Fiduciary Validation For Benefits Firms

 

Most businesses rely on benefits firms to help them maximize the return on their benefits investments and fulfill their fiduciary responsibilities under federal law.

However, traditional benefits firms accepting (usually undisclosed) compensation from PBMs, vendors and carriers undermines their ability to give employers unbiased advice on how to best finance and procure healthcare.

This conflict of interest means that employers are out of compliance with ERISA guidelines, which prohibit employers from using benefits firms that get paid on both sides of a transaction for consulting and procurement services.

To solve this problem, a number of “fee-based” benefits firms have emerged in the market.

Since fee-based firms do not accept compensation from vendors associated with health plans (see requirements below), they can give employers more objective recommendations and, hence, improve the employer’s legal standing under ERISA law.

To help employers identify benefits firms that are truly “fee-based,” the Validation Institute is now offering a new validation for benefits firms that adhere to fiduciary standards. The new validation not only helps employers find benefits firms that are financially motivated to support their objectives: the Validation Institute’s vaunted $100,000 Credibility Guarantee also backs fiduciary validated benefits firms.

If your benefits firm would like to differentiate itself in the marketplace by gaining this unique validation, please see the submission guidelines, requirements, and payment terms below.

 

Fee-Based Firms Appointed With All Traditional Carriers (Objectivity Rating = A)

Requirements:

• The Firm charges the employer a fee for providing consulting, procurement, and management services related to the employer’s health plan(s).
• The Firm does not accept commissions, bonuses, or overrides from vendors associated with the employer’s health plans.
• If the Carrier or vendor pays indirect compensation to the Firm, the Firm must credit 100% of that compensation back to the employer.
• Firms must use contracts with employers that comply with disclosure rule 408(b)(2)(B).
• Firms may accept commissions from Carriers for the sale of ancillary products. (The Credibility Guarantee does not apply to voluntary benefits.)

 

Fee-Based Firms That Are Not Appointed with Traditional Carriers (Objectivity Rating = B)

Requirements:

• The Firm charges the employer a fee for providing consulting, procurement, and management services related to the employer’s health plan(s).
• The Firm does not accept commissions, bonuses, or overrides from vendors associated with the employer’s health plans.
• Firms must use contracts with employers that comply with disclosure rule 408(b)(2)(B).
• Firms may accept commissions from Carriers for the sale of ancillary products.

 

Qualified Exceptions:

1. If the employer is a small group on a fully insured product, the fee or commission paid to the benefits firm is set by the Carrier and cannot be removed from premiums.
   1. If the benefits firm’s fee is higher than the Carrier’s fee, the benefits firm will credit the Carrier payment toward their total fee so long as it is permissible under State law.
   2. If the benefits firm’s fee is lower than the fee paid by the Carrier, the benefits firm must accept the Carrier’s payment in full. Under the rebating laws, they cannot credit this type of payment back to the employer.
2. If the employer’s contribution toward the health plan is near the ACA’s minimum requirements (i.e., 50% of the employee-only base plan), the benefits firm may accept the commission in lieu of fees so that the employer does not have to shoulder 100% of their firm’s fee. This must be disclosed.
3. Some large group plans like Multiple Employer Welfare Arrangements (MEWAs), and Association Health Plans (AHPs) do not allow commissions to be removed from products. In this scenario, the benefits firm may accept the commission in lieu of fees. If the firm’s fee is higher than the commissions embedded in the health plan, the firm may credit the commissions paid towards their fee, so long as State laws do not prohibit this. If they prohibit this, a disclosure will suffice.
4. Transition Period: when replacing an incumbent brokerage firm via the “Broker of Record” (BOR) process, Fee-Based Firms may accept compensation from the employer’s current vendors until the last day of its plan year. On the renewal date and henceforth, all the commissions shall be removed from health insurance products wherever possible (except when exceptions #1 – #3 are applicable).

 

Payment Terms:

• Total Investment: $5,000
• $2,500 is due upon signing and $2,500 once the Fiduciary Validation is granted.
• If the Fiduciary Validation is not grantable based on your contract language, you will not be charged the other $2,500
• Annual renewals are $1000 and require submission and review of updated templates or a statement that the Validation-compliant language in the template has remained unchanged

 

Submission Requirements:

To apply, please submit a signed contract that your firm uses with an existing client, along with proof of your current appointments with major carriers. If any appointments have been terminated by carriers, please include a letter explaining the reasons for termination.

Please submit all documentation to Bernie.Weiss@validationinstitute.com

 

Congratulations to the Charter Awardees of the Fiduciary Validation for Benefits Firms

Firm	Lead Individual(s)
BenefitsDNA	Justin Leader
E Powered Benefits	David Contorno/Emma Fox
Health Compass Consulting	Donovan Pyle
Prosperity Benefits	Niko Caparisos
Risk Strategies	David Smith