ERISA Fiduciary Duties Under Scrutiny in Voluntary Benefit Plans
The Employee Retirement Income Security Act of 1974 (ERISA) is well established, as are the fiduciary responsibilities it imposes. Plan sponsors are required to act in the best interests of participants and beneficiaries. What is new, however, is a growing wave of ERISA litigation focused on voluntary benefit plans.
Schlichter Bogard LLC (Schlichter) has recently filed class-action lawsuits under ERISA against several large employers, as well as their employee benefits and health insurance brokers and consultants. These lawsuits allege breaches of fiduciary duty in connection with voluntary benefit offerings, including accident, critical illness, and hospital indemnity insurance.
When Do Voluntary Benefits Fall Under ERISA?
Recent litigation highlights increased scrutiny around whether voluntary benefit programs truly qualify for exemption from ERISA. In the Schlichter class actions, plaintiffs allege that certain employers failed to meet the Department of Labor’s (DOL) safe harbor requirements, thereby causing these plans to be treated as ERISA-governed Employee Welfare Benefit Plans, subject to fiduciary obligations. Generally, voluntary benefit plans are not considered ERISA-covered plans if they meet all four criteria under the DOL’s safe harbor provision:
- The employer does not contribute to premium payments
- The employer receives no compensation other than reasonable reimbursement for administrative services
- Participation is completely voluntary for employees
- The employer does not endorse the program beyond facilitating payroll deductions and allowing insurers or brokers to communicate the offering
Failure to satisfy any one of these conditions may result in the plan being subject to ERISA, along with its associated fiduciary responsibilities and potential liability exposure.
Examples of Employer Endorsement—and Potential Consequences
Certain employer actions may be interpreted as “endorsement,” which can jeopardize a voluntary plan’s exemption from ERISA:
- Including voluntary benefits in employer-branded materials (e.g., benefit guides with the company name and logo) may suggest the employer arranged, negotiated, or endorsed the program
- Promoting a group policy as part of the overall compensation and benefits package during open enrollment may be viewed as endorsement
- Offering a limited menu of benefits within a structured enrollment platform can create the appearance of employer selection and endorsement
- Allowing employees to pay for voluntary benefits on a pre-tax basis through a cafeteria plan may also be
considered endorsement
If endorsement is established, the plan may fall under ERISA—triggering fiduciary responsibilities and potential liability.
Why Employers and Brokers May Be Considered Fiduciaries
Plaintiffs in recent litigation argue that employers— and in some cases, their brokers—function as fiduciaries based on their roles in plan oversight and administration. Key allegations include:
- Employers exercise discretionary authority over plan administration, creating a duty to act prudently and in the best interests of participants
- Employers have a responsibility to monitor service provider compensation and ensure fees are reasonable
- Employers are expected to evaluate premiums, carriers, claims experience, commissions, and overall program value against market benchmarks
- In some cases, broker commissions allegedly exceeded claims paid under the policies
- Voluntary plans funded entirely by employees were not adequately vetted for cost-effectiveness or competitiveness
- Employers failed to monitor and negotiate key elements such as carrier selection, commissions, and loss ratios
Considerations for Employers in Administering Voluntary Benefits
To mitigate risk and strengthen governance, employers should consider:
- Establishing an internal advisory committee to review voluntary benefit offerings and confirm alignment with DOL safe harbor requirements
- Implementing formal processes to monitor plan performance, including broker compensation, fee structures, and loss ratios
- Conducting thorough vendor due diligence, including carrier financial strength, claims-paying history, and service capabilities
- Ensuring full transparency into all forms of broker and vendor compensation, including commissions and indirect payments
- Periodically benchmarking plans against market alternatives to assess competitiveness and employee value
- Maintaining clear documentation of decision-making processes to demonstrate prudence and oversight
- Providing neutral, carefully worded employee communications to avoid unintended endorsement
- Training HR and benefits teams on ERISA implications and fiduciary responsibilities
- Ensuring compliance with applicable regulations, including ERISA (if applicable), COBRA, and the Affordable Care Act, and regularly reviewing and updating Summary Plan Descriptions (SPDs)
- Maintaining appropriate fidelity bond coverage, where applicable, to support ERISA compliance
- Aligning voluntary benefits with the broader benefits strategy to avoid duplication or gaps in coverage
Key Takeaway
As litigation continues to evolve, employers should take a proactive approach in evaluating how voluntary benefits are structured, communicated, and governed. What has historically been treated as a low-risk, employee-paid offering is now receiving heightened scrutiny—making strong oversight, documentation, and transparency more important than ever.
About the author
Marlys Schmitt is an experienced consulting partner of ERA Group in Minnesota. As an advisor and advocate, her focus is to build strong relationships and deliver comprehensive cost containment solutions for her CEO and CFO clients. During her tenure with ERA Group, Schmitt has led reviews of over $20 million in expenses and completed over 100 client projects.
