In the Know - Blue Cross and Blue Shield of Illinois


March 3 , 2010

ERISA Form 5500 FAQs for Producers

I understand that groups will be receiving several documents from Health Care Service Corporation (HCSC), a Mutual Legal Reserve Company, in the mail regarding their ERISA filing. What will be included in the mailing?
Groups may receive two new ERISA-related documents in the mail related to the expanded ERISA 5500 reporting requirements. One is a Form 5500 Supplemental Information Report and the other is an ERISA Disclosure Information Report. The criteria vary as to which customer the reports will be automatically mailed to. If both reports are mailed, the two documents will be mailed together. The Supplement provides information about non-monetary compensation paid by HCSC and Dental Network of America (DNoA). The Disclosure Report provides information about “Eligible Indirect Compensation” (EIC) and other financial arrangements that we believe the groups would want to know.

Which groups will automatically receive the Form 5500 Supplemental Information Report?
This report will be automatically sent to Prospective Premium group customers with more than 100 enrolled employees, all Retrospective, Minimum Premium, Cost-Plus and ASO group customers, as well as any other group customer that received an annual ERISA Form 5500 Information Report last year. Excluded from the mailing will be any group customers who have previously communicated that they are ERISA exempt. This information will also be available, upon request, for all group customers.

Which groups will automatically receive the 2009 ERISA Disclosure Information Report?
The 2009 ERISA Disclosure Information Report will be sent to ERISA group customers that have purchased Minimum Premium or Cost-Plus funded plans, as well as self-insured (ASO) accounts. This information will also be available, upon request, for customers with other funding arrangements.

How do the new ERISA-related documents in the packet relate to the historic Form 5500 Information Report?
The new documents do not take the place of the historic Form 5500 Information Report, which will be sent separately to the groups. Neither the timing nor the content of the original Form 5500 Information report has changed. The historic Report provides information about direct monetary compensation received by HCSC, plus information about indirect compensation for insurance fees and commissions paid by HCSC to agents, brokers and other persons.

Does HCSC prepare the ERISA Form 5500 for groups?
No, it is the group’s responsibility to determine which information should be included and to prepare and file the Form 5500 with the government. Groups should consult their advisors and legal counsel to determine how the new reporting requirements apply to their specific organization.

How did HCSC come up with the estimates/allocations on the Supplement?
The method used to allocate the indirect non-monetary compensation to the account number is described on the Supplement. It will not be the exact amount spent on each customer or on each producer relative to each customer. The actual amount spent per customer or per producer may be more or less than the estimated amount shown in the report. Expenses may be allocated to a customer or to a producer even if none was actually received. In some cases the actual amount may be zero.

The estimated non-monetary compensation will be calculated by first aggregating the non-monetary expenses associated with customers and producers by block of business (Small Group, Large Group, Labor, etc.). The block of business totals will be divided by the number of enrolled lives in the block. The resulting amount will be the Average Expense per Enrolled Life for the block. Each customer will be associated with one of the blocks of business. The customer’s estimated amount will be calculated by multiplying the customer’s enrolled lives by the Average Expense per Enrolled Life for the block of business in which the customer is classified. An estimation methodology is allowed for reporting purposes per the Department of Labor guidance on the revised legislation.

The non-monetary compensation included in the Supplemental Report will include non-monetary compensation associated with DNoA, but not with Fort Dearborn Life (FDL). FDL will send separate ERISA-related reports to our customers in common with HCSC consistent with existing reporting.

What is considered non-monetary compensation in the Supplement?
Typical non-monetary compensation items include gifts, meals, entertainment and meetings. Expenses with a value of less than $10 were not included. Entertainment includes both tickets purchased directly by HCSC, as well as tickets received (e.g., sponsorship of an event and regifting to customers or brokers/consultants).

Non-monetary compensation includes amounts both paid for by HCSC, as well as received by HCSC, if deemed “in connection with Plan business.”

Non-monetary compensation does not include items such as enrollment meetings and trade shows. Enrollment meetings are considered fulfilling the terms of the contract and trade shows are open to the public. The estimation method used by HCSC is conservative and may pick up more expenses than technically required, since it is not always possible or practical to separate out activities associated with fulfilling the contract from activities done to acquire new business/renew existing business.

Why does the Disclosure Report include information that is not specifically needed for EIC purposes?
The Disclosure Report serves several purposes, including: 

  • Provides EIC information for Schedule C (primarily filed by ASO groups),
  • Provides an overview of various financial arrangements that may impact HCSC or HCSC key vendor’s transaction-based compensation (whether insured or premium), and
  • Provides financial and corporate structure information, so groups can assess our financial strength and potential conflicts of interest.

What is EIC?
EIC stands for “Eligible Indirect Compensation” and is a type of compensation that is given streamlined reporting on the Form 5500. Please note that the amounts that are EIC are not included in the Supplement.

Why aren’t all of HCSC’s vendors mentioned in the Disclosure Report? 
The Form 5500 Regulation allows HCSC, as a service provider, to “bundle” compensation for its vendors in most cases. In the few cases where compensation for key vendors needs to be separately reported, HCSC has included information about those key vendors and their transaction-based compensation in the Disclosure Report.
Why does the Disclosure Report include “Service Codes” for the pharmacy benefit manager/Prime Therapeutics information?
Prime felt it was important to provide groups with recommended Service Codes, and HCSC agreed to its request. The recommended Service Codes are just for informational purposes, and it is ultimately the group’s decision on whether to use them or not.

Are BCBSIL-sponsored ads for brokers/agents considered to be non-monetary compensation?
They are considered to be compensation and HCSC has already been including the value in existing ERISA reporting as special commissions. This will not be changing from how we have already been handling this compensation.

Are BlueLeaderSM awards (e.g., embossed trophies) considered to be indirect non-monetary compensation?
They would be considered compensation; however, since they are embossed, they do not have any relevant market value so there is no value to report.

Are BCBSIL expenses associated with Producer Advisory Council participation considered indirect non-monetary compensation?
Yes, these meetings are considered to be reportable. If the total value that each producer receives from the meeting is less than $5,000, then the amount will be included as part of the general estimate calculation. If the amount exceeds $5,000, then the value will be divided on a weighted basis against that producer’s book-of-business, since these relate to the producer’s book-of-business and not any particular customer.

If you have any questions or need additional information, please contact your account representative.

A Division of Health Care Service Corporation, a Mutual Legal Reserve Company,
an Independent Licensee of the Blue Cross and Blue Shield Association.