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What the Broker Compensation Disclosure Rule Means for Employers


If your business partners with an insurance broker or consultant, you know that the value of transparency and shared expectations is priceless. Employers should be able to trust that their broker will always offer the best options while also keeping them informed of vital new developments in their industry. 

With this in mind, employers should be aware of the new broker compensation disclosure rule. While it may seem like just another confusing provision in an already complicated law, understanding what this rule means to your business could help you save money in the long run and continue offering benefits packages that are attractive to employees.

Here, we explore three things employers should know about the broker compensation disclosure rule.

What Is the Broker Compensation Disclosure Rule?

In late 2020, the Consolidated Appropriations Act (CAA) was signed into law as an additional COVID-19 relief bill. In it are several provisions related to business transparency, including the broker compensation disclosure rule. Beginning December 27, 2021, this rule governs that all “covered service providers” (CSPs)—insurance brokers and consultants—must disclose both direct and indirect compensation to their clients if they expect to receive above $1,000 while providing their services. 

How Will This Affect Businesses?

Ultimately, this means that employers will be able to see exactly how their CSPs earn money, which, in turn, can help determine the right decisions for the business moving forward.

Before the CAA was signed into law, insurance brokers were allowed to provide advice or recommendations on behalf of one company without disclosing it. Now they must disclose that they're receiving commissions from an insurance company if they recommend their products. This can affect both employees and employers. For example, you might purchase a particular health care plan based off your broker's advice—but then find out that he or she has received thousands of dollars in commissions for providing that same advice to other clients. Your interests may be at odds with his or her interests. 

Arista Consulting Group is completely independent. You can rest assured that we put the needs of our clients and employees first, not the financial needs of shareholders like other advisors.

What Must CSPs Now Disclose?

Under the new law, CSPs are now required to provide the following information in writing to their plan fiduciaries:

  • Description of services
  • Description of all direct and indirect compensation that the broker expects to receive for their services
  • Description of the indirect-compensation arrangement between the payer and broker
  • Identification of the payer in the indirect-compensation arrangement
  • Description of how the compensation will be received

While there is much responsibility now placed on the CSPs, it is ultimately up to the plan fiduciary to enforce these requirements. If the CSP fails to disclose the appropriate information after 90 days of a written request being placed, the fiduciary must formally notify the Department of Labor.

Employer Takeaway

As a rule, transparency is good. The new broker compensation disclosure rule is no exception; it provides clarity on broker costs for employers, making it easier to understand the full cost of their group health plan and whether or not the broker’s compensation benefits or hinders the employers’ options.

This increased transparency has other benefits too. The rule changes will also bolster fiduciaries’ accountability by requiring broker documentation to prove compliance. However, fiduciaries need to be prepared now in order to handle this new information stream effectively when it arrives after December 27, 2021.

Choose a broker that prioritizes transparency and their clients’ best interests first. To learn more about the broker compensation disclosure rule and other disclosure obligations, reach out to the experts at Arista. We’re committed to providing you with the information you need—without commission—to help you make the best decisions for your organization.