NAHU Announces Good Faith Standard for Broker Compensation Disclosure

(Editor’s Note: Brokers need to carefully review the information in the NAHU update below and related FAQs. The good news is that the DOL will accept “good faith” disclosure efforts, but the DOL reminds brokers that “indirect” compensation (bonuses, etc.) must also be disclosed.

Word & Brown  is making it easy for you to meet your group health and related benefits compensation disclosure requirements. Here are links to our free broker compensation disclosure template and our overview article on your responsibilities:)

Disclosure Template

Overview of Broker Responsibilities


Among its many new requirements for employee benefit plans, the Consolidated Appropriations Act, 2021 (CAA) created new compensation disclosure requirements related to group health plans. Specifically, the new rules require brokers and consultants anticipated to earn $1,000 or more in direct or indirect compensation related to group health plans to disclose that compensation to the plan sponsor reasonably in advance of entering into an agreement to provide that service. This requirement is designed to facilitate the plan sponsor’s compliance as a fiduciary to ensure that compensation is reasonable and that no conflicts of interest exist for plan service providers.

As explained in more detail below, the requirement is effective for contracts or arrangements entered into, extended, or renewed on or after December 27, 2021. However, before last week, the Department of Labor had not issued any guidance to assist plan service providers or plan sponsors with complying with these rules. As a result, the law went into effect with many unanswered questions from service providers and plan sponsors alike on how to comply. Acknowledging these open questions and that no regulations are forthcoming, the DOL issued Field Assistance Bulletin No. 2021-03 on December 30, 2021, announcing a new temporary enforcement policy related to these requirements.

The new policy provides that the DOL will not exercise enforcement action against plan service providers or fiduciaries that comply with the new rules using a “good faith, reasonable interpretation of ERISA.”  In announcing this policy, the DOL expressly acknowledges that disclosures will look different for different types of compensation arrangements. However, the DOL emphasizes that disclosure must include information about indirect compensation, stating that “the Department is of the view that a significant goal of the new disclosure requirements is to enhance fee transparency, especially for service arrangements that involve payment of indirect compensation.”  The guidance also addresses the following open questions about the disclosure requirements:

Q1:    Can covered service providers “look to” the DOL’s guidance on the compensation disclosure rules for retirement plans in determining how to comply with the new rules?

Yes, while group health plan compensation arrangements differ from retirement plan compensation arrangements, many concepts overlap. As such, the DOL’s explanations of the disclosure requirements “may be useful” in interpreting the disclosure requirements for group health plans.[1]

Q2:    Do the new disclosure requirements cover both fully insured and self-funded group health plans?

Yes. The rules apply to all group health plans. This would include any plan subject to COBRA.

Q3:    Do the new disclosure requirements apply to “excepted benefit” plans such as limited scope dental and vision plans?

           Yes. See above.

Q4:    “Covered service providers” are defined in the statute to include providers of brokerage services and consulting services, but the law does not define these terms. Is this definition limited to service providers who are licensed as, or who market themselves as, “brokers” or “consultants”?

           No, the determination if a service provider meets the definition of a “covered service provider” depends on the facts of the situation.  A covered service provider must provide brokerage or consulting services. The statute lists examples of circumstances in which such services may be provided[2] but does not actually define the terms. The DOL will allow service providers to make their own determination as to whether they are a covered service provider so long as they determine their status reasonably and in good faith. In making this determination, service providers should keep in mind that the DOL “is of the view that a significant goal of the new disclosure requirements is to enhance fee transparency, especially for service arrangements that involve the receipt of indirect compensation.” The DOL further warns that it will question any service provider that receives indirect compensation “from third parties in connection with advice, recommendations, or referrals regarding any of the listed sub-services” but determines it is not a covered service provider. Such service providers should be prepared to explain that their conclusion is consistent with a reasonable, good faith interpretation of the statute.

Q5:    How should compensation that cannot be determined in advance be disclosed before a contract or arrangement is entered into with a group health plan?

           Covered service providers must determine a reasonable method for describing this potential compensation in advance. The statute provides that the required description of compensation or cost:

“may be expressed as a monetary amount, formula, or a per capita charge for each enrollee or, if the compensation or cost cannot reasonably be expressed in such terms, by any other reasonable method, including a disclosure that additional compensation may be earned but may not be calculated at the time of contract if such a disclosure includes a description of the circumstances under which the additional compensation may be earned and a reasonable and good faith estimate if the covered service provider cannot otherwise readily describe compensation or cost and explains the methodology and assumptions used to prepare such estimate.”

Further, if compensation falls within a projected range based on the occurrence of a future event or other features of a service arrangement, disclosing that range may be sufficient. However, the DOL notes that its retirement plan guidance specifically provides that “such ranges must be reasonable under the circumstances surrounding the service and compensation arrangement at issue. To ensure that covered service providers communicate meaningful and understandable compensation information to responsible plan fiduciaries whenever possible, the Department cautions that more specific, rather than less specific, compensation information is preferred whenever it can be furnished without undue burden.”[3]

Ultimately, the adequacy of any disclosure will be determined based on the facts and circumstances of the service contract or arrangement. In deciding if a disclosure is adequate, the principal objective of the statute—providing the plan fiduciary with sufficient information to determine if compensation is reasonable and the severity of any potential conflict of interest—should be considered.

Q6:    The new rules state that beginning December 27, 2021, “[n]o contract or arrangement for services between a covered plan and a covered service provider, and no extension or renewal of such a contract or arrangement, is reasonable” unless the compensation disclosure requirements are met. How does this rule apply to service contracts or arrangements entered into before December 27, 2021?

If there is a written contract or arrangement between the broker/consultant and the plan, the date the contract is “executed” will be the date it is considered “entered into” for this purpose. For example, suppose the parties sign a services agreement for services effective January 1, 2022, on December 15, 2021. In that case, the compensation disclosure rule does not apply because the contract was “entered into” on December 15, 2021, before the effective date of December 27, 2021.

Suppose a “broker of record” letter is used to appoint a covered service provider. In that case, the arrangement is considered “entered into” as of the earlier of (1) the date on which the BOR is submitted to the insurance carrier, or (2) the date on which a group application is signed for insurance coverage for the following plan year.  These events must occur in the ordinary course of business and not avoid the disclosure obligations for these rules to apply.[4]

Q7:    Does the law apply to both large and small group health plans?

           Yes, this disclosure requirement applies regardless of plan size. In this way, it is different than the Form 5500 reporting requirements, which generally only apply to groups with more than 100 participants.

Q8:    Does the DOL intend to issue regulations on the compensation disclosure rules?

           The DOL is not required to issue regulations on these requirements, which borrow heavily from and mirror longstanding retirement plan compensation disclosure rules. Accordingly, the DOL does not believe comprehensive regulations are needed. However, the DOL will continue to monitor the situation and seek feedback on what additional guidance may be helpful.

Considering the size and scope of the new disclosure requirements, we anticipate that the DOL will certainly receive additional requests for guidance in the months and years to come. In the meantime, the rules are now effective for both new covered service provider contracts or arrangements and upon renewal or extension of existing arrangements. Therefore, it is incumbent upon covered service providers and plan sponsors to ensure appropriate disclosures are made. We will continue to carefully monitor developments related to these rules and be in touch with any additional guidance when it becomes available.

[1]  29 CFR § 2550.408b-2(c); 77 FR 5632 (Feb. 3, 2012), Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure (Final Rule),; and 75 FR 41600 (July 16, 2010), Reasonable Contract or Arrangement Under Section 408(b)(2)—Fee Disclosure (Interim Final Rule),

[2] A service provider may be considered a “covered service provider” if it provides: (1) brokerage services “to a covered plan with respect to selection of insurance products (including vision and dental), recordkeeping services, medical management vendor, 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, or third party administration services,” or (2) consulting services “related to the development or implementation of plan design, insurance or insurance product selection (including vision and dental), recordkeeping, medical management, benefits administration selection (including vision and dental), stop-loss insurance, pharmacy benefit management services, wellness design and management services, transparency tools, group purchasing organization agreements and services, participation in and services from preferred vendor panels, disease management, compliance services, employee assistance programs, or third party administration services.”

[3] 77 FR 5632, at 5645.

[4] Read literally, this answer would seem to suggest that the compensation disclosure requirements would never apply to a relationship with a broker appointed via BOR prior to December 27, 2021 because that appointment letter would always have been submitted earlier than an application for coverage for any forthcoming plan year.  However, we believe that a more appropriate good faith interpretation of this language might consider it to be only a transition rule.  Under such an interpretation, for existing BOR arrangements, a disclosure would be required annually reasonably in advance of the date the group insurance application is signed for insurance coverage for the following plan year.


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