Blog, Reference-based Pricing
December 12, 2023

Broker and TPA Compensation Disclosure Obligation Reminder

2 minute read
Broker comp disclosure

What you need to know about Broker and TPA Disclosure Obligation.

Consolidated Appropriations Act of 2021

Compensation Disclosure Obligation

Since the enactment of the Consolidated Appropriations Act of 2021 (the “CAA”), effective December 27, 2021, Brokers and TPAs are required to report compensation received directly, or indirectly, in connection with services provided to health and welfare plans subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Prior to the CAA, compensation disclosure was only required in connection with services provided to retirement plans.

ERISA prohibits plans from engaging in transactions with service providers if more than reasonable compensation is paid for their services.  The ERISA regulation which defines “reasonable compensation” requires that several conditions be met, in addition to the disclosure of the amount of the fees for services. A service provider must disclose, in writing, the following information in connection with services provided to a plan in amount of $1,000 or more:

  • the services to be provided to the plan pursuant to the contract or arrangement, and whether any subcontractors will be engaged;
  • all direct compensation, either in the aggregate or by service, that the service provider reasonably expects to receive for the services;
  • third-party arrangements that may result in indirect compensation, including the services and identity of the third- party;
  • transaction based compensation (such as commissions, finder’s fees, or other similar incentive compensation based on the business placed or retained); and
  • contract termination compensation and the treatment or prepaid amounts.

Covered Services

The types of services subject to the disclosure obligation include those typically provided by brokers, third-party administrators, and affiliates and subcontractors of the foregoing:

  • Third-party administration services
  • Plan design
  • Insurance product selection
  • Recordkeeping
  • Medical management vendor services
  •  Group purchasing organization preferred vendor panels
  • Compliance services
  • Employee assistance programs
  • Pharmacy benefit management
  • Stop-loss insurance
  • Benefits administration
  • Transparency tools and vendors
  • Wellness services

Disclosure Timing

ERISA regulations require that the information is disclosed to the responsible plan fiduciary prior to contract execution, and upon extension and renewal.  Furthermore, compensation changes must be disclosed within 60 days of the change, and any errors or omissions must be addressed within 30 days of discovery.

Consequences of Non-Compliance

Non-compliance with the compensation disclosure requirements may have costly consequences for both the fiduciary, typically the plan sponsor, and the service provider:

  • Failure of the fiduciary to obtain the required information prior to contract execution could be a breach of fiduciary duty, for which the plan sponsor or other fiduciary could incur regulatory and civil liability.
  • The fiduciary and the service provider engage in a prohibited transaction action for which the Department of Labor (“DOL”) may assess penalties, and an excise tax may be payable to the Internal Revenue Code (“IRS”).
  • The service provider, and the plan fiduciary, may be subject to a wider regulatory examination by the DOL and IRS which may become public and cause reputational damage and result in added civil liability exposure.

We encourage you to follow our blog for insightful compliance reminders and regulatory updates.

Contact 6 Degrees Health compliance team with any questions.


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