Proposed regulations to enhance disclosures to beneficiaries of retirement and other benefit plans have drawn criticism from agents, brokers and the plans themselves as being burdensome and potentially overwhelming to those they seek to protect.
The proposal, one of several being undertaken by the Department of Labor under pressure from Congress and consumer advocates, would require that contracts between certain service providers and plans provide for specific and detailed information. Additionally, 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, and the proposed rules also require the disclosure of possible conflicts of interest of the service provider that may affect the performance of plan services.
In comments on the proposal, however, groups representing agents and brokers argued that the proposed rules would be overly broad, and called on the department to revise the proposal.
The Independent Insurance Agents and Brokers of America argued that the proposal relies too heavily on a “one-size-fits-all disclosure paradigm” which it argued would create an “unprecedented” burden of disclosure.
In a comment letter by Robert Rusbuldt, president and CEO, 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.”
In fact, the CIAB argued that while the department sought to propose a rule that would encompass a broad array of employee benefit plans, perhaps its execution was somewhat more focused.
“We have studied the proposed regulation carefully and respectfully, we believe it was written with a different set of service providers in mind,” said Crerar. “To our thinking, the regulation is focused on, and most appropriate to, 401(k) plans. Indeed many of its requirements make sense for 401(k) plans. We are concerned, however, that it is not consistent with the way insurance products are sold to fund welfare plans.”
The IIABA also argued that the marketplace “is already ensuring” that plan sponsors possess helpful and useful 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 IIABA says in its comment letter, the proposed regulation “does not adequately consider the manner in which the insurance industry is distinct and different from other financial services sectors.”
For their part, the plan providers themselves also expressed concern regarding 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,” Wilder added.
Essentially, he argued, plan beneficiaries would be deluged with information because of the broad scope of the regulations, and the severity of the penalties for violations, which includes contract termination, civil penalties, or the disqualification of the provider.
“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.
While agreeing with the principle behind the proposed regulations, the American Council of Life Insurers also called for more clarification from the department about how insurers would be affected by the proposed rules.
“Our member companies are raising many questions about how the Proposed Regulations would be applied to other types of employee benefit plans and, in particular, how the principles and technical requirements in the Proposed Regulations would apply to insurance contracts that are issued in connection with welfare benefit plans, which have different purposes and different fee structures than defined contribution retirement plans,” said Walter Welsh, ACLI executive vice president of taxes and retirement security, and James Szostek, director of pensions, in their letter.
“We need more time to gather meaningful information in order to comment on these issues. We believe the Department also will need the opportunity to focus on the unique characteristics of these plans and arrangements, which the stated time frame for finalizing the Proposed Regulations does not provide,” the ACLI executives continued.
A similar request was made by American Benefits Council senior counsel for retirement policy Jan Jacobson. The Council asked that the effort be broken into three separate parts–defined contribution plan disclosure, defined benefit plan disclosure and health and welfare plan disclosure. Each part, they argued, should be given full consideration, with work in one area being completed before work in another begins.
“Our reasons for this request are as follows. Each component is an enormous undertaking and very different from the other two components,” Jacobson argued. “Any attempt to deal with all three together in an expeditious fashion will, in our view, fail.”