As noted in BenefitsLink today, an article in the Wall Street Journal (summarized on the Kaiser Foundation site ) brings attention once again to the issue of consultant compensation. In particular, the WSJ article focuses on undisclosed compensation in the health plan arena. Much press has been directed at the investigations by Eliot Spitzer, the New York Attorney General, into insurance consultant compensation practices. (The programs under investigation there have been highlighted on this site.) Whereas the practices there often arose from property and casualty programs, the WSJ article addresses similar practices in the health plan sector.
The consulting community in the health plan sector should now consider themselves on notice that the same rigorous scrutiny applied to the P & C sector is also turning in their direction. Consultants that exercise sufficient discretionary authority and control over self-funded ERISA employee welfare benefit plans face the possibility of ERISA fiduciary status under ERISA Â§ 3(21)(A)(i, iii). As such, they will be responsible to reimburse any compensation beyond what is “reasonable” in the view of a reviewing court. Further, plan fiduciaries will be accountable for failure to exercise due diligence even if the plan consultants cannot be held accountable under ERISA as fiduciaries.
Assessment of Exposure
Whether law firm, consulting group or insurance brokerage agency, the implications of recent developments signals a call for a careful assessment of exposure for undisclosed or potentially “excessive” fee arrangements. In this author’s opinion, ERISA preemption will serve a diminishing role in shielding professionals from garden variety negligence actions for due diligence omissions. Errors and omissions policies will frequently exclude claims that may be characterized as arising out of ERISA breaches or sounding in misrepresentation or fraud.
What To Do Now
The best course of action will be a searching review of present fee arrangements with a view to whether the plan consultant is also making fees from the placement of coverage or services. For the plan fiduciary, failure to review compensation arrangements of plan consultants or the relationship of consultants to vendors would be a significant error. For example, the plan administrator should seek to know if its present advisors, such as law firms, consultants or accountants, have relationships to those providing services to its plans.
For the plan consultant, it would be advisable to seek a clear understanding as to any potential conflicts of interest and the client’s desires for further due diligence in product or service offerings. Further, the consultant would be well advised to understand its errors and omissions exposure should a dispute arise.