DOL Issues Final Pharmacy Benefit Manager Transparency Rule: What Plan Sponsors Need to Know

On October 29, 2026, the US Department of Labor (“DOL”) issued its long-awaited final transparency rule requiring pharmacy benefit managers (“PBMs”) to disclose fees, manufacturer rebates, and other forms of direct and indirect compensation to ERISA group health plans.¹ The final rule, titled “Improving Transparency Into Pharmacy Benefit Manager Fee Disclosure” (the “PBM Regulation”), requires providers of PBM services, along with any affiliated brokers and consultants, to provide detailed compensation disclosures under ERISA Section 408(b)(2) to ERISA group health plan fiduciaries. Those disclosures include an initial disclosure before the plan enters into, renews, or extends a contract with a PBM, as well as at least semiannual disclosures showing the compensation actually received by the PBM and its affiliates. The PBM Regulation applies to plan years beginning on or after July 1, 2027.

Background on PBMs and ERISA-Governed Health Plans

PBMs are the intermediaries that run the prescription drug benefit for most ERISA-governed employer health plans. For a self-insured health plan, a PBM typically:

• builds the formulary, the list of covered drugs and their cost-sharing tiers;
• negotiates rebates and other payments from drug manufacturers, often through affiliated rebate aggregators;
• contracts with retail, mail-order, and specialty pharmacies and sets what they are paid; and
• processes claims and manages utilization.

PBMs receive compensation from a variety of sources. In the ERISA plan context, the plan generally pays the PBM for its administrative services. In addition to these administrative fees, PBMs often receive compensation from other entities in the prescription drug supply chain, including prescription drug manufacturers and pharmacies. PBMs may also receive indirect compensation through affiliated brokers and consultants, who help ERISA plans select a PBM and negotiate the PBM contract. Another source of PBM compensation is “spread,” which is the difference between what the ERISA plan pays the PBM for a drug and what the PBM ultimately pays the pharmacy for that drug.

ERISA Statutory and Regulatory Framework

Under ERISA Section 3(14), a “party in interest” with respect to an employee benefit plan includes “a person providing services to such plan.” ERISA Section 406(a)(1)(C) then provides that, unless an exemption under ERISA Section 408 applies, a plan fiduciary “shall not cause the plan to engage in a transaction . . . [if] such transaction constitutes a direct or indirect . . . furnishing of goods, services, or facilities between the plan and a party in interest.” In other words, a plan’s ongoing service arrangement with a PBM is a prohibited transaction unless an exemption covers it. The primary exemption for service arrangements, including PBM arrangements, is ERISA Section 408(b)(2), which exempts “services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.”

DOL first issued 408(b)(2) disclosure regulations in 2012, requiring covered service providers to give retirement plan fiduciaries specified information. These disclosures have come to be known as “408(b)(2) disclosures.” Until recently, however, it was an open question whether PBMs were covered service providers that had to provide fee disclosures under Section 408(b)(2). The Consolidated Appropriations Act, 2026 (“CAA 2026”) settled the question: PBMs are covered service providers for purposes of ERISA Section 408(b)(2)(B) and must provide the required 408(b)(2) disclosures. CAA 2026 goes further for plan years beginning on or after August 3, 2028. It requires PBMs to pass through 100% of rebates, fees, alternative discounts, and other remuneration to their ERISA plan clients (ERISA Section 408(b)(2)(C)), and it imposes retrospective reporting requirements (ERISA Section 726).

DOL’s New PBM Fee Disclosure Rule

The PBM Regulation builds on CAA 2026 with a comprehensive set of rules for PBMs, along with corresponding obligations for the plan fiduciaries who engage them.

Key Definitions

• Covered plans: The PBM Regulation covers self-insured group health plans of “specified large employers” and self-insured “specified large plans.” In general, that means plans of employers with at least 100 employees in the prior calendar year, or multiemployer and similar plans averaging at least 100 participants.
• Excluded plans: The PBM Regulation does not cover fully insured plans, or plans sponsored by (or affiliated with) drug manufacturers, distributors, wholesalers, PBMs, or rebate aggregators. Service providers to smaller, fully insured, and other excluded plans, however, still must make the more general statutory disclosures under Section 408(b)(2)(B).
• Covered service providers: Two groups must furnish disclosures under the PBM Regulation: (1) any entity that contracts with the plan to provide PBM services and reasonably expects $1,000 or more in direct or indirect compensation, and (2) PBMs or PBM affiliates that provide advice, recommendations, or referrals about PBM services. Providing a single PBM service is enough, regardless of what the entity calls itself. If a third-party administrator (“TPA”), carrier, or other entity contracts to provide PBM services, that entity is the covered service provider and must obtain the required information from the PBM that actually performs the services.
• PBM services: PBM services include: rebate negotiation and aggregation; formulary management; pharmacy networks; and utilization management, including generic and biosimilar substitution. Claims processing, appeals, recordkeeping, and compliance also count when provided together with any of these services.
• Compensation: Compensation means anything of monetary value, other than items worth $250 or less in the aggregate. Employees’ pay for their ordinary job duties does not have to be disclosed.

Pre-Contracting PBM Disclosures

The PBM must provide its initial disclosures in writing, reasonably in advance of entering into the contract. For an extension or renewal, the rule treats 90 days in advance as reasonable, unless the parties agree to a longer period. Disclosed compensation amounts must be stated in dollars for each semiannual disclosure period (or each quarter, if the plan requests quarterly disclosures). Where a PBM can only reasonably provide an estimate of the compensation, the estimate must rest on good-faith assumptions, such as contractual methodologies or historical utilization and rebate experience. The disclosures must cover:

• Covered services: The services the PBM will provide, including programs it will administer, such as copay accumulators and maximizers.
• Direct compensation: Both in the aggregate and by service, including amounts the plan sponsor pays from its general assets. If pricing is bundled, the PBM must allocate it among the services in good faith.
• Manufacturer payments: Rebates, fees, alternative discounts, and other remuneration from manufacturers, distributors, wholesalers, and rebate aggregators, both in the aggregate and drug-by-drug. The disclosure must show how much is passed through to the plan and how much is retained.
• Spread compensation: For each formulary drug, identified by National Drug Code (“NDC”), the PBM must show what the plan pays, what the pharmacy is paid, and the difference. Spread must also be reported in the aggregate and by channel (retail, mail, and specialty), and the PBM must describe any arrangements that steer patients to affiliated pharmacies.
• Pharmacy recoupments and price protection: Copay clawbacks and other retroactive adjustments, including the expected number of transactions, and any price protection agreements, including the amounts retained and passed through.
• Termination compensation: Any compensation the PBM expects to receive on termination, and how any prepaid amounts will be calculated and refunded.
• Other compensation: Any compensation not otherwise disclosed, identifying the payer, the services involved, and the underlying arrangement.
• Formulary incentives: The PBM must describe its formulary placement incentives and explain how they serve the plan. For any drug on which the PBM keeps manufacturer payments, it must identify reasonably available therapeutically equivalent alternatives (including biosimilars) left off the formulary and explain why. If the PBM retains authority to change the formulary, it must also explain why and how often it expects to make changes.
• Net price: The net price of each formulary drug per fill or course of treatment, by NDC and channel. If the PBM cannot determine a dollar figure, it must disclose its pricing methodology and an objective way to verify it.
• Fiduciary status and audit rights: A statement of whether the PBM expects to act as a fiduciary and a statement of the plan’s audit rights.

Ongoing PBM Disclosures and Audits

Once the contract and ongoing service arrangement are in place, the PBM must keep the plan informed and allow the plan to audit its disclosures.

• Semiannual (or quarterly) reports: Reports are due within 30 days after the end of each period. Each report must show the compensation actually received or reasonably expected in each category, a claim-level list of spread by NDC, and any update to the PBM’s fiduciary status. If any category of compensation exceeds its estimate by 5% or more (or a lower threshold the parties agree to), the PBM must identify the overage and explain why it occurred. Amounts passed through to the plan do not count toward the threshold.
• Information on request: On the plan’s written request, the PBM must provide the information the plan needs for its ERISA reporting. That includes the annual Form 5500, which affected ERISA plans file with DOL and which reports service provider compensation.
• Annual audit right: The plan may audit the PBM at least once a year, using an auditor the plan selects and pays. The PBM must confirm the request within 10 business days. Within 60 days, it must produce claims and transaction-level data and its contracts with pharmacies, manufacturers, and rebate aggregators, including records held by its affiliates and subcontractors. The PBM bears the cost of producing that information. It may not restrict the audit period, location, or number of records, but the audit is limited to the accuracy of the disclosures for the period they cover.
• Formulary changes: The PBM must give the plan advance notice of formulary changes expected to increase its manufacturer payments by 5% or more over the disclosed amount (measured cumulatively), or by a lower threshold if the parties agree. The disclosure must also tell the plan that it may terminate the contract on reasonably short notice. DOL declined to set a fixed notice period.
• Form of disclosures: Disclosures must be in plain language, and DOL will treat undefined jargon as insufficient. On request, they must be provided in machine-readable form, identifying drugs by NDC. The PBM may not restrict how the plan uses the disclosures, other than through reasonable confidentiality terms for third parties, and the plan may always share the information with regulators and legal counsel. A PBM that makes a good-faith error must correct it within 30 days of discovering it.

Obligations of Plan Fiduciaries

Before entering into, extending, or renewing the contract, the plan fiduciary must obtain and review the disclosures and determine that the contract and the compensation are reasonable. After that, the fiduciary must use the semiannual reports and audit rights to monitor the arrangement. If the PBM fails to comply, both the PBM and the fiduciary have engaged in a prohibited transaction. A class exemption protects the fiduciary, but only if the fiduciary:²

• did not know of the failure and reasonably believed the requirements were met;
• requests a correction in writing on discovering the failure;
• notifies DOL within 30 days after the earlier of the PBM’s refusal or 90 days after the request, using the content the rule specifies; and
• decides whether to terminate or continue the contract, consistent with ERISA’s duty of prudence, and documents the basis for that decision. This documentation requirement is new in the final rule; according to DOL, the documentation should reflect the fiduciary’s considerations, the alternatives it weighed, and how it will ensure no further compliance failures, and it should not be a “check-the-box” exercise.

Penalty-free termination: Consistent with the existing Section 408(b)(2) regulation, DOL emphasizes that a contract is not reasonable unless the plan can terminate it without penalty on reasonably short notice. This requirement also applies to PBM contracts, but DOL notes that allowing the PBM to recoup its actual losses on early termination does not count as a penalty. The PBM Regulation also requires the fiduciary to decide whether to terminate a noncompliant PBM, and it requires the PBM to disclose both its termination compensation and the plan’s termination right.

Timing and Transition Period

The PBM Regulation takes effect January 4, 2027, 60 days after its publication in the Federal Register, and applies to plan years beginning on or after July 1, 2027. Until it applies, DOL will follow a temporary enforcement policy, reaching back to February 3, 2026, for all covered service providers and fiduciaries under Section 408(b)(2)(B). Under that policy, DOL will not treat a provider as failing to disclose if the provider acts on a good-faith interpretation of the amended statute. Nor will DOL treat a fiduciary as engaging in a prohibited transaction if the fiduciary acts on a good-faith interpretation of its duty to assess reasonableness.

Looking further ahead, the Section 408(b)(2)(C) pass-through and Section 726 reporting requirements from CAA 2026 take effect for plan years beginning on or after August 3, 2028. DOL retained the PBM Regulation’s manufacturer payment disclosures, explaining that they will show how those payments are handled once the pass-through applies. DOL is also considering guidance on what counts as a “bona fide service fee.”

Takeaways for Plan Sponsors and Fiduciaries

In its Fact Sheet accompanying the PBM Regulation, DOL described the final rule as part of “broader efforts under Executive Order 14273 to lower drug costs and increase transparency across the healthcare system.” DOL also noted that the administration “is focused on lowering prescription drug costs for American workers and their families, as these costs make up a significant share of employer-sponsored health care spending.” That focus, together with the growing volume of ERISA class action litigation involving health and welfare plans, means plan sponsors and fiduciaries should expect closer scrutiny of their PBM arrangements. In the coming months, they should consider, among other things:

• building time into upcoming renewals and extensions for the PBM to deliver its initial disclosures, which the PBM Regulation treats as timely if provided 90 days in advance;
• negotiating contract terms that support the new requirements, such as audit rights, termination on reasonably short notice, and lower thresholds for overage explanations and formulary change notices; and
• adopting a documented process for reviewing initial and semiannual PBM disclosures and requesting corrections.
  
  

¹ The final rule was published in the Federal Register on November 2, 2026.

² The class exemption does not offer the PBM any relief. The PBM remains subject to civil penalties under ERISA Section 502(i).