New York State Seal
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004

George E. Pataki
Governor

Howard Mills
Superintendent

The Office of General Counsel issued the following informal opinion on August 9, 2005 representing the position of the New York State Insurance Department.

Re: Offering free tax preparation services to employers in connection with the sale of employee benefits

Question Presented

In connection with the sale to employers of group health and life insurance policies covering their employees, may an insurance broker or agent provide at no additional charge tax preparation of Schedule A of the Internal Revenue Service Form 5500 Annual Return/Report of Employee Benefit Plan services to the employers, even if such service is not specified in the insurance contract?

Conclusion

Yes, assuming that the tax preparation service is limited to Schedule A of the Internal Revenue Service Form 5500 Annual Return/Report of Employee Benefit Plan, such service constitutes an administrative service that may be provided by an insurance company, its agent or a broker, and, if provided by the agent or broker at no additional charge, would not be an unlawful inducement in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005) even if such service is not specified in the insurance contract.

Facts

The inquirer is a licensed life and health insurance agent. The inquirer sells group health, life, and other insurance to corporations for their employees. The inquirer would like to provide, at no additional charge, the preparation and filing of a specific federal tax form, number 5500, for the employers to whom the inquirer sells group insurance policies.

According to the Dept. of the Treasury, Internal Revenue Service, 2004 Instructions for Form 5500 Annual Return/Report of Employee Benefit Plan, Cat. No. 13502B: "[t]he Form 5500 . . . is used to report information concerning employee benefit plans . . . . Any administrator or sponsor of an employee benefit plan subject to ERISA [Employee Retirement Income Security Act of 1974] must file information about each plan every year . . . ."

Analysis

N.Y. Ins. Law § 4224(c) (McKinney's Supp. 2005) states:

No such life insurance company and no such savings and insurance bank and no officer, agent, solicitor or representative thereof and no such insurer doing in this state the business of accident and health insurance and no officer, agent, solicitor or representative thereof, and no licensed insurance broker and no employee or other representative of any such insurer, agent or broker, shall pay, allow or give, or offer to pay, allow or give, directly or indirectly, as an inducement to any person to insure, or shall give, sell or purchase, or offer to give, sell or purchase, as such inducement, or interdependent with any policy of life insurance or annuity contract or policy of accident and health insurance, any stocks, bonds or other securities, or any dividends or profits accruing or to accrue thereon, or any valuable consideration or inducement whatever not specified in such policy or contract; nor shall any person in this state knowingly receive as such inducement, any rebate of premium or policy fee or any special favor or advantage in the dividends or other benefits to accrue on any such policy or contract; or knowingly receive any paid employment or contract for services of any kind, or any valuable consideration or inducement whatever which is not specified in such policy or contract.

Pursuant to N.Y. Ins. Law § 4224(c) (McKinney's Supp. 2005), neither an insurance company, its authorized agent or a broker, may provide ". . . as an inducement to any person . . . any valuable consideration or inducement whatever not specified in such policy or contract; . . . " in connection with the sale of health and/or life insurance. Therefore, neither an insurance company, its authorized agent or a broker selling health and/or life insurance may personally, or through a third party, provide any administrative services beyond those that are normally provided by an insurance company, its agent or a broker, which are not specified in the contract, to an insured because the services would constitute valuable consideration and would be an unlawful inducement in violation of N.Y. Ins. Law § 4224(c) (McKinney Supp. 2005).

Schedule A of the Internal Revenue Service Form 5500 Annual Return/Report of Employee Benefit Plan is entitled "Insurance Information". It is one of several schedules that constitutes Internal Revenue Service Form 5500, "Annual Return/Report of Employee Benefit Plan". An insurance company, its agent, or a broker may prepare Schedule A since the required information for the form directly relates to the insurance services provided.

However, an insurance company, its agent or a broker may not prepare any of the other Form 5500 schedules or forms, where such service is not specified in the insurance policy contract because it does not directly relate to the insurance services provided and does not constitute an administrative service to the insured employer that is normally provided by the insurance company, its agent or a broker as part of their normal insurance activities, except that an insurance broker may do so for a separate fee obtained in accordance with Section 2119 of the Insurance Law. It is not controlling whether these services are performed directly by the licensee or contracted out to a third party.

For further information one may contact Senior Attorney Susan A. Dess at the New York City Office.