Sarah Sise and Lauren Schuster Analyze Emerging ERISA Claims Involving Voluntary Benefits in Employee Benefit Plan Review Article
Sarah Sise and Lauren Schuster, St. Louis-based partners in the Quarles & Brady Employee Benefits Practice Group, explore a developing area of employee benefits litigation in an article for Employee Benefit Plan Review. The article examines how plaintiffs are increasingly applying fiduciary breach theories commonly used in excessive fee retirement plan litigation to challenges involving voluntary employee benefits.
Sise and Schuster highlight several recently filed class actions alleging that employer fiduciaries and benefits brokers failed to appropriately monitor commissions, premiums, and loss ratios associated with voluntary benefits programs. They also outline key issues employers should consider when evaluating voluntary benefits offerings, including ERISA safe harbor requirements, fiduciary governance practices, benchmarking of fees and commissions, and potential conflicts of interest.
An excerpt:
For voluntary benefits subject to ERISA, strong governance remains critical. Employers should maintain a formal committee structure, meet regularly, and document fiduciary decision-making. Premiums and commissions should be reviewed for reasonableness and supported by benchmarking or other market data. The allegations in these recent cases emphasize the relatively low loss ratios, suggesting that requesting loss ratio information during insurer or broker selection may be a useful diligence tool.
Employers should also remain alert to co-fiduciary issues and take appropriate steps if potential fiduciary breaches by service providers are identified. Documentation of negotiation efforts is particularly important, as plaintiffs have pointed to commission levels near 10 percent as potentially defensible, while higher ranges (especially at or above 25-30%) may expose fiduciaries to liability. Plaintiffs can review Form 5500 filings to identify these fee and commission outliers for potential litigation.
Finally, employers should monitor conflicts of interest involving brokers and vendors, including discount arrangements tied to voluntary benefits. The plaintiffs’ allegations reinforce that prudent benefit options do not offset imprudent ones, and that each voluntary benefit should be supported by a prudent process and appropriate documentation.