For years, voluntary benefits felt like the one part of your employer benefits program that ran itself — and certainly not one that carried fiduciary risk. Accident, critical illness, hospital indemnity, cancer coverage. Employees opt in, employees pay the full tab, and the thinking was simple: if the company isn’t writing the check, the company isn’t on the hook.
That thinking is now being tested in federal court.
A new run of ERISA class actions, led by Schlichter Bogard, the same firm that wrote the playbook for 401(k) excessive fee litigation and recovered billions for plan participants, is taking direct aim at voluntary benefit programs. And here is the part that should make every employer sit up straight: these suits don’t stop at the employer. They name the brokers and consultants right alongside you.
Why “voluntary” doesn’t automatically mean “not my problem”
ERISA governs what the law calls an employee welfare benefit plan. Voluntary products usually live outside ERISA because, in theory, the employer isn’t the one establishing or maintaining them. To keep that line clean, the Department of Labor built a safe harbor. Meet all four conditions and your voluntary plan stays out of ERISA entirely:
You pay nothing toward the premium.
You collect nothing beyond reasonable reimbursement for your administrative cost.
Participation is genuinely voluntary.
You don’t endorse the program. You simply allow payroll deduction and let the carrier or broker market it to your people.
All four. Miss even one and the safe harbor disappears, and you may suddenly be a fiduciary on a plan you believed you were only hosting.
The word that trips up most employers: endorsement
Endorsement is the slippery one, because there’s no tidy definition of it. The DOL’s test is essentially this: would a reasonable employee look at what you did and conclude the company stands behind this product? Putting your logo on the materials. Telling staff you’re excited about the program. Folding it into open enrollment next to your medical plan. Choosing the carrier yourself. Helping employees enroll or file claims. Running it pretax through your cafeteria plan.
Each of those is a thread. Pull enough of them together and a court sees endorsement. Most employers do several without a second thought, and that’s exactly where the exposure lives.
What the plaintiffs are actually arguing
There are two theories at work. Against employers: you held discretion over these plans, which makes you a fiduciary, and a fiduciary has to select carriers with care and make sure nobody servicing the plan is overpaid.
Against brokers, the argument is the one we have been making out loud for years. The plaintiffs say brokers act as functional fiduciaries who quietly curate the menu, screening out the lower cost carriers and presenting only the options that pay the richest commission. The broker’s paycheck climbs. Your employees’ premiums climb with it. Those two interests sit in direct conflict, and the lawsuits name it plainly: steering plan dollars toward the broker’s own benefit.
Why this is happening now
Two things lit the fuse. First, the Consolidated Appropriations Act of 2021 forced service providers to disclose direct and indirect compensation of $1,000 or more. Commissions, bonuses, overrides, the works. For the first time, those numbers are on paper, and plaintiffs’ attorneys can read them. Second, the Supreme Court’s decision in Cornell made it far easier to push an ERISA prohibited transaction claim past the early dismissal stage and into discovery, which is where these cases get expensive in a hurry.
Put simply: the data now exists, and the courthouse door is open wider than it has ever been.
Here’s the honest reframe
This is uncomfortable. It’s also clarifying.
These lawsuits aren’t really about voluntary benefits. They’re about a question that runs underneath your entire program: does anyone actually know what your vendors are paid, and whether that pay is reasonable for the work they do? For most employers the honest answer is no. Not because they’re careless, but because the commission-driven model was built to keep that answer comfortably fuzzy.
You manage every other dollar in your business with a real process. Benefits shouldn’t be the one place you accept “trust me” as an answer.
What to do now
- Pull the full list of voluntary benefits you offer and hold each one up against the four safe harbor conditions. If you miss one, you have a choice: tighten things up and get back inside the safe harbor, or accept that ERISA applies and govern the plan accordingly.
- Look hard at endorsement. Your logo, your language, your enrollment process, your cafeteria plan. Where are you signaling that the company stands behind these products?
- Build a monitoring process. The same discipline serious employers already bring to their retirement and medical plans… including selection, documentation, and a genuine look at what people are paid belongs here too.
- Ask the question out loud: what is my broker paid on these products, and who showed me the alternatives? If you can’t get a straight answer, that is your answer.
The Case for a Voluntary Benefits Fiduciary Framework
When your advisor is paid by you and not by the carriers, there is nothing to curate and nothing to hide. The options on the table are all of the options. That isn’t a marketing line. It’s the structural difference between an advisor whose loyalty is to your outcome and one whose loyalty quietly follows the commission.
The employers who treat this moment as a prompt to govern, rather than a threat to wait out, are the ones who will come through it with a stronger plan, lower cost, and a much clearer conscience.
Not sure where your voluntary benefits stand?
If you don’t know whether your voluntary plans sit safely inside the safe harbor, or what your partners are actually paid to put in front of you, let’s find out together. Schedule your strategic analysis.
