New Schedule H P2 Expense Breakout Question

[Numb3rsGame]

Can someone explain to me why fees associated with Insurance Services would fall under the new line 2(i)5 "Investment Advisory and Management Fees"? No where in the 2023 5500 Form Instructions does it say this nor in the 5500 Regulations site. Shouldn't insurance service type fees just fall under "Other" for expenses on the Schedule H P2?

Thanks!

[Paul I]

The lawinsider.com dictionary defines insurance services as "any renewal, discontinuance or replacement of any insurance or reinsurance by, or handling self-insurance programs, insurance claims or other insurance administrative functions."  You will see the term used in the Schedule A instructions.  The Schedule C instructions include a service/compensation code 23 for reporting insurance services.

The Schedule A instructions do seem to acknowledge that there is not a clear delineation between insurance and insurance services reported for some insurance products, including insurance products used as funding vehicles.  I suggest using your best judgement on what and where to report expenses based on the documentation provided by the insurer.

[Numb3rsGame]

Hi Paul I,

Thank you. I think I understand your response. That's a good definition from Lawinsider.

Do you know why the DOL doesn't provide a definition for their terms on the Form 5500 Instructions like Insurance Services?

The Form 5500 Instructions clearly differentiate between:

1) Insurance services expenses reported under codes like 22, 23, 66 on Schedule C.

2) Investment advisory and management fees defined under Schedule H instructions.

There is no guidance or indication that insurance service fees from Schedule C should be co-mingled and reported as investment management fees on Schedule H Line 2(i)5.

Unless explicit evidence can be provided from the actual 2023 Form 5500 Instructions stating otherwise, I believe the appropriate place to report insurance service fees from Schedule C would indeed be the "Other Expenses" line item on Schedule H Part II, not the Investment Advisory and Management Fees line.

From what I can see from the instructions - it looks like these are maintained as separate expense categories throughout, with no suggestion that insurance service expenses should be treated as investment management fees.

I just find it odd that Insurance Services and Investment Management services are being mixed.

Am I wrong in this approach of the instructions?

[Peter Gulia]

Just curious:

Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C?

Is there a logical-consistency check between Schedule C and Schedule H?

[Paul I]

There are no edits that compare Schedule C to Schedule H information.

[RatherBeGolfing]

14 minutes ago, Peter Gulia said:

Just curious:

Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C?

Is there a logical-consistency check between Schedule C and Schedule H?

I haven't looked at the edit checks for the 2023 changes, but generally speaking the edit checks will look for constancy between schedules.  At least that is my experience with FTW, its been a while since I worked with FIS and other software...

[Numb3rsGame]

1 hour ago, Peter Gulia said:

Just curious:

Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C?

Is there a logical-consistency check between Schedule C and Schedule H?

Hi Peter,

Unfortunately I do not know.

Can one make a case though that Insurance Service fees are investment management fees? They are fundamentally different in my opinion.

Thanks,

[Numb3rsGame]

1 hour ago, Peter Gulia said:

Just curious:

Does Form 5500 software include any programming that sets a presumptive path for reporting based on how an amount is coded for Schedule C?

Is there a logical-consistency check between Schedule C and Schedule H?

I should re-word my question - can anyone make a solid case that Insurance service related fees be bucked under the Investment Advisory and Management line on Schedule H P2? I just don't see how it's possible.

[Peter Gulia]

To think about how to classify a fee or other expense, one would want to know more about the plan and about what service was provided.

Is the plan a health plan? A disability plan? A life insurance plan? Some other kind of welfare benefit? Or is the plan a defined-benefit pension plan? Or an individual-account retirement plan?

Was the service about a health insurance contract? A stop-loss contract? Disability insurance? Life insurance? Fiduciary liability insurance? Some other casualty insurance? A fixed annuity contract? A variable annuity contract?

And was the service truly advice to the plan? Or was it a service to an issuer or intermediary of an insurance contract?

[Numb3rsGame]

On 5/30/2024 at 6:30 AM, Peter Gulia said:

To think about how to classify a fee or other expense, one would want to know more about the plan and about what service was provided.

Is the plan a health plan? A disability plan? A life insurance plan? Some other kind of welfare benefit? Or is the plan a defined-benefit pension plan? Or an individual-account retirement plan?

Was the service about a health insurance contract? A stop-loss contract? Disability insurance? Life insurance? Fiduciary liability insurance? Some other casualty insurance? A fixed annuity contract? A variable annuity contract?

And was the service truly advice to the plan? Or was it a service to an issuer or intermediary of an insurance contract?

Those are excellent questions to consider. My aim was to view Insurance Services more as a whole than tiny parts.

I do see that you're correct that the appropriate categorization could depend on the nuances of the particular plan, insurance product/service, and whether it was direct advice to the plan or contract services.

For example, fees for true investment advice on annuity/insurance products as investment vehicles may potentially align better with investment advisory services than general insurance brokerage fees.

However, my understanding from closely reviewing the 2023 Instructions is that more common insurance services like premiums, policy placement, broker commissions, etc. are intended to be kept separate from investment management expenses on Schedule H.

But I agree the Instructions could provide clearer guidance across different insurance product and plan types. Considering the specific details you raised, rather than a one-size-fits-all approach, seems prudent.

Appreciate you outlining those nuanced factors to evaluate. If you have experience or insight into how the agencies view categorizing insurance services in certain scenarios, I'm certainly open to that feedback based on your expertise.