Revisions to Department of Labor regulations require carriers to disclose more information to ERISA employers about broker compensation. The goal is to provide more transparency about what carriers pay for services. As a result, Humana now must include the value of indirect expenses such as trips and entertainment along with reporting on direct expenses such as commissions and bonuses. Employers must report this information when they file their ERISA Form 5500.
Humana’s reporting on Form 5500
We modified our systems to start reporting Jan. 1, 2010.
We will implement the new regulations using these guidelines:
- For each expense related to a broker or a consultant, Humana will determine what portion of the expense is related to existing accounts and assign the percentage of the total expense that is reportable.
- If the reportable portion of the expense is related to a general discussion of many existing clients, then the expense will be allocated across the entire book of business, then only the portion allocated to ERISA employers will be reported.
- Humana will report on indirect expenses related to existing customers. If the expense is related to general education, new business development, or a specific new business prospect, the expense will not be allocated to other customers.
- The last step is to aggregate all of the reportable expenses to each ERISA eligible employer to see if the total meets the minimum expense test provided by the Department of Labor for reporting. With the new regulations, we now must also report the value of:
- Gifts, meals, and entertainment valued $10 or more if the total equals at least $100 per person, per calendar year
- Individual items valued at $50 or more regardless of the total annual value
Examples of how expenses will be reported
Dinner to discuss specific ERISA accounts
A Humana associate has dinner with “Broker Jones” to discuss the renewals for three accounts. All of the accounts are ERISA accounts. The total expense is $300. The Humana associate will report the $300 expense, and at the end of the plan year Humana will report the $100 expense to each of the three ERISA account on their 5500 information.
Dinner to reward business
A Humana associate spends $300 taking “Broker Smith” and his wife out to dinner and entertainment to thank him for his business. The $300 will be divided by the total number of accounts in the broker’s book of business. Broker Smith has 10 accounts with Humana, so the reporting basis is $30 per account. Only four of Broker Smith’s accounts are ERISA eligible; those four will receive $30 reporting of indirect expenses at the end of the plan year.
Educational seminar about Humana’s new products and services
Humana hosts 15 brokers at a daylong seminar to learn about healthcare reform as well as Humana’s products. Some of the brokers are new to Humana and some have long-standing relationships. The event costs $15,000. Since the event is educational and not related to specific customers, the expense is not reportable on any customer’s 5500 information.
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