J&J

Broker Compensation - Rx Kick Backs

Broker Compensation is a hot topic these days. With the passing of the CAA, brokers are required to disclose all direct and indirect forms of compensation they receive in exchange for brokering benefit plans for plan sponsors.

Unfortunately, there are myriad indirect forms of compensation that benefit brokers receive - hence our commitment to a fee-only approach. But the recent Johnson & Johnson lawsuit highlights how PBMs can influence broker recommendations and possibly result in conflicted interests. Here is an excerpt provided by our friends at True Scripts:

J&J Fiduciary Lawsuit

Prudence and Conflicts of Interest

While the J&J employee-participant's lawsuit does not specifically allege non-compliance with this new compensation disclosure requirement, the specter of non-compliance is implied. And such implication is tied back into the fiduciary duty to act prudently.

More specifically, the complaint devotes eight paragraphs asserting that plan fiduciaries must act prudently when hiring brokers and consultants to, for example, assist the plan in selecting and negotiating contract terms with a PBM. These paragraphs go on to explain that in many cases, brokers and consultants have a conflict of interest when recommending a particular PBM due to indirect compensation and

"kick-backs" (as the complaint puts it) paid to the brokers/consultants by the PBM.

Based on these points, the complaint asserts that plan fiduciaries must ensure that any broker/consultant they hire to help them select and negotiate with a PBM does not have a conflict of interest that would prevent the broker/consultant from offering objective advice. The exclamation point to these assertions is that a plan fiduciary's failure to obtain the required disclosures from a broker/consultant makes the contract with the broker/consultant a prohibited transaction under ERISA.

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