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Regulation and Compliance > State Regulation

Plan Disclosure Provisions Too Heavy, Critics Say

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Proposed regulations to enhance disclosures to beneficiaries of retirement plans have drawn criticism from agents, brokers and the plans themselves as burdensome.

The regulations are also potentially overwhelming to those they seek to protect, critics argue.

The Department of Labor is considering several plans under pressure from Congress and consumer advocates.

One proposal would require that contracts between certain service providers and plans provide for specific and detailed information.

Under another proposal, all services furnished to a plan and all compensation, direct and indirect, to be received by the service provider would have to be disclosed in writing. The proposed rules would also require the disclosure of possible conflicts of interest of the service provider that may affect the performance of plan services.

Groups representing agents and brokers argued that the proposed rules would be overly broad and called on the department to revise them.

The Independent Insurance Agents and Brokers of America argued that the proposals rely too heavily on a “one-size-fits-all disclosure paradigm,” which it argued would create an “unprecedented” burden on providers.

In a comment letter by Robert Rusbuldt, president and chief executive officer, the IIABA argued that “there is no basis or justification for imposing such a broad administrative burden on an industry that is already heavily regulated, especially when the ramifications for failing to adhere to the strict letter of the regulation would be severe.”

That sentiment was echoed in comments from the Council of Insurance Agents and Brokers, which noted that in addition to being “heavily regulated” by the states, most carriers also require “significant disclosure” as a contractual matter.

“We fully understand the department’s interest in putting some specificity into the requirements, but we urge the department not to rush to cover all plans and all service providers under one regime,” CIAB president Ken Crerar said in a comment letter. “The adage that one can’t fit a square peg into a round hole may hold true here.”

The IIABA also argued that the marketplace already ensures that plan sponsors possess helpful information, “and there is nothing in the proposal and accompanying discussion that suggests that plans are ‘unable or hindered’ in their efforts to obtain the information they need to chose insurance service providers.”

That’s because the proposed regulation “does not adequately consider the manner in which the insurance industry is distinct and different from other financial services sectors,” the IIABA says in its comment letter.

The plans themselves also expressed unease about how effective the disclosure rules would actually be. In a comment letter signed by America’s Health Insurance Plans’ senior regulatory counsel Thomas Wilder, AHIP said it was “concerned” that the regulations “may impose significant administrative burdens on the very plan fiduciaries it is meant to assist,” in addition to the plan service providers.

“We also believe the proposed rule will result in ‘information overload’ that does not lead to meaningful transparency. At the same time, it undermines the very flexibility of contracting that is a key to assuring that the needs of plan fiduciaries and beneficiaries are met by the contract and its compensation terms,” Mr. Wilder added.

Essentially, plan beneficiaries would be deluged with information because of the broad scope of the regulations and the severity of their planned consequences for violations, which include contract termination, civil penalties or the disqualification of the provider, he argued.

“As a result, plan fiduciaries may request massive amounts of information (whether relevant or not) from health insurance plans, and those plans will provide information not because it is ‘useful,’ but rather to avoid even a possibility (no matter how minor) of violating the law,” he said.


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