What information should be included in compensation & services disclosures?

Compensation and services disclosures provided by vendors to health plan fiduciaries should include comprehensive information that helps fiduciaries understand the nature of the services being provided, the associated compensation, and any potential conflicts of interest. Here are the key elements that should be included in these disclosures:

1. Description of Services: A detailed explanation of the services the vendor will provide to the health plan. This should encompass all aspects of the services, including administrative, advisory, investment management, and any other relevant activities.
2. Fee Breakdown: A clear breakdown of all fees, charges, and expenses that the health plan will be responsible for. This should cover both direct and indirect fees, including any charges related to investment management, administration, recordkeeping, consulting, or other services.
3. Compensation Structure: An outline of how the vendor's compensation is structured. This includes whether fees are flat, based on a percentage of plan assets, tiered, or transaction-based. Clearly state how and when fees will be assessed or deducted.
4. Revenue Sharing: Disclose any revenue-sharing arrangements with third parties or affiliates. If the vendor receives compensation from service providers for selecting their products, this should be transparently communicated.
5. Conflict of Interest: A statement addressing any potential conflicts of interest that could arise due to the vendor's compensation structure. Fiduciaries should be aware of any incentives that might influence the vendor's recommendations or actions.
6. Termination and Transition Fees: Specify any fees or costs associated with terminating the vendor's services or transitioning to a different vendor. This prevents surprises if the health plan decides to make a change.
7. Frequency of Disclosure: Outline how often the vendor will provide compensation and services disclosures. This could be on an annual basis, upon request, or whenever there are material changes to the arrangement.

Comprehensive and transparent compensation and services disclosures enable health plan fiduciaries to make informed decisions about vendor relationships while fulfilling their fiduciary duty to act in the best interests of the plan and its participants.

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