Over the past year, voluntary benefits, like accident, critical illness, and hospital indemnity insurance, have become the center of a growing wave of litigation. Traditionally seen as low-risk, employee-paid add-ons and non-ERISA voluntary plans, these plans are now being challenged in court under ERISA.
Voluntary Plans are not considered ERISA Plans if they meet the following safe harbor criteria:
- There are no employer contributions, and benefits are 100% paid by employees and post-tax.
- Participation is voluntary.
- No employer endorsement.
- No employer profit.
A recent survey by ComplianceBug discovered that more than 80% of worksite and voluntary benefit plans are subject to ERISA. In short, the plans did not meet the safe harbor requirement.
The lawsuits allege that, under ERISA, employers breached their fiduciary duties by failing to act in the best interests of their plan participants. This included, among other issues, plans charging excessive premiums and the employer’s failure to monitor vendors and their pricing.
While voluntary benefits were once viewed as simple, low-touch add-ons, the landscape is changing, and this is no longer the case. Voluntary benefit plans now require further review.
