Broker Compensation and Fiduciary Risk: What Plan Sponsors Need to Understand Now
Broker Compensation and Fiduciary Risk: What Plan Sponsors Need to Understand Now
Most plan sponsors focus on benefit costs they can see.
What often gets overlooked is how service providers are compensated behind the scenes.
Why Compensation Matters Under Fiduciary Standards
Fiduciary responsibility isn’t just about outcomes.
It’s about process, impartiality, and reasonableness.
To meet that standard, sponsors must understand:
Who is being paid
How much they’re being paid
By whom
For what services
You cannot evaluate reasonableness without understanding compensation.
Common Broker Compensation Structures Sponsors Overlook
Most benefit brokers are compensated through combinations of:
Carrier commissions
Overrides or volume-based bonuses
Contingent or incentive compensation
Administrative allowances or fees tied to vendors
These structures are legal and long-standing — but they are often poorly understood by plan sponsors.
Why “Invisible” Compensation Creates Risk
When compensation is indirect:
Sponsors assume costs are embedded or irrelevant
Conflicts are harder to identify
Documentation is often incomplete
From a fiduciary perspective, lack of visibility creates exposure — not because the arrangement is improper, but because it cannot be evaluated or defended.
What Transparency Is Changing
Recent regulatory and litigation trends are pushing compensation into the open:
CAA fee disclosure requirements
Increased scrutiny of PBMs and carrier arrangements
Greater focus on conflicts of interest
As transparency increases, expectations change.
Sponsors are now expected to understand and evaluate these arrangements — not just receive them.
The Retirement Plan Parallel (Again)
Retirement plans went through this exact transition:
Indirect compensation became visible
Fiduciary expectations rose
Litigation followed
Health and welfare benefits are now entering the same phase.
What Prudent Plan Sponsors Are Doing Differently
Forward-thinking sponsors are:
Requesting full compensation transparency
Validating broker recommendations with independent review
Documenting how compensation was evaluated
Separating advice from incentives where possible
These steps reduce risk — without disrupting relationships.
The Bottom Line for Sponsors
Broker compensation isn’t inherently problematic.
Not understanding it is.
Clarity allows sponsors to:
Fulfill fiduciary obligations
Defend decisions
Maintain trust with participants
And that clarity is becoming the new baseline.
If you haven’t reviewed how your service providers are compensated, now is the time to understand it — before you’re expected to explain it.
📩 Ready for an independent evaluation that goes beyond fees? Let’s talk.
