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CCH® BENEFITS — 02/23/10

Welfare Plan Fees Paid To PBMs Are Reportable Direct Compensation For Form 5500 Schedule C

from Spencer’s Benefits Reports: ERISA welfare plan payments to pharmacy benefit managers (PBMs) are reportable direct compensation to be included on the Schedule C filed with Form 5500, according to the Department of Labor. In recently released Supplemental frequently-asked questions about the 2009 Schedule C, the DOL also stated that rebates or discounts that the PBM receives from drug makers are not reportable indirect compensation for Schedule C, unless the plan agreement with the PBM cedes the rebates and discounts to the PBM as part of its compensation.

“The Department is currently considering the extent to which PBM discount and rebate revenue attributable to a PBM’s business with ERISA plans may properly be classified as compensation related to services provided to the plans,” the DOL explained. “Thus, in the absence of further guidance from the Department, discount and rebate revenue received by PBMs from pharmaceutical companies generally do not need to be treated as reportable indirect compensation for Schedule C purposes, even if the discount or rebate may be based in part of the quantity of drugs dispensed under ERISA plans administered by the PBM. If, however, the plan and the PBM agree that such rebates or discounts (or earnings on rebates and discounts held by the PBM) would be used to compensate the PBM for managing the plan’s prescription drug coverage, dispensing prescriptions or other administrative and ancillary services, that revenue would be reportable indirect compensation notwithstanding that the funds were derived from rebates or discounts.”

Reportable direct compensation to PBMs includes administrative, dispensing, and ancillary administrative fees, such as recordkeeping, data management and reporting, participant health desk services, and benefit education.

The DOL FAQs about the 2009 Schedule C is available at http://www.dol.gov/ebsa/pdf/supplementalschedulec.pdf.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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