Broker Compensation Disclosure Requirements: What You Need to Know

There’s a new federal broker compensation disclosure requirement that’s encouraging greater transparency in the benefits industry—and creating an extra step for brokers. 

Effective December 27, 2021, insurance brokers and consultants are required to disclose their expected commissions related to all group health plans and individual health insurance policies. This applies to contracts executed on or after that date. 

Insurance brokers and consultants (and their subcontractors) must notify insurance clients in writing in advance of a new sale, renewal, or change to a health insurance contract when they expect to earn at least $1,000 in direct or indirect compensation.  

The requirement applies to contracts or arrangements between plan sponsors (i.e. employers) and brokers or consultants related to a group health plan. For example:

• A broker receives a commission of at least $1,000 for providing a benefits package to a fully-insured group.
• A consultant receives fees of at least $1,000 from a TPA for signing them with a self-funded group.

Note: The new broker compensation disclosure requirement does not apply to exclusively fee-based work where the plan sponsor pays the broker or consultant directly. 

Brokers and consultants aren’t the only ones who need to comply: plan sponsors are legally responsible for ensuring receipt of this disclosure. If either party fails to hold up their end, the contract could be out of compliance with the Department of Labor (DOL). The DOL’s Employee Benefits Security Administration (EBSA) agency oversees ERISA enforcement and will enforce the new CAA requirement.

The requirement comes as part of the Consolidated Appropriations Act of 2021, Section 202. Previously, the DOL only required disclosures for qualified retirement plans. 

How to Remain in Compliance

To remain in compliance, brokers and consultants will need to put together a thorough disclosure report. 

Here’s a brief summary of what’s required. 

1. A description of the services to be provided to the covered plan pursuant to the contract or arrangement.
2. A statement that the covered service provider (or their affiliate or subcontractor) will provide or reasonably expects to provide services directly to the covered plan as a fiduciary (where applicable).
3. A description of all direct compensation the covered service provider reasonably expects to receive in connection with services provided under the contract.
4. A description of all indirect compensation the covered service provider reasonably expects to receive in connection with services provided under the contract.
   1. This includes compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract with the covered plan.
   2. This does NOT include any compensation received by an employee from an employer.
5. For any indirect compensation, the disclosure must also include:
   1. A description of the arrangement between the payer and covered service provider for indirect compensation.
   2. Identification of the services for which the indirect compensation will be received, if applicable.
   3. Identification of the payer of indirect compensation.
6. A description of any compensation that will be paid among the covered service provider, an affiliate, or a subcontractor, in connection with the services if such compensation is set on a transaction basis (such as commissions, finder’s fees, or other similar incentive compensation based on business placed or retained).
   1. This includes identification of the services for which such compensation will be paid and identification of the payers and recipients of such compensation (including the status of a payer or recipient as an affiliate or a subcontractor), regardless of whether such compensation is also disclosed.
7. A description of any compensation that the covered service provider reasonably expects to receive in connection with the termination of the contract or arrangement, and how any prepaid amounts will be calculated and refunded upon such termination. 

A covered service provider must update its disclosures within 60 days of being informed of the change. They must also correct any inadvertent errors within 30 days of discovering the error. Covered service providers must provide their disclosure within 90 days of a written request.

You can find the full text of the law online to better understand how to remain in compliance (head to page 1,713). Additionally, while the Department of Labor is not issuing regulatory guidance at this time, they did release some guidance and a temporary enforcement policy to address such questions.

Don’t Let New Compliance Slow You Down

Transparency and compliance are important tenets of the insurance industry. They can also take up a ton of time for agents and brokers—time that could be better served helping clients. 

Discover how Agency Engine helps you automate compliance so you can focus on what really matters. Explore Agency Engine’s Stewardship Report and Commissions Transparency Tool. Interested in seeing it in action? Schedule a demo today!