Retirement plan sponsors have spent years navigating lawsuits about excessive fees and fiduciary responsibilities. Now, another category of employee benefits may be attracting plaintiffs’ attorneys’ attention: voluntary insurance programs.
These programs, which typically include accident, critical illness, cancer, and hospital indemnity coverage, are often funded entirely by employees and structured to fall outside the Employee Retirement Income Security Act (ERISA). But recent lawsuits are raising questions about whether employers have done enough to protect workers from excessive premiums and broker compensation.
According to a recent PLANADVISER article, 12 voluntary benefits lawsuits have been filed since December 2025. Several complaints allege that employers failed to negotiate lower premiums or conduct a request for proposals process before offering supplemental insurance programs to employees.
A September federal court ruling also illustrates how an employer’s involvement can bring a supposedly voluntary benefit under ERISA. In that case, a California judge determined that an employer’s receipt of commissions and fees, along with its endorsement of a supplemental disability policy, brought the arrangement within ERISA’s scope.
Under Department of Labor rules, voluntary benefits generally qualify for an ERISA safe harbor when all four conditions are satisfied:
- The employer makes no contributions toward coverage.
- Employee participation is entirely voluntary.
- The employer’s involvement is limited to allowing insurers to promote coverage and facilitating payroll deductions, without endorsing the program.
- The employer receives no compensation beyond reasonable payment for payroll administration.
Determining whether an employer has endorsed a benefit can be particularly challenging. Activities such as establishing eligibility requirements, placing the company’s name or logo on promotional materials, or negotiating insurance terms may jeopardize the safe harbor.
That last point creates a potential dilemma. Plaintiffs are challenging employers for allegedly failing to negotiate better premiums, yet negotiating coverage terms could make it harder for employers to maintain an ERISA exemption.
Whether voluntary benefits litigation develops into a wave comparable to retirement plan lawsuits remains uncertain. Brea Dantin, a retirement plan consultant at Shepherd Financial who was quoted in the PLANADVISER article, noted that the financial stakes may ultimately determine how aggressively plaintiffs’ attorneys pursue these cases. The outcome of early lawsuits could more clearly indicate the risks employers face.
The uncertainty also raises concerns about unintended consequences. Employers worried about litigation may become reluctant to negotiate premiums, potentially leaving employees paying more for coverage.
The emerging litigation gives plan sponsors, fiduciaries, and advisors a reason to examine how voluntary benefit programs are structured and administered. Employers should understand whether their arrangements qualify for ERISA’s safe harbor or are intended to operate as ERISA-covered plans, and ensure their practices align with that determination.
Reviewing compensation arrangements, communications, and the employer’s role in selecting and managing coverage can help identify potential concerns before they become the subject of litigation.
