Broker Compensation Disclosures
Thursday January 27th, 2022
Estimated time to read: 1 minute, 15 seconds
For decades there have been distinct differences between retirement plans and health and welfare plans when it comes to ERISA compliance. With the recent Consolidated Appropriations Act, 2021 (CAA) disclosure requirements are now more in alignment. As with any amendment, there are lots of questions about what exactly needs to be done in order to comply.
Who does it apply to?
Service providers of retirement plans have had to disclose compensation of more than $1,000 since 2012 when the DOL issued final regulations under ERISA Section 408(b)(2). Now the CAA requires “covered service providers” of health and welfare plans to disclose direct or indirect compensation in excess of $1,000.00 annually, expected to be received for placement of medical, dental, vision, FSA and HRA plans.
When do you need to disclose?
The disclosure must be provided prior to the execution of the contract or contract renewal. The new requirement places a burden on the plan fiduciary to secure disclosure if it is not provided automatically, and they are expected to request it in writing. If not received within 90 days of written request, the plan fiduciary is expected to report the failure to disclose to the DOL to avoid a breach of fiduciary duty.
What do you disclose?
The broker disclosure itself must include a detailed description of services provided for the compensation and a description of all direct and indirect (referral fees, etc) compensation. At this time no “model” form or notice has been provided by the department of labor. There are organizations that have developed sample forms based on the guidance received to date. It was welcome news when the Field Assistance Bulletin was released on 12/30/21 offering relief from enforcement, pending further guidance, to employers and service providers (brokers/consultants) provided they use a good faith reasonable interpretation, consistent with ERISA, in implementation of the standard.
Why does it matter?
Compliance with ERISA is more important than ever before. This new emphasis on plan fiduciaries and their oversight of the health and welfare plan, means that plan documents, SPD’s and 5500’s could all see greater scrutiny as well. The distribution of the broker disclosure is a great opportunity to discuss overall compliance and bring value to your clients at the same time. We will be partnering with our brokers to keep them informed and help them navigate this ever-changing regulatory landscape as we go forward.
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Bulletin Category: Compliance, Trends