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Broker Compensation Disclosure Requirement

What You Need To Know

Broker Compensation Transparency

Beginning on December 27, 2021, brokers and consultants will be held to new compensation transparency obligations under the Consolidated Appropriations Act (CAA). The CAA is a spending and coronavirus relief package that was signed into law on December 27, 2020 and expands ERISA’s existing disclosure requirements. It broadened the definition of a “covered plan” to include group health plans (previously it only included retirement plans). This created new requirements for brokers and consultants to disclose any direct or indirect compensation they may receive for referring services to the plan. This new disclosure requirement applies to contracts entered into, extended or renewed on Dec. 27, 2021.

New Requirements Overview

The 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. In order 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.

The CAA requires covered service providers (CSPs) to provide plan fiduciaries with information they need to assess reasonableness of total compensation, both direct and indirect, received by the CSP, its affiliates and/or its subcontractors. For this purpose, the term “covered service provider” means one that enters into a contract with the plan and reasonably expects $1,000 or more in compensation (direct or indirect) to be received in connection with providing one or more of the services listed below—regardless of whether the services will be performed or compensation will be received by the CSP, an affiliate or a subcontractor.

Specifically, disclosure is required for brokerage and consulting services provided to a covered plan with respect to:

  • Selection of insurance products (including vision and dental)
  • Recordkeeping services
  • Medical management
  • Benefits administration (including vision and dental)
  • Stop-loss insurance
  • Pharmacy benefit management services
  • Wellness services
  • Transparency tools and vendors
  • Group purchasing organization preferred vendor panels
  • Disease management vendors and products
  • Compliance services
  • Employee assistance programs
  • Third party administration services
  • Development or implementation of plan design

The disclosures are not required for welfare plans that do not provide healthcare, such as life and disability plans.

Content Requirements

A CSP must disclose to a plan fiduciary, in writing, the following:

  • A description of the services to be provided to the plan pursuant to the contract.
  • If applicable, a statement that the CSP, an affiliate or a subcontractor will or expects to provide services pursuant to the contract directly to the plan as a fiduciary.
  • A description of all direct compensation, either in aggregate or by service, that the CSP, an affiliate or a subcontractor reasonably expects to receive in connection with the services.
  • A description of indirect compensation that the CSP, an affiliate or a subcontractor reasonably expects to receive in connection with the services.
  • A description of the arrangement between the payer and the CSP, an affiliate or a subcontractor (as applicable) pursuant to which such indirect compensation is paid.
  • Identification of the services for which the indirect compensation will be received, if applicable.
  • Identification of the payer of the indirect compensation.
  • If compensation is set on a transaction basis (such as commissions, finder’s fees or other similar incentive compensation based on business placed or retained), a description of the services for which such compensation will be paid and identification of the payers and recipients.
  • A description of any compensation the CSP, an affiliate or a subcontractor reasonably expects to receive in connection with termination of the contract, and how any prepaid amounts will be calculated and refunded upon termination.
  • A description of the manner in which the compensation will be received.

Compensation may be expressed in a monetary amount, formula, or per capita charge based on enrollment counts, or another reasonable method if it cannot reasonably be expressed in one of the other manners.

Timing Requirements

Disclosure must be made no later than the date that is reasonably in advance of the date on which the contract is entered into, and extended or renewed. If there is any change to the required information, the CSP must inform the plan fiduciary as soon as practicable, but generally no later than 60 days from the date on which the CSP is informed of the change. Lastly, upon written request of the plan fiduciary, the CSP must disclose any other information relating to compensation received in connection with the contract within 90 days. 

Plan Fiduciary Requirements

If the CSP fails to provide the required information above, the plan fiduciary must notify the Department of Labor within 30 days and should consider terminating the contract. If the plan’s fiduciary does not notify the DOL they could be subject to a penalty. 

Archon Resources

  • Click here for a sample disclosure letter. 
  • If you have questions or need additional guidance please reach out to your Archon Employee Benefits Consultant. We are here to guide you through this new requirement.
  • We are working with our carrier and vendor partners to better understand the resources they will have available to help streamline this new requirement. We will continue to communicate any new information as it becomes available.  
  • Below is a quick summary of broker compensation by carrier. 

This is not legal advice. Information on this resource page is general in nature and not intended to replace legal advice in any particular manner. 

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