Fiduciary Standards And Health Benefits
Much has been written recently regarding fiduciary standards and roles as they relate to company 401(k) plans and, specifically, plan sponsors. If you own or run a company and offer a 401(k) plan, you know the importance of protecting your employees' money, making sure the fees are reasonable and the decision making is fully documented, and ensuring that the service providers you use are qualified.
You're also aware that if reasonable standards are violated based on federal guidelines, you, as a fiduciary, may be liable, punished and fined.
But what about health insurance? More money is spent on health insurance today by both employers and employees in comparison to 401(k) plans generally, and yet what fiduciary standards do employers and brokers follow? Usually, none.
An accredited investment fiduciary (AIF) who is also an accredited health insurance fiduciary (AHIF), and provides benefit consulting services for business clients, will follow similar fiduciary standards for your health insurance offerings as they do for your 401(k) plan. Many of the same standards apply to both and the advice is invaluable, in order for you to protect yourself and your company from government scrutiny.
For example, a major fiduciary principle is the “conflict of interest” standard. When a broker or consultant takes a bonus from an insurance carrier (on top of the commission) for keeping a client with the carrier (retention bonus) or bringing the carrier a new customer (new business bonus), there is a glaring conflict of interest. The motivation of a broker should always be what's in a client's best interest.
Also, are you sure your broker is getting paid the standard commission from the insurance carrier? Or has he or she negotiated a higher commission of which you're unaware? It happens more often than you think and without question, violates fiduciary principles. Make sure your broker documents exactly what he or she is paid, just as the federal government requires your 401(k) advisor to disclose his or her compensation.
As the person making decisions on health insurance, you have the responsibility to make sure the broker you have selected was chosen based on qualifying criteria. This might include previous pertinent employment with a health insurance carrier, experience with clients of similar size, industry designations or simply that the expert you're selecting specializes in benefits and has a verified client list you can call. Your brother-in-law who is a property casualty agent or a life insurance agent with little or no health insurance experience does not meet reasonable fiduciary standards of care.
There are very few health insurance brokers who are also financial advisors and accredited investment fiduciaries, who understand global fiduciary precepts and can apply them to health insurance. If you can find one, have him service both your 401(k) plan and your health insurance plan, utilizing fiduciary principles. Some AIFs who handle both 401(k) plans and health insurance contracts for their clients with 50 or more employees will reduce commissions considerably on the health insurance to lower employer and employee costs. That's reasonable.
Richard W. Singleton, an independent financial advisor specializing in employee benefits and investments, is president of Singleton Financial Group of Bellingham. Contact him through www.thesingletonfinancialgroup.com.
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