Broker Compensation Disclosure Requirements
Signed into law in late 2020, the Consolidated Appropriations Act contained a provision that required health insurance brokers, also referred to as covered service providers, to disclose both direct compensation and indirect compensation they receive.
For service arrangements entered into or renewed on or after December 27, 2021, any broker, adviser, or consultant must provide the plan fiduciary a Services & Compensation Statement that describes the services to be provided to the plan. The Statement must also disclose all direct and indirect compensation, including compensation paid to any affiliates and subcontractors, who expect to receive $1,000 or more in direct or indirect compensation.
What Plan Fiduciaries Need to Know
These new disclosure requirements are designed to mirror the disclosure rules under ERISA issued in 2012 that apply to retirement plans. The arrangement between the plan and a service provider who does not disclose direct and indirect compensation will not be considered "reasonable."
While the responsibility of providing the disclosure falls on the service provider (your broker or consultant) arrangements that are not “reasonable” are a “prohibited transaction” under ERISA. If you have not received a disclosure from any covered service provider you may request one in writing that must be furnished within 90 days. We have developed a sample compensation disclosure form that you can download and use.
How Did We Get Here?
Most brokers will talk at length about their product offerings and services to clients, ranging from consulting services, administration services, compliance services, wellness services, and the selection of insurance products. Stranger yet, each time you evaluate a new broker, they can do all that and more for base commissions or an equal/lesser service fees than their predecessor.
In reality, compensation for brokers and forms of compensation from insurance companies morphed into a secret world of contingent commission, perverse incentive programs, and indirect compensation outside of the fee for services employers thought they were paying.
Top Broker Excuses
"Our Compensation is on your annual Form 5500" - The disclosure requirement for Form 5500 is narrow in scope. They do not include service fees, supplemental commissions, marketing fees, pharmacy rebates, non-monetary compensation, and a whole host of other additional compensation insurance carriers pay without plan sponsors knowledge.
"We already disclosed our compensation in our Consulting Agreement" - Read the fine print. Most of these agreements do not satisfy the disclosure obligation. Many contain some version of the following:
ABC Broker or its subsidiaries/affiliates may receive supplemental compensation referred to in a variety of terms such as contingent commissions, additional commissions, and supplemental commissions.
"They're not actually enforcing these regulations" - This is both laughable and not entirely true. The Department of Labor announced they will not take enforcement action against plan service providers or fiduciaries that use “good faith, reasonable interpretation of ERISA."
For too long health plans have been shrouded in mystery and lacked appropriate reporting requirements to allow plan fiduciaries a reasonable method to determine if they're receiving value on par with the compensation.
It shouldn't take legislative action from the federal government to bring transparency between an insurance company and plan service providers. At DCW Group we have long been committed to compensation transparency which is why we are providing a compensation disclosure form to any plan fiduciary wanting to comply with the disclosure requirement.