Employee Benefits
Voluntary Benefit Programs: The Plaintiff Class Action Lawyers are Coming
By: Allison Bans and Sara Van Houten
Plaintiff class action lawyers believe that they have found a new type of employee benefit program to go after for potential fiduciary breach violations – voluntary benefits. On December 23, 2025, Schlichter Bogard LLC filed four complaints in Federal court alleging that the employer plan sponsor and its brokers breached their ERISA fiduciary duties. Specifically, the complaints allege that the plan sponsors breached their fiduciary duty of prudence when they failed to diligently select and monitor voluntary benefit offerings and insurance brokers and engaged in prohibited transactions when they allowed their insurance brokers to collect excessive commissions from plan assets.
Unlike traditional benefits, such as medical, dental, and vision coverage which are often subsidized by employers, voluntary benefit plans typically are fully funded by participating employees through payroll deductions. Examples of voluntary benefit plans include accident, critical illness, hospital indemnity, and cancer coverage. These plans focus on income replacement and provide participants with a lump sum or fixed daily benefit when they are hospitalized or diagnosed with a major illness and/or cancer, rather than reimbursement for medical claims like a medical plan.
Although voluntary benefits are often subject to ERISA, employers can potentially design these programs to fit within the exemption to ERISA for voluntary programs established by the Department of Labor (“DOL”) in 29 C.F.R. § 2510.3-1(j). This exemption applies only if the program meets each of the following four requirements:
- the employer does not make any contributions to the program;
- participation in the program is completely voluntary for employees;
- the sole functions of the employer with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees, to collect premiums through payroll deductions or dues checkoffs and remit them to the insurer; and
- the employer receives no consideration in the form of cash or otherwise in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions or dues checkoffs.
Employers that want to use this safe harbor exemption should carefully consider its requirements and confirm that they apply to the voluntary program in question. The determination of whether the exemption applies is inherently factual in nature. Often, application of the exemption turns on whether the employer has endorsed the program. DOL guidance suggests that an employer endorses a voluntary program if it expresses any positive, normative judgment regarding the program and urges or encourages participation in the program or takes actions that would lead an employee to reasonably conclude that the program is part of a benefit arrangement the employer establishes and maintains for employees. Consequently, an employer may be considered to endorse a voluntary program if it places its logo on voluntary program materials, includes a description of the voluntary programs in its open enrollment materials or benefits guide, or includes the voluntary programs in an ERISA wrap plan without clear language indicating that the plans are voluntary plans that are not subject to ERISA, or reports them on the Form 5500.
Employer Takeaways
Plaintiff class action lawyers have successfully alleged fiduciary violations in the retirement plan space and have shown signs that they intend to expand to health and welfare plans. We saw this with the various pharmacy benefit manager (“PBM”) lawsuits in which plaintiffs generally alleged that the employer and PBM mismanaged the plan’s prescription drug benefits causing millions of dollars of harm to employees and their dependents in the form of higher payments for prescription drugs, premiums, deductibles, coinsurance, copays, lower wages, and limited wage growth. Now that plaintiffs’ lawyers have identified voluntary plans as a potential avenue for recovery, we expect to see more challenges to voluntary plans.
Concerned employers can take the following proactive steps to minimize their risk:
- Engage in a prudent process when selecting insurance brokers, which includes:
- Considering a broker’s qualifications, quality, fees upon hiring and regularly thereafter;
- Obtaining and reviewing closely the ERISA 408(b)(2) disclosure, push back if it is vague;
- Ensuring that the broker’s fees are understandable;
- Obtaining and evaluating broker references;
- Monitoring commission and non-commission compensation regularly and ensuring it is reasonable;
- Documenting the decision making process (e.g., committee minutes);
- If appropriate, negotiating reduced fees and/or enhanced services; and
- Going out to request for proposal for a broker every 3-5 years (or sooner if the employer is unhappy with the level of service or otherwise sees the need for a change).
- Engage in a prudent process when selecting voluntary benefits, which involves:
- Monitoring and controlling premiums to ensure they remain reasonable for the benefits provided – consider asking for the plans’ loss ratio on an annual basis;
- Monitoring commission and non-commission compensation regularly to ensure it is reasonable;
- Monitoring broker activities to confirm the broker does not consistently recommend products that benefit the broker and/or that are unduly expensive and have low loss ratios (i.e. aim for 85% loss ratios);
- Monitoring loss ratios regularly and pushing back if standards are not met;
- Documenting the decision making process (e.g., committee minutes); and
- Going out to request for proposal for a new insurance policy every 3-5 years (or sooner if the employer is unhappy with the loss ratio or the product generally).
Employers also should carefully consider whether the voluntary benefits they offer fit within the DOL’s safe harbor ERISA exemption for voluntary programs. As mentioned above, seemingly innocuous actions can render the exemption inapplicable, which means that the voluntary programs are subject to ERISA, including its fiduciary rules. While these rules and the fiduciary duties they impose on health and welfare plan sponsors are not new, they have recently become the focus of plaintiffs’ attorneys. Ultimately, the best defense against a breach of fiduciary duty claim is for a plan to implement prudent processes (e.g., when selecting and monitoring service providers) and to formally establish a welfare plan fiduciary committee to oversee group health plan administration. See our fiduciary checklist designed to help health and welfare plan fiduciaries comply with their ERISA fiduciary responsibilities.
