The demand for voluntary benefits spurred by passage of the Affordable Care Act has created potential compliance pitfalls for employers struggling to contain health care premium costs.

A recent analysis from ComplianceBug LLC, a provider of benefits compliance monitoring tools, showed more than 80 percent of voluntary benefit offerings are subject to the Employee Retirement Income Security Act.

The problem with that? As the voluntary market has exceeded $7 billion in annual sales, more employers are deploying voluntary strategies under the assumption that the products are not governed by ERISA's reporting requirements.

According to data from Eastbridge Consulting Group Inc., 60 percent of the voluntary market is now sold by traditional group health brokers. Some of those brokers may be operating under the pretense that voluntary products are not subject to ERISA's compliance and reporting requirements.

That potential confusion, particularly for a broker not expert in the voluntary market, is understandable. The Department of Labor's voluntary plan safe harbor, which allows employers to avoid ERISA reporting requirements for voluntary benefits so long as certain conditions are met, could be misinterpreted as a comprehensive free pass for all voluntary products.

Some aspects of the safe harbor are straightforward. For instance, in order for a voluntary benefit to qualify for the safe harbor, the employee must pay the full premium.

Simple enough. But from there the safe harbor gets a bit murkier. Participation in a voluntary benefit has to be just that—voluntary. Employers' sole functions in the process of offering a voluntary benefit are to allow access to the option and collect premiums via payroll deductions. In other words, employers are not allowed to endorse a voluntary benefit if they expect that benefit offering to qualify for DOL's safe harbor.

That provision of the safe harbor, which prohibits employers from acting as a cheerleader for the value of a voluntary benefit, is the source of much of employers', and brokers', potential confusion.

Voluntary benefits specialists often report that support from employers during enrollment is fundamental to successful penetration rates. For instance, mandatory information meetings are a tactic voluntary brokers commonly benefit from.

Would that constitute an endorsement? To be clear, the DOL does not consider allowing brokers to publicize or market voluntary products a disqualifying endorsement, according to a compliance alert published this year by EPIC Insurance Brokers.

In EPIC's alert, the brokerage provides several examples of employer actions that would disqualify a voluntary offering from DOL's safe harbor.

To benefit from the safe harbor exemption, companies can't engage workers in the selection of insurers, negotiate the terms of the policies, use the employer's name or associate the voluntary offering with other company-sponsored ERISA plans, recommend voluntary offerings during open enrollment or any other time, or assist employees with disputing claims on voluntary policies.

Even with that clarification, vagaries remain. According to an exhaustive benefits compliance manual published by Thomson Reuters in 2015, “the many reported cases and DOL opinion letters on the safe harbor are difficult to reconcile, particularly regarding what constitutes 'employer endorsement.'”

The Thomson Reuters manual's list of disqualifying actions is comparable to EPIC's list. While an individual infraction may not be enough to disqualify a plan from the safe harbor on its own, one action in particular is “likely” to do so, according to the manual: Employers that allow voluntary premiums to be paid with pre-tax benefits dollars through a cafeteria plan are likely to draw the ire of regulators. While doing so has always been a risk to safe harbor status, ACA provisions enacted in 2014 that prohibit pre-tax compensation from being used to pay for individual health policies makes the practice even riskier, according to Thomson Reuters' analysis.

Employers may not need the safe harbor for voluntary benefits

Brokers play as indispensible a role as any other party in the delivery of voluntary benefits when it comes to educating employers on ERISA reporting requirements and the voluntary plan safe harbor.

For many employers, complying with the safe harbor may be an unnecessary exercise, according to Thomson Reuters.

Companies that already sponsor an ERISA-covered plan may not increase their compliance burdens excessively by offering voluntary benefits as ERISA-covered benefits. Thomson Reuters' analysis actually suggests it may be easier for employers to fold voluntary options into existing ERISA reporting requirements than it would be to comply with the voluntary plan safe harbor, a process that will continue long after voluntary benefits are first introduced into a suite of coverage options.

Given the uncertainty as to what employer action constitutes an endorsement of a voluntary benefit—it is imaginable that a court could view a mandatory meeting on voluntary benefits as an endorsement—the safest play for employers may be to treat voluntary benefits like their ERISA-covered traditional group plans.

Even when employers are acting in good faith to comply with the voluntary safe harbor, “the DOL may decide that a voluntary plan does not satisfy the safe harbor,” says Thomson Reuters. And that could mean employers would have to cough up fines and fees for not filing the compliance documents required under ERISA.

What employers need to do to comply with ERISA when offering voluntary benefits

If employers decide to fold their voluntary offerings into the compliance program of their larger ERISA-covered plans, they of course will have to report them on their Form 5500 filings when the plan has more than 100 participants. All employers will have to amend their summary plan documents to account for voluntary policies if the employer opts to not qualify for the voluntary safe harbor.

Failure to comply with ERISA's filing requirements can lead to fines ranging from $110 to $1,100 per day, according to DOL, and it can also expose employers to potential lawsuits from current and former employees.

Enforcement priority

Thomson Reuters' manual says the DOL is making voluntary benefits options an enforcement priority.

Too often, employers give little consideration as to whether or not their voluntary offerings are subject to ERISA compliance. Thomson Reuters says much of that is explained by benefits brokers' failure to raise the issue with employers.

True as that may be, it presents a potential competitive opening for enterprising brokers looking to grow through the voluntary market. Brokers can take the lead in educating employers on the voluntary safe harbor and guiding their decision as to whether or not qualifying for the exemption is in their best interest.

The last thing a broker wants is to get a call from a client wondering why their voluntary lineup is subject to ERISA after a participant sues an insurer, or worse, a DOL auditor comes knocking.

Instant Insights /

When are voluntary benefits subject to ERISA?

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