Over the past year, voluntary benefits have moved into the legal and regulatory spotlight. As you may have seen, there have been employee-driven lawsuits receiving significant press attention, challenging how voluntary benefits are selected, administered, and communicated. While these cases vary in fact patterns, they share a common theme: employees are demanding greater transparency, value, and accountability from their employers when it comes to benefit offerings.
For plan sponsors, this evolving litigation environment is an important reminder that understanding fiduciary risk—and taking proactive steps to manage it—is no longer optional. Barry Downey, Partner at Smith & Downey, P.A. (www.smithdowney.com) advises, “These lawsuits serve as an important reminder that employers must remain vigilant with respect to their many compliance obligations and governance procedures and ensure that all health and welfare plans receive appropriate fiduciary oversight.”
Why Voluntary Benefits Are Being Challenged
Historically, voluntary benefits have often been viewed as low risk because they are employee-paid and supplemental in nature. However, plaintiffs’ attorneys are increasingly questioning that assumption.
The central argument being tested is that when an employer selects voluntary benefit programs, endorses them, and receives additional services from brokers that may be considered compensation, the employer may be exercising sufficient control for those benefits to be considered ERISA-covered plans, or at minimum subject to fiduciary standards.
What This Means for Plan Sponsors
To be prudent, employers should assume that voluntary benefits may be subject to the same fiduciary expectations as core benefits and be prepared to explain why benefits were selected, and that benefits are reasonably priced, and sufficiently monitored. As Barry Downey advises, “Employers that do not already have a fiduciary committee overseeing health and welfare plans should consider establishing one (or expanding the jurisdiction of an existing committee). Some of the most effective defenses to ERISA fiduciary litigation continue to be: (1) having a procedurally prudent process in place for making decisions, (2) having a carefully drafted and followed committee charter, and (3) keeping carefully-crafted meeting minutes to document committee decisions.”
Key Areas Employers Should Be Evaluating
If you’re working with a broker or consultant on your voluntary benefit plans, now is the time to better understand what’s happening with these plans. Here are some questions you should be asking:
Benefit selection—What is our RFP and benchmarking process and how are each carrier’s overall plan, service and claims process, and premiums evaluated?
- Pricing and market competitiveness—What pricing models are being considered? How do we value different service models and claims submittal processes to ensure competitiveness in every benefit offered, not just a bundle of benefits? How do we benchmark benefits outside of the RFP process?
- Ongoing monitoring—What procedures does our organization have in place (or need to add) to defend against ERISA fiduciary litigation?
- Broker compensation and transparency—What is the commission model in place, is it reasonable, and how will you use those commissions and what additional services can you offer to employees?
- Employee communications—How frequently do participants receive reminders about plan benefits and how to submit claims?
Types of Voluntary Benefits Under Scrutiny
Accident, critical illness, hospital indemnity and cancer voluntary benefits are among the plans referenced in the most recent lawsuits.
Bolton’s Perspective
At Bolton, we believe transparency is fundamental. If you need help auditing your voluntary benefit programs through a fiduciary lens or would like to explore how to add voluntary plans without inviting fiduciary risk, let’s talk.
For more information, contact your Bolton advisor or Smith & Downey at www.smithdowney.com.
