A new series of ERISA lawsuits is demonstrating a shift in how courts and plaintiffs’ attorneys are scrutinizing employer-sponsored benefits. In recent years, we’ve mostly witnessed fiduciary litigation spotlights on retirement plans. However, these latest cases filed by the firm, Schlichter Bogard LLC, target voluntary benefits, including common health insurance supplements.
We’ve been warning there may be an uptick in these types of cases, especially as voluntary benefits gain in popularity. Now we are seeing it come to realization. The lawsuits are calling out several large national employers and well-known benefits consultants, alleging breaches of fiduciary duty related to excessive premiums, high commissions, and a failure to implement proper oversight.
Notably, unlike standard health benefits, these voluntary benefits are most often paid for entirely by employees. Often employers have viewed these offerings as low risk since they aren’t footing the premium. But these lawsuits are proving – employers are still responsible.
At the center of the claims is a familiar question: Did the employer (and its advisors) act prudently and solely in the interest of the plan participants? Employers need to be able to answer this question.
Voluntary benefits are a fiduciary issue
Voluntary benefits have been trending over the past decade as employers look to supplement traditional health coverage and help employees manage rising out-of-pocket costs. Enrollments continue to climb, especially among employees who want the extra protection against unexpected medical expenses.
The complaints allege that employers failed to adequately monitor insurance carriers, negotiate premiums, and assess broker compensation. In several cases, consultants are accused of prioritizing commissions over participant needs. Employers are accused of failing to oversee those relationships.
The ERISA safe harbor isn’t automatic
A key issue raised in the suits is whether these voluntary benefit plans truly qualify for ERISA’s voluntary plan safe harbor. To remain outside ERISA, employers must meet strict criteria, including avoiding endorsement of the plan and receiving no more than a reasonable administrative compensation.
These lawsuits state that action such as promoting the benefits, branding communications with the employer’s logo, sending enrollment reminders, or relying heavily on brokers for plan administration may cross into ERISA territory.
If a plan is subject to ERISA, fiduciary duties apply. Period.
What employers should consider
Of course, these are still just allegations in newly filed lawsuits. Still, they offer a clear warning. Employers offering voluntary benefits can be proactive in protecting themselves and employees:
- Review whether their voluntary benefit plans fall under ERISA
- Evaluate broker and consultant compensation structures
- Ensure transparency around fees, commissions, and loss ratios
- Regularly assess whether benefits deliver real value to employees
Fiduciary responsibility doesn’t disappear just because a benefit is voluntary. When benefits are designed to protect employees during vulnerable moments, fiduciary care is not just a legal obligation—it’s part of delivering better benefits.
Read for more detail on the cases.
