On October 29, 2026, the U.S. Department of Labor (DOL) released a final rule designed to give fiduciaries of large self-funded ERISA group health plans greater visibility into compensation received by pharmacy benefit managers (PBMs) and affiliated service providers. The rule requires advance and ongoing disclosures and establishes audit rights, so plan fiduciaries can better assess whether service arrangements and compensation are reasonable. The rule does not dictate what a PBM may charge or establish a benchmark for reasonable compensation. Instead, it is intended to make complex financial arrangements more visible and verifiable.

The rule takes effect 60 days after Federal Register publication and applies to plan years beginning on or after July 1, 2027. For calendar-year plans, the first applicable plan year is generally 2028. FAQs, a fact sheet, and the final rule can be found here.

PBM Role & Compensation

PBMs administer prescription drug benefits for health plans, often combining administrative functions with purchasing, network, clinical, and financial management. The precise allocation of authority depends on the plan design and PBM contract. Typical PBM roles include formulary management, pharmacy network management, manufacturer contracting, claims administration, specialty and clinical management, and reporting.

Employers generally retain responsibility for approving plan design and prudently selecting and monitoring PBMs. However, evaluating PBM compensation can be challenging because revenue may come from multiple sources, including administrative fees, manufacturer rebates, pharmacy pricing arrangements, and affiliated entities. For example, a PBM may receive manufacturer-related compensation beyond the rebates passed through to the plan, or retain the difference between amounts charged to the plan and amounts paid to pharmacies (known as spread pricing). These arrangements are not necessarily improper, but understanding the PBM's total compensation is important when evaluating whether an arrangement is reasonable.

Final Rule Disclosure Obligations

Although many PBM agreements already provide some financial reporting and audit rights, employers may have limited visibility into the full compensation received by PBMs and their affiliates. The final rule establishes more consistent requirements for advance compensation disclosures, ongoing reporting, access to supporting data, and independent audits. These requirements are intended to help fiduciaries evaluate whether PBM arrangements and compensation are reasonable under ERISA.

Affected Plans

The detailed disclosure obligations set forth in the final rule apply to covered PBM service providers and affiliates serving large self-funded ERISA group health plans, which include plans with at least 100 participants or plans offered by employers with at least 100 employees. Smaller plans and fully-insured arrangements are not subject to the rule's detailed PBM-specific disclosure requirements, but other compensation disclosure requirements or transparency obligations may still apply depending on the arrangement.

Disclosures

Advance Compensation Disclosures

Before entering into, extending, or renewing a covered arrangement, PBM service providers must disclose the services provided and expected direct and indirect compensation, including compensation received by affiliates, along with the methods used to calculate or allocate compensation. Disclosures must be provided reasonably in advance of the arrangement, with a 90-day timing safe harbor for renewals and extensions.

The disclosure requirements are broad, including the following:

  • Services

  • Direct Compensation

  • Indirect Compensation (e.g., manufacturer payments, spread compensation, pharmacy recoupment, and price protection agreements)

  • Compensation for Termination

  • Other Compensation

  • Formulary Placement Incentives

  • Drug Pricing Methodology

  • Statement of Fiduciary Status

  • Statement of Audit Rights

Ongoing Compensation Reporting

Covered providers must report actual compensation received or reasonably expected to be received within 30 days after each reporting period. Reporting is generally semi-annual, although plans may request quarterly reporting. Providers generally must explain compensation variances of 5% or more from previously disclosed amounts, unless a lower contractual threshold applies.

Standardized and Machine-Readable Data

Disclosures must be clear, sufficiently detailed, and expressed in monetary amounts or reasonable estimates when exact amounts are unavailable. Upon request, providers must also furnish machine-readable compensation information using applicable industry-standard drug identifiers.

Audit Rights

Plan fiduciaries may engage an independent auditor at least annually to verify required disclosures, including reviewing relevant claims, transaction records, and underlying pharmacy or manufacturer arrangements. Requested information generally must be provided within 60 calendar days. Reasonable confidentiality protections are permitted but cannot prevent meaningful verification of required disclosures.

Non-Compliance Relief

Because the disclosure requirements are tied to ERISA's prohibited transaction rules, failures can create compliance concerns for both service providers and plan fiduciaries. The final rule provides a process for fiduciary relief when required disclosures are not furnished. Generally, fiduciaries must request missing information in writing and, if the provider does not respond within the applicable timeframe, notify the DOL and take any additional steps required to qualify for relief. The DOL has provided model procedures and instructions on its PBM transparency webpage. Fiduciaries should document these efforts as part of their ongoing oversight responsibilities.

Coordination with CAA 26

The PBM compensation disclosure rule represents the DOL's regulatory implementation of a portion of the broader transparency framework established by the Consolidated Appropriations Act, 2026 (CAA 26). It finalizes the DOL’s separately proposed, PBM-specific compensation disclosure framework under ERISA section 408(b)(2), while also addressing the intervening statutory amendments.

Effective February 3, 2026, CAA 26 expanded ERISA section 408(b)(2)(B) to require compensation disclosures from a broader range of health plan service providers, including PBMs and other entities receiving $1,000 or more in direct or indirect compensation in connection with health plan services. Those statutory requirements became effective before issuance of the final rule and apply more broadly than the PBM-specific regulations discussed in this article. Importantly, the DOL confirmed in the preamble that service providers should already be making a good-faith effort to comply with these disclosure obligations. Although the detailed PBM regulations generally apply only to large self-funded plans, the final rule may provide insight into the types of direct and indirect compensation the DOL expects to be disclosed.

The final rule also should not be confused with separate PBM transparency provisions contained in CAA 26 that generally become applicable for plan years beginning on or after August 3, 2028. Those provisions include additional compensation reporting, rebate transparency, and rebate pass-through requirements and represent the next phase of PBM transparency reform.

Employer Responsibilities

ERISA fiduciaries remain responsible for prudently selecting and monitoring PBMs and evaluating whether their compensation is reasonable. While the final rule provides greater transparency, obtaining disclosures alone does not satisfy these obligations. Employers must consider the PBM's overall compensation and financial incentives, recognizing that pricing models, rebates, pharmacy networks, formularies, and specialty drug strategies can affect total prescription drug costs. Brokers and benefits consultants can help employers interpret the disclosures, reconcile them with contract guarantees, identify questions for the PBM, benchmark against relevant alternatives and decide when a specialized PBM adviser or auditor is needed.

Beyond supporting fiduciary compliance, greater transparency can help employers identify pricing errors and potential conflicts of interest, strengthen contract negotiations, evaluate affiliated pharmacy arrangements, and make more informed formulary and specialty drug decisions. It can also support more effective competitive bidding when evaluating PBM alternatives.

A practical oversight process might include:

  • Identify who is responsible for obtaining and reviewing disclosures.

  • Compare reported compensation with contract terms and prior disclosures.

  • Evaluate total prescription drug costs rather than focusing solely on rebates or administrative fees.

  • Use benchmarking, competitive proposals, or specialty pharmacy expertise when appropriate.

  • Consider whether an independent audit is warranted.

  • Review renewal terms, confidentiality provisions, and access to underlying data.

The new disclosure requirements provide employers with additional tools to evaluate PBM compensation and strengthen fiduciary oversight, while the broader transparency requirements under CAA 26 will create additional obligations in the coming years.