Witnesses at a hearing on proposed Department of Labor regulations designed to enhance the transparency of employee benefit plans said the new rules do not fit with the reality of broker compensation and could undermine existing protections for brokers.
The proposed regulations would require that contracts between certain service providers and plans provide for specific and detailed information to be disclosed to plan sponsors.
Additionally, all services furnished to a plan and all compensation, direct and indirect, to be received by the service provider would have to be disclosed in writing. The proposed rules also require the disclosure of possible conflicts of interest of the service provider that may affect the performance of plan services.
Cameron Findlay, Aon Corporation executive vice president and general counsel, who is also a former deputy secretary of labor, appeared on behalf of the Council of Insurance agents and Brokers.
Mr. Findlay said the department's "primary concern under the proposed regulations appears to be with participant-directed defined contributions plans, in particular with undisclosed, indirect compensation paid in connection with the investment of the assets of those plans," and he added that the CIAB understands those concerns.
"However, the same concerns are not present with respect to the placement of insurance products with welfare plans," he said, adding that "the insurance brokerage industry is a different animal."
Disclosing the future compensation a broker would be paid is impossible, he explained, adding that such compensation is "unknowable" in advance and that it is difficult to determine certain contingent or discretionary compensation on the basis of a particular policy or purchaser.
Ashley Gillihan, who testified on behalf of the Self-Insurance Institute of America, also testified regarding compensation for brokers and agents, calling on the department to clarify the proposal regarding employee health plan insurance fee transparency to include both "commissions" and other forms of compensation.
Mr. Gillihan noted, as an example, that some sales compensation is commonly based on the volume of overall sales for a specific carrier and that such compensation may not appear as part of a specific transaction.
In such cases, he argued, a sponsor of an employee benefit plan may not have a complete picture to compare their cost options regarding self-insured versus fully insured insurance plans
"Our goal is to assure a level playing field for self-insured employee health plans in comparison to fully-insured plans so that plan fiduciaries have all the information they need to make prudent decisions regarding participants' coverage," he said.
Mr. Findlay also argued that the proposed guidance's efforts to increase transparency with regards to service providers should not conflict with already established class exemptions.
"In crafting those exemptions, the department carefully considered the industries and transactions at issue and the attendant risks to plans," he said.
"In many cases, but not all, the department addressed those risks by predicating relief on comprehensive disclosures regarding fees and other issues."
Barring evidence that the exemptions have not worked, and Mr. Findlay noted, "we know of no such evidence," he said the CIAB believed that the exemptions should not be revisited, and that if they are, it should be done on an individual basis rather than as a whole.
More specifically, Mr. Findlay said that "prohibited transaction exemption 84-24 is of particular importance to the insurance brokerage industry."
That exemption, he explained allows a broker or agent "to place insurance products with plans when they are fiduciaries or affiliated with fiduciaries to the plans," under certain conditions and after a series of disclosures.
"The insurance brokerage industry has long been familiar with these requirements and has grown accustomed to addressing them when relief is needed–that is, where the broker or its affiliate is a fiduciary," he said. "There is no evidence that these requirements have failed to protect plans against fiduciary self-dealing."
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