Ever since Elliot Spitzer exposed some dubious practices in the employee benefits arena that have a long history (see Marsh article on bid rigging and “contingent commissions”), employers have begun the best practice of inquiring of their benefit advisors as to all fees, commissions, “incentive payments,” “contingent payments” and other forms of compensation received. Further it turns out that some unscrupulous advisors have in fact not only been accepting hidden payments from vendors, but also rigging the bidding process to ensure that the current vendor is selected and other qualified, less expensive vendors are asked to submit higher bids than they would otherwise provide.

The settlements reached by Marsh, Aon, and Willis with the state of New York notwithstanding, some of these practices still go on today. In an article in the September 18, 2006 Wall Street Journal, some of these dubious practices are highlighted by example. Read summary article.

And now, plan participants are beginning class action lawsuits against employers who the participants feel are not properly enforcing ERISA’s requirement that “all fees charged must be reasonable.” Read article (free one time registration required).

Best Practice

1. Insist on full fee disclosure from all your benefit providers: consultants, agents, brokers, TPAs, carriers, investment advisors and investment managers.
2. Write into your contracts with these benefit vendors that all fees must be disclosed in full. Include significant penalty provisions in the contracts if this is violated.
3. Require that all fees are fully and completely disclosed.

Until the US Department of Labor or the courts put some teeth into ERISA’s fee disclosure provisions, you’ll have to do this work on your own.