Smart Benefits: New Broker Compensation Transparency Rules
Beth Oldfield, Business Contributor
Smart Benefits: New Broker Compensation Transparency Rules
These new comprehensive disclosure rules add a layer of transparency to what has otherwise been a gray area for many employer plan sponsors and are more comprehensive than the current disclosures required on the Form 5500.
Background
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTThe Employee Retirement Income Security Act of 1974 (ERISA) requires plan fiduciaries to, among other things, ensure that arrangements with their service providers are “reasonable” and that only “reasonable” compensation is paid for services. To meet these obligations, plan fiduciaries must be able to obtain sufficient information to enable them to make informed decisions about an employee benefit plan’s services, the costs of such services and the service providers.
Beginning in mid-2012, Department of Labor (DOL) regulations required certain service providers to disclose information about their compensation to a covered retirement plan’s fiduciary to enable the fiduciary to determine whether the arrangement is “reasonable.” The CAA amends ERISA to impose compensation disclosure requirements on health plan service providers that are similar to the requirements applicable to retirement plan service providers.
New ERISA Disclosure Requirements
Beginning Dec 27, 2021, brokers and consultants to group health plans will be required to disclose their compensation if they expect to receive $1,000 or more in direct or indirect compensation for providing their services. The bill defines compensation as anything of monetary value except non-monetary compensation valued at $250 or less. Generally, the definition of a group health plan includes everything (e.g., group plans, HRAs, ICHRAs, FSAs, etc.) except QSEHRAs. The $1,000 threshold makes the requirement applicable in nearly all cases.
The broker or consultant must disclose:
• A description of the services to be provided to the plan
• If applicable, a statement that the broker/consultant plans to serve as a fiduciary to the plan
• A description of all direct compensation (e.g., fees) the broker or consultant expects to receive (in the aggregate or broken out by service)
• A description of all expected indirect compensation (including insurer or other vendor incentive payments, a description of the arrangement under which the indirect compensation will be paid, the payer of the compensation, and any services performed by the broker or consultant for which the indirect compensation will be paid)
• Separately, any transaction-based compensation (e.g., commissions, finder’s fees) for services provided by the broker or consultant, and the payers and recipients of the compensation
• A description of any compensation the broker or consultant expects to receive in connection with the contract’s termination, and how any prepaid amounts will be calculated and refunded upon termination
Disclosures must be made prior to the date that the contract is entered into, extended, or renewed. If there is any change to the required information, the broker or consultant must inform the plan fiduciary as soon as practicable, but generally no later than 60 days from the date on which they are informed of the change. Additionally, upon written request of the plan fiduciary, the broker/consultant must disclose any other information relating to compensation received in connection with the contract.
The broker disclosures are made to the client only, not the Department of Labor (DOL). However, if the broker fails or refuses to disclose, the employer must request disclosure in writing. If the broker fails or refuses to respond to the written request, the client must submit a formal notice to the DOL within 30 days.
Beth Oldfield, Vice President of Compliance, Hilb Group is a compliance specialist with over 25 years of experience in the field, who supports the Hilb Group’s national compliance practice.