Broker Compensation Disclosure Resources

Savoy has created this page and resources to help you stay informed on the requirements. Please refer to next steps for guidance and resources including a sample template for use.


Published: 11.23.2021

The Consolidated Appropriations Act (CAA) 2021, signed into law by President Trump on December 27, 2020, is a spending and coronavirus relief package. The CAA expands ERISA’s existing disclosure requirements, which were previously implemented in 2012 and applied to retirement plans only. The CAA broadened the definition of a “covered plan” to include group health plans, consequently triggering the new compensation disclosure requirement.

Why: The provision aims to monitor brokers and consultants to ensure those who receive $1,000 or more of direct compensation and/or more than $250 in indirect compensation for contracts or arrangements made with a group health plan are reasonable. This does not apply to exclusively fee-based work subject to a fee agreement where the payment is made directly from the employer. This is because the written fee agreement serves as a disclosure.

When: Effective for contracts executed on or after December 27, 2021. Contracts executed prior to December 27, 2021 are not subject to the disclosure requirements until renewal. Service providers must provide the compensation disclosure in advance of entering into, amending or extending the contract for services (on or after that date) so that the plan fiduciary may review it to determine if compensation is reasonable, prior to the effective date of the contract, renewal or extension. "Evergreen" contracts will still require reasonable redisclosure of compensation, even if they last beyond the employer’s plan year.

Who: A producer or entity (service provider) that expects to earn $1,000 or more in direct or indirect compensation, regardless of size, must disclose their compensation to employers (plan fiduciaries) for brokerage and consulting services.

What: The disclosure requirement applies to group health plans (other than QSEHRAs.) This includes self-insured and fully-insured group health plans including dental and vision.

How: A service provider must describe enough information to permit evaluation of the reasonableness of the compensation.

The provision provides an outline of the necessary information:
  • A description of the services to be provided to the plan.
  • A statement that the service provider, affiliate or a subcontractor will provide or reasonably expects to provide fiduciary services.
  • A description of expected direct compensation either in the aggregate or by service.
  • A description of indirect compensation including vendor incentive payments, a description of the arrangement under which the compensation is paid, the payer of the compensation, and any services for which the compensation will be received.
  • A description of any transaction-based arrangement such as commissions or finder’s fees.
  • Identification of the payer of the indirect compensation.
  • A description of any compensation expected to receive in connection with the contract’s termination and how any prepaid amounts will be calculated and refunded upon termination.
The plan fiduciary notice must contain the following:
  • The name of the covered plan;
  • The plan number used for the annual report on the covered plan; 
  • The plan sponsor’s name, address, and employer identification number;
  • The name, address, and telephone number of the responsible plan fiduciary; 
  • The name, address, phone number, and, if known, employer identification number of the covered service provider;
  • A description of the services provided to the covered plan; 
  • A description of the information that the covered service provider failed to disclose;
  • The date on which such information was requested in writing from the covered service provider; and
  • A statement as to whether the covered service provider continues to provide services to the plan.
A covered service provider must update its disclosures:
  • Within 60 days of learning of a change
  • Within 30 days after discovering any inadvertent errors
  • Within 90 days of a written request
Service providers are required to provide the disclosure on their own initiative, but in the event they do not, and fail to make the required disclosures within 90 days after a written request for it, the plan fiduciary must notify the Department of Labor (DOL) within 30 days and should consider terminating the contract.

The disclosure requirement is all-encompassing and the descriptions must be sufficient for the client to evaluate reasonableness. It includes all forms of compensation including standard, ongoing compensation, bonuses, finder’s fees, prepaid (advanced) commissions, payments made by third parties, incentive programs not solely related to the plan, etc. Compensation value can be expressed in the aggregate or by service as a dollar amount, formula, per capita charge, or any other reasonable method with a good faith estimate. The broker must identify each payer and describe each arrangement.
 
“Covered Services” types of services to include:
  • Development or implementation of plan design, insurance, or insurance selection
  • Recordkeeping services
  • Selection of Medical Management vendors
  • Benefits Administration (including vision & dental)
  • Stop-loss insurance
  • Pharmacy benefit management services
  • Wellness services
  • Transparency tools and vendors
  • Compliance services
  • Third-party administration services
  • Disease management vendors and products
NEXT STEPS 

Preparation:
  • Gather all commission schedules and compensation information from all carriers.
  • Determine what resources carriers may have available.
  • Determine the point in your process when you’ll make the disclosure (must be done reasonably in advance of the contract).
  • Determine where you will document compliance.
Communication:
  • Why are we doing it now? Discuss transparency and talk about the value you are bringing.
  • Select disclosure format.
  • Determine how you will prepare clients for the new disclosure.
  • Create appropriate communication. 
Implementation:
  • Provide general training to staff or administrations. Please see EBSA information.
  • Determine delivery.
  • Consider file audits to ensure compliance.
SAVOY RESOURCES
  • Broker partners have access to commission information via the commission portal. Statements can be downloaded in an XML format.
  • Carrier commission schedules for certain product lines can be found on the Savoy website under “Carriers.”
  • A sample template for Broker Compensation Disclosure can be found HERE.
  • Helpful information will be noted on quoting materials and proposals (to be implemented soon).