What Plan Fiduciaries Need to Know about the DOL’s Proposed PBM Transparency Regulations
- Boutwell Fay LLP
- 2 minutes ago
- 6 min read
By: Lauren Mamaghani
In January 2026, the U.S. Department of Labor (“DOL”) issued proposed regulations designed to leverage ERISA’s prohibited transaction rules to make more transparent the fees paid to pharmacy benefit managers (“PBMs”) by self-funded group health plans. If finalized, the proposed regulations would, effective 60 days after final regulations are published and applicable for plan years beginning on or after July 1, 2026, increase access to information needed to determine whether compensation paid to PBMs is reasonable under ERISA, otherwise evaluate PBM service agreements, and identify conflicts of interest. Note that the proposed regulations were issued before the Consolidated Appropriations Act of 2026 was passed in February, and have not yet been updated for the legislation changes made related to PBMs and fee disclosures (see our prior blog post).
Background: PBMs and the ERISA Fiduciary Framework
PBMs play a central role in administering prescription drug benefits for employer-sponsored health plans. Typical PBM functions include:
Negotiating rebates and price concessions with drug manufacturers;
Establishing pharmacy networks;
Processing prescription drug claims; and
Managing drug formularies and utilization controls
Despite their central role in health plan administration, PBM compensation structures are often opaque and may involve multiple revenue streams from manufacturers, pharmacies, and affiliated entities. As a result, plan fiduciaries may lack sufficient information to determine whether PBM compensation is reasonable or whether conflicts of interest exist. Under ERISA, transactions with service providers—including PBMs—are generally prohibited unless they satisfy the statutory exemption under ERISA 408(b)(2), which requires plan fiduciaries to ensure that service arrangements are reasonable and that no more than reasonable compensation is paid to service providers. The DOL is proposing to leverage the prohibited transaction framework by conditioning availability of the 408(b)(2) exemption on detailed PBM compensation disclosures.
Who is Subject to the Proposed Regulations?
The proposed regulations would apply to “covered service providers,” i.e., any provider of pharmacy benefit management services (regardless of whether the services are performed directly or through third parties) that enters into a contract or arrangement with a self-funded group health plan and reasonably expects to receive at least $1,000 of direct or indirect compensation for those services. “Pharmacy benefit management services” include, for example, acting as a negotiator or aggregator of rebates or other price concessions for prescription drugs, establishing or maintaining prescription drug formularies or pharmacy networks, processing and payment of claims for prescription drugs, and record-keeping related to a covered plan's prescription drug benefits.
What PBM Disclosures will be Required?
The proposed regulations would require PBMs and related entities to provide detailed disclosures to plan fiduciaries before entering, renewing, or extending a PBM service contract or arrangement. The disclosures would include descriptions of the following items reasonably expected in connection with the contract or arrangement (where applicable, typically expressed as a quarterly dollar amount):
Direct Compensation. Compensation, in the aggregate and by service, received directly from a covered plan or the plan sponsor on the plan’s behalf (regardless of whether it is paid from plan assets).
Manufacturer Compensation. Any payment, in the aggregate and for each drug on the formulary, that will be passed on to the plan and the amount that will be retained by the disclosing entity.
Copay Clawbacks. The difference between a copay or coinsurance paid to the pharmacy by a participant and the reimbursement to the pharmacy expected to be recouped from a pharmacy by the entity in connection with prescription drugs dispensed under the service contract or arrangement, and the anticipated total number of transactions resulting in recoupment.
Spread Pricing. The difference between the negotiated rate expected to be paid by the covered plan to the disclosing entity and the negotiated rate expected to be paid by the entity to the pharmacy for dispensing drugs, (in the aggregate, for each drug on the formulary, and for each pharmacy channel).
Other Compensation. All compensation the disclosing entity expects to receive in connection with the service contract or arrangement, the contract or arrangement itself, the payer, and the services for which the compensation is received.
Formulary Placement Incentives. Any formulary placement incentives or arrangements the entity has entered with any drug manufacturer in connection with the service contract or arrangement and an explanation of how those affect services to, and are aligned with, the interests of the plan. For any drug for which the entity will receive payment from the manufacturer or aggregator, any reasonably available therapeutically equivalent alternatives and the reason for omitting the alternatives from the formulary. Certain explanations regarding any retained authority to modify the formulary.
Price Protection Agreements. Any inflation protection or price protection agreements the entity has entered and the amounts to be retained by the entity and passed on to the plan.
Description of Services. A description of each PBM management service, or of the advice, recommendations, or referrals regarding the provision of PBM management services, to be provided to the covered plan.
Termination of a Contract. Any compensation the entity expects to receive in connection with termination of the service contract or arrangement and how any prepaid amounts will be calculated and refunded.
Drug Pricing Methodology. The monetary amount of the net cost to the covered plan of each drug on the formulary and each pharmacy channel.
Statement of Fiduciary Status. If applicable, a statement that the disclosing entity reasonably expects to provide services directly to the covered plan as an ERISA 3(21) fiduciary and disclose any activity or policy that may create a conflict of interest, including, for example, if such entity will benefit financially from drug substitution.
Statement of Audit Right. A statement of the covered plan's right to audit the disclosing entity and the procedures for requesting the audit.
Notably, the rule would require PBMs to disclose compensation as monetary amounts, rather than formulas or methodologies that are difficult for fiduciaries to interpret. In addition to advance disclosures, PBMs would also be required to provide semiannual updates reporting actual compensation received, allowing fiduciaries to monitor compensation throughout the contract term.
Audit Rights and Fiduciary Relief
Under the proposed regulations, plan fiduciaries would have the right to audit the above PBM disclosures annually. If a PBM fails to provide required disclosures, the arrangement may lose its protection under the prohibited transaction exemption in ERISA 408(b)(2), potentially exposing both the PBM and the responsible plan fiduciary to enforcement risk. However, the proposal includes limited relief from the prohibited transaction provisions of ERISA 406(a)(1)(C)-(D) for fiduciaries who reasonably rely on PBM disclosures and take corrective action after discovering noncompliance.
What is the Relationship between the Proposed Regulations and Broader PBM Reform?
The DOL’s proposal is part of a broader effort at the federal and state levels to increase transparency in prescription drug pricing and PBM practices. Recent developments include executive branch initiatives aimed at lowering prescription drug prices and legislative reforms requiring enhanced transparency, such as those under the Consolidated Appropriations Act of 2026.
What are the Implications for Plan Sponsors and Fiduciaries?
If finalized, the proposed regulations could significantly alter how employer health plans evaluate PBM arrangements. Key considerations include:
Enhanced Monitoring by Fiduciaries. Plan fiduciaries would have greater access to data necessary to assess whether PBM compensation is reasonable and whether PBM arrangements present conflicts of interest.
PBM Contract Negotiations. The new disclosure regime may affect contract negotiations, particularly regarding rebate pass-through structures, spread pricing arrangements, and audit rights and reporting obligations.
Fiduciary Litigation Risk. Greater transparency could increase litigation risk where PBM compensation appears excessive or inconsistent with fiduciary duties under ERISA.
Operational and Compliance Adjustments. Plan sponsors may need to update fiduciary review procedures and vendor monitoring processes to incorporate PBM compensation disclosures.
Looking Ahead
Comments on the proposed regulations were due April 15, and the DOL may revise the regulations before issuing a final version. If finalized largely as proposed, the rule would represent a major expansion of ERISA’s service provider disclosure framework and could reshape the relationship between employer-sponsored health plans and PBMs. Plan fiduciaries, PBMs, and their advisors should closely monitor the rule making process and begin evaluating whether existing PBM arrangements would satisfy the proposed disclosure requirements.
If you have questions about the proposed regulations, contact a Boutwell Fay attorney.
Boutwell Fay is a nationally recognized employee benefits and ERISA law firm.
With a focus on providing customized solutions and exceptional client service, we help businesses navigate the complexities of employee benefit plans. Our team of experienced attorneys is dedicated to delivering results that exceed our clients' expectations.
CA 949-660-0481
NY 332.900.2550
© Boutwell Fay LLP 2026, All Rights Reserved. This handout is for information purposes only and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.