with respect to the definition of fiduciary. So we are back where we started…for now.
**Disclaimer: The information provided in this newsletter is for general informational purposes only and does not constitute legal advice or opinion. “The Prudent Expert” is a reference to the fiduciary obligation to employee benefit plans under ERISA and does not refer to the authors themselves as experts. The information contained in this newsletter can change rapidly and may not be current. No attorney-client relationship is formed by reading this information or by communicating with the authors. You should not act on this information without seeking professional counsel from a licensed attorney.
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