DOL Publishes Final Rule on PBM Transparency

On October 29, 2026, the Department of Labor (DOL) announced the publication of the final rule on PBM transparency related to the proposed rule released in January 2026. Under the final rule, pharmacy benefit managers (PBMs) and any other entity providing pharmacy benefit management services (including affiliated brokers and consultants) must disclose detailed compensation information to an ERISA self-funded group health plan sponsored by an employer employing an average of 100 or more employees, or any self-funded group health plan with 100 or more employee participants in either the preceding calendar year or plan year (a “large group health plan”). The rule is intended to provide plan fiduciaries of large self-funded group health plans with greater transparency into PBM compensation arrangements, enabling them to make more informed fiduciary decisions as to whether such services are “necessary” to the plan and whether the compensation is “reasonable,” in order to avoid engaging in a potential prohibited transaction when contracting with a PBM.

These enhanced compensation disclosures from PBMs to a plan fiduciary of an employer plan sponsor of a large self-funded ERISA group health plan must be made for any plan year beginning on or after July 1, 2027. After that date, applicable plan fiduciaries must monitor their PBM’s compliance with the disclosure requirements. A plan fiduciary has a further obligation to take administrative action to obtain corrections from any PBM that fails to comply, and report to the DOL any PBM that fails to make such corrections.

Enhanced compensation disclosure requirements

To ensure that group health plan sponsors can fulfill their fiduciary duty to monitor the reasonableness of compensation paid to a PBM of a large self-funded group health plan that is subject to ERISA, a PBM must provide the following disclosures to such plans under the final rule:

• An initial compensation disclosure provided at least 90 days before entering into, extending, or renewing service contracts or arrangements, and
• Ongoing compensation disclosures provided within 30 days of the end of every six-month period (or quarterly, if requested by the plan).

The separate disclosure time periods are designed to allow the plan sponsor to compare the PBM’s actual compensation with the amounts the PBM disclosed prior to the contract period and ensure compensation remains reasonable during the term of the contract. Ongoing disclosures must include an explanation of any compensation overage that exceeds the amount reported in the initial disclosure by 5% or more (unless a lower amount is agreed to). Each disclosure must include the following details:

• The services that will be, or are being, provided to the plan
• The amount of compensation the PBM received or reasonably expects to receive directly from the plan or plan sponsor
• The amount of compensation the PBM received or reasonably expects to receive from other sources, such as through manufacturer payments, spread compensation, claw-backs, and price protection
• Any compensation for contract termination
• Formulary placement incentives and details about any compensation not otherwise disclosed
• Net drug pricing or drug pricing methodology
• Statements of fiduciary status and the plan’s right to audit the PBM’s disclosures

Good faith compliance relief for employer plan sponsors

Under ERISA’s prohibited transaction rule (ERISA §408(b)(2)), employers sponsoring group health plans are prohibited from contracting with any “covered service provider” that provides services to the plan unless the services are “necessary for the establishment or operation of the plan” and both the contract and compensation paid for the services is considered “reasonable.” Historically, providers of pharmacy benefit management services were not explicitly included in the ERISA definition of “covered service provider,” but effective February 3, 2026, the Consolidated Appropriations Act of 2026 amended ERISA to clarify that any third-party administrator (TPA), health insurance company, dedicated PBM, and their affiliates, are considered covered service providers when receiving $1,000 or more in direct or indirect compensation for performing pharmacy benefit management services on behalf of an ERISA group health plan.

Therefore, under current ERISA law, if an employer plan sponsor acting as plan fiduciary fails to receive accurate and complete compensation disclosures from a PBM which would allow them to fully determine whether the compensation paid to the PBM is “reasonable,” the fiduciary could unintentionally enter into a prohibited transaction under ERISA. Due to guidance set forth in the final rule, the DOL announced that they would not enforce the prohibited transaction rule against any plan sponsor or PBM that acts in good faith with respect to their obligations under ERISA, until the time the final rules become effective (i.e., for plan years beginning on or after July 1, 2027). After that date, plan sponsors and other plan fiduciaries can protect themselves from a prohibited transaction rule violation by following administrative procedures, including notification to the DOL, if the PBM fails to provide required information or correct a deficient disclosure.

Action steps for employer plan sponsors

The requirement for PBMs and related service providers to comply with statutory compensation disclosure requirements under ERISA is applicable to all employer group health plans, and the final rule implements an additional semiannual notice requirement for large ERISA group health plans (the CAA 2026 amendments delay other group health plan requirements until the first plan year starting on or after August 3, 2028). Because a PBM’s failure to provide required disclosures to an employer plan sponsor could cause a plan fiduciary to enter into a contract that could be considered a prohibited transaction under ERISA, we encourage employer plan sponsors to monitor whether their PBM has at least provided the initial compensation disclosures required by ERISA (as amended) before entering into, extending, or renewing a contract with an entity providing pharmacy benefit management services. Additionally, any employer sponsor of a large self-funded group health plan under ERISA should review their PBM contracts (or TPA agreements, if the PBM is contracted through the TPA) and include language that reflects the requirements contained in the final rule relating to a PBM’s compensation disclosure obligations and a plan’s audit rights for any plan created or renewing on or after July 1, 2027.

For more information on the final rule, visit the DOL’s Pharmacy Benefit Manager Fee Disclosure Final Rule Fact Sheet. You can also read the full text of the rule here.

Please contact your Brown & Brown team with any questions or to learn more about Brown & Brown's comprehensive employee benefits compliance support.

Disclaimer: Brown & Brown, Inc. and all of its affiliates, do not provide legal, regulatory, tax guidance and/or advice. If legal advice, counsel or representation is needed, the services of a legal professional should be sought. The information in this blog post is intended to provide a general overview of the topics and services contained herein. Brown & Brown, Inc. and all of its affiliates make no representation or warranty as to the accuracy or completeness of the document and undertakes no obligation to update or revise the blog post based upon new information or future changes.