Employers brace for voluntary benefits suits

Alex Smith, a benefits attorney with Holland & Hart, says in a new commentary that many employers should respond to the suits by working with their benefits advisors and others to evaluate their own voluntary benefits offerings.

Smith says employers should look at voluntary benefits:

◆ Benefits selection processes.

◆ Contracts.

◆ Broker and vendor compensation provisions.

◆ Premium levels.

◆ Insurance product loss ratios.

One reason employers need to take a new look at their voluntary benefits offerings is that many have assumed that they qualify for an exemption from the ERISA fiduciary duty obligations, through a safe harbor provided for voluntary benefits, Smith says.

But, to qualify for the safe harbor, employers must make employees pay the full cost of the premiums and avoid helping to promote the programs, Smith says.

The plaintiffs in the new federal lawsuits may be wrong about the defendant employers' plans being subject to the ERISA fiduciary duty requirements, but the argument that the employers' plans are subject to the fiduciary duty obligation "serves as a reminder to employers who do wish to avoid ERISA that the exemption for voluntary benefits is not automatic," Smith says.

Other benefits law experts have also talked about the possibility that some employers may have paid too little attention to the rules governing the ERISA voluntary benefits safe harbor.

Jennifer Spiegel Berman, a benefits attorney with MZQ Consulting, recently argued that courts may look harder at how benefits advisors, in particular, have behaved than at whether the advisors described themselves as fiduciaries.