A new wave of ERISA lawsuits is targeting voluntary benefits and the brokers who sell them.

When employers treat voluntary benefits as the easy stuff, employees pay the price. It covers several categories. Surprisingly, it can even cover accident coverage, critical illness, and hospital indemnity among more common claims like pet insurance, vision, etc. It’s always been assumed that the carrier runs everything and that it’s enough. But that’s being challenged. 

Schlichter Bogard, the firm that built the entire 401(k) excessive-fee playbook and won billions in ERISA settlements over the years, has started filing class actions over these types of plans. The claim is that employers and their brokers are fiduciaries who let premiums and commissions run high, and that employees overpaid as a result. It’s the same theory that reshaped retirement plan litigation.

Why these plans aren’t as safe as they look

Voluntary benefits usually sit outside ERISA thanks to a DOL safe harbor. The catch is that you only get the protection if you meet all the conditions laid out.  You don’t contribute to premiums, you don’t pocket anything beyond reasonable administrative costs, participation is truly voluntary, and you don’t endorse the program.

There’s no clean definition of “endorsement,” but the things that count may mean putting your logo on the materials, promoting the benefit at open enrollment, helping employees enroll or file claims. Otherwise courts can decide it falls under all the fiduciary duties of ordinary benefits.

Brokers are thrown into the cases too. It’s argued they act as functional fiduciaries when they curate which carrier bids, steering toward the options that pay the biggest commission. New compensation-disclosure rules under the 2021 Consolidated Appropriations Act now put a lot of that data out in the open. Which is part of why these suits are landing now.

What to do before a complaint happens

You don’t need to panic, but you do need to look at your plans. 

• Pull your voluntary benefits and run the safe-harbor test. Walk each plan through all four conditions. If one fails—usually its endorsement—you need to act.
• Tighten up. If a plan is close to the safe harbor, small changes to how you communicate and present it may bring it back inside. If it can’t get there, treat it like a right and monitor it accordingly.
• Watch the commissions. Review carrier selection, broker pay, and how those fees compare to the market just like with all health and retirement plans.
• Get it in writing with your broker. Spell out fiduciary status in the service agreement and make sure they can document why their commission is reasonable.

Learn from others.  These cases are all the same, nobody was really watching. So nobody could show a process when asked. We’ve said it before and it bears repeating…pay attention before someone else does it for you.

Read more about the cases popping up here.