To their surprise and dismay, some employers have learned that their voluntary benefit programs are ERISA programs, subject to all of the same requirements and liabilities as their traditional benefit plans of the Employee Retirement Income Security Act.
Despite assurances from carriers that such programs are not subject to ERISA, mistakes made by the employer in the design and administration of the plans may cause the programs to fall under the ERISA umbrella. Should that occur, the noncompliance penalties and obligations can be quite severe. It need hardly be said, too, that the customer relationship the agent or broker has built with the hapless employer would be in tatters.
By being aware of the rules under ERISA, and through proper planning, agents and brokers of voluntary worksite benefits can help guide their employers around potential exposures.
Truly voluntary plans–that is, those fully paid by the employee without contributions from the employer–are by definition ERISA-exempt under the Act's "safe harbor" provisions. But the U.S. Dept. of Labor has recently stepped up efforts to uncover programs that, due to an employer's mishandling, fail to qualify for that exemption.
Some employers only become aware that their voluntary benefit plans have become ERISA-eligible when they receive an inquiry from the DOL. More often, the situation comes to light when a voluntary benefit carrier, having been challenged over a claims-payment issue, seeks to invoke ERISA protection to avoid a state insurance department investigation, along with the possibility of penalties or a large jury award. Either way, the employer is generally caught unaware and must scramble to meet its newly discovered obligations.
Most benefit programs that make the shift into the ERISA category do so because the employer has stepped over a legally defined line and becomes too closely involved with the plan.
To avoid ERISA liability, the plan sponsor must have minimal interaction with the program. Other than offering the plan, collecting premiums and remitting those premiums to the carrier, the employer must avoid any direct intervention with the voluntary benefit program whatsoever.
In an effort to be helpful to its employees, the plan sponsor may cross the line and risk exposure. Even the level of enthusiasm the employer shows in promoting the plan will be considered in the DOL's assessment of whether ERISA applies.
Some behaviors that could jeopardize the safe harbor status of voluntary benefits include:
oEmployer contributions to the plan costs, even relatively insignificant ones.
