Compensation Disclosure Summary

The law requires that agents, brokers, and/or consultants disclose all compensation to plan fiduciaries. Any covered service provider that receives compensation in excess of $1,000 annually must provide this disclosure.

The disclosure must include both direct and indirect compensation related to the health plan. The requirement applies to fully-insured, self-insured, and level-funded plans. The notification must be delivered prior to the beginning of a plan year and includes requirements to update the group about any changes in compensation throughout the plan year.

What Needs to be Included?

Effective December 27, 2021, brokers and consultants of ERISA covered group health plans, regardless of size, will be required to execute a written contract with a responsible plan fiduciary which includes the following information:

  • A description of the services to be provided as it pertains to the brokerage services contract
  • If applicable, a statement that the broker/consultant plans to offer fiduciary services to the plan
  • A description of all direct compensation the broker expects to receive (in the aggregate or by service)
  • If applicable, a statement that the broker/consultant plans to offer fiduciary services to the plan
  • A description of the services to be provided as it pertains to the brokerage services contract

How Should Compensation be Described?

The disclosure requirement is comprehensive, and the descriptions provided must be sufficient for the broker’s client to evaluate reasonableness. The disclosure must include all forms of direct, indirect and contingent compensation. For the purpose of these disclosures, compensation is specifically defined to include anything of monetary value, although it excludes non-monetary compensation valued at $250 or less, in the aggregate, during the term of the contract or arrangement. The broker must identify each payer and describe each arrangement.

When disclosing each form of compensation, the law allows the description to be expressed as one of the following:

  • A monetary amount
  • A formula
  • A monetary amount

If the compensation cannot be reasonably expressed in the terms above, the statute allows it to be expressed by any other reasonable method, including a disclosure that additional compensation may be earned but not calculated at the time of the contract. If this is the case, the disclosure must also include:

  • A description of the circumstances under which the additional compensation may be earned; and
  • If the covered service provider cannot otherwise readily describe the compensation, a good faith estimate, provided that an explanation of the methodology/assumptions used to prepare the estimate is provided. Any such description must contain sufficient information to permit evaluation of the reasonableness of the compensation or cost.

Types of Compensation


Direct Compensation

Direct compensation refers to compensation received directly from the covered plan. Covered service providers must provide a description of all direct compensation, either in the aggregate or by separated by service, that the covered service provider (or an affiliate) reasonably expects to receive in connection with the services described in the contract, including:

  • Flat fee dollar amounts or any applicable fee schedules
  • Per contract per month monetary amounts
  • Per services monetary amounts
  • Per employee per month monetary amounts
  • Percentage of monthly premiums payments, and/or
  • Other formulas to determine plan fees (i.e., how it is calculated).

When describing any of these compensation arrangements, brokers must detail the way in which the compensation will be received. This would include fees to which the plan has agreed to but that are billed through a carrier in an insured plan arrangement.


Indirect Compensation

Indirect compensation is defined to mean compensation received from any source other than the insurance carrier. This includes compensation from a vendor to a brokerage firm based on a structure of incentives not solely related to the contract with the plan. Any indirect compensation, including any from affiliated companies of the provider as well as any contingent commissions and overrides need to be reported. This includes, but is not limited to, the following:

  • Commissions
  • Payments received from any carrier or vendor’s affiliates that are supporting plan-related services.
  • Any vendor referral fees or other payments of any type, such as referral fees, for instance.
  • Other administration fees (e.g., FSA, HSA, HRA, and COBRA administration fees, benefits administration, etc.).
  • Noncash compensation that exceeds $250 per year in the aggregate (including meals, travel, entertainment, training, sponsorships, and/or other events provided by the carriers or related vendors. Disclosure of these indirect compensation arrangements must:
    • Identify the payer of the indirect compensation;
    • Describe the arrangement between the payer and the covered service provider;
    • Identify the services for which that indirect compensation will be received, if applicable; and
    • Describe the way the indirect compensation will be received.
  • Any contingent commissions or overrides, including:
    • Production bonuses or overrides in recognition of high volumes of sales production
    • Retention/renewal and growth bonus or overrides
    • Preferred vendor bonuses
    • Specified quarterly bonuses
    • Contingent commissions


Indirect Compensation Among Affiliated Entities

If compensation will be paid on a transaction basis (e.g., commissions, finder’s fees, or other similar incentive compensation based on business placed or retained) among the covered service provider, affiliate, and/or subcontractor, then the following must also be disclosed:

  • Identification of the services for which such compensation will be paid.
  • Identification of the payers and recipients of such compensation (including the status of the payer or recipient as an affiliate or subcontractor), regardless of whether such compensation is also disclosed as direct or indirect compensation.
  • A description of the manner in which the compensation will be received.


Indirect: Formula Based Compensation Including Contingent Compensation & Overrides

A wide variety of formula-based compensation structures are utilized in our industry by both carriers and others providing products or services to ERISA health plans (including but not limited to carrier override/contingent compensation programs). Examples include:

  • Production bonus or override in recognition of high volumes of sales production based on either the carrier’s bonus program qualifying criteria or the number of covered employees/amounts of premium sold by the producer within a certain time period.
  • Retention/renewal and growth bonus or overrides (e.g., “persistency programs”) based on the existing amount of business, the amount of new or renewed business, and the net growth percentage and/or renewal rate per member per year.
  • Combined benefits bonus (e.g., based on retention and growth of medical and pharmacy group business with groups made up of a certain number of contracts).
  • Preferred vendor bonus (e.g., an increase in commissions and/or bonuses when combining ancillary products from a carrier’s preferred vendor with medical coverage).
  • Specified quarterly bonus (e.g., for small and middle group insurance, a bonus paid on a sliding scale determined by the number of enrolled employees in eligible cases on the last day of the calendar quarter).
  • Contingent commissions based on enrolled contracts and related fees (e.g., a percentage of paid premium commission for placed insurance with groups of a certain number of eligible employees).
  • Other formulas to determine plan fees (i.e., how it is calculated).

As noted above, the statute prioritizes disclosure of the specific formulas but it also specifies that, “if the compensation or cost cannot reasonably be expressed in such terms,” it may be disclosed “by any other reasonable method, including a disclosure that additional compensation may be earned but may not be calculated at the time of the contract.”

Therefore, to the extent that the specific formulas for such compensation structures can be reasonably expressed, the statute requires the formula disclosure.