Agent Expense Reimbursements

[Guest ak]

This involves "single premium" purchases of annuities for plan participants (e.g., upon plan termination). I've heard that some insurance companies are providing additional compensation to agents brokering this business (e.g., 1% over and above normal agent commissions). While the commission is disclosed to the applicable plan fiduciary, the additional reimbursement is not. Basically, insurer position is that additional 1% isn't a commission payment so that it doesn't need to be disclosed to fiduciary (even though the plan is paying the additional amount). Any feelings on the propriety of this lack of disclosure. Should fiduciary be informed of this or is this something that must be disclosed to him. Also, is anyone aware of any current legislative/regulatory activity designed to require disclosure of the "reimbursement" in these situations. Thanks for any information.

[Guest]

This certainly sounds like a commission to me, regardless of what the insurance company names it. There isn't any guidance on commissions that need to be disclosed if the insurance company is not providing the info because they are supposed to be providing the info. I think it has to be disclosed.

[GBurns]

Why is disclosure needed on an individual SP annuity ?

[Guest ak]

These are purchased under a group annuity contract where a single premium is paid for the block purchase.

[Dowist]

Is there an ERISA issue here? I'm not sure that there is. Does the fiduciary who decides to purchase the insurance care about anything but the cost (and the assurance of payment)? Does it matter whether the 1% is a commission paid to the agent, or part of the insurance company's profit.

Now if the insurance agent is a fiduciary of some sort, that would be different. But normally the agent is not a fiduciary.

Perhaps state law requires disclosure of commissions, in which case it would be up to the state to define what a commission is and to enforce disclosure.