Hidden Legal Risk for Companys.

For most firms, voluntary benefits are a win-win arrangement. But there can be hidden risks.

On the positive side, voluntary benefits cost companys next to nothing, yet boost employees’ morale and benefits satisfaction.  An Aon survey found 77% of organizations offer at least one voluntary benefit.

But what happens if there’s a legal dispute between one or more of your personnel and the vendor?

In many cases, companys unwittingly get dragged into court.  The provider may argue that the plan is covered by ERISA, and the employee’s lawsuit should instead be filed against his or her company.

If the court agrees, the legal burden shifts.  Some courts have ruled that a voluntary benefits could  be covered under ERISA, even when it wasn’t an company’s intention to formally “sponsor” the plan.

If push comes to shove, the providers will protect themselves. Truly, some attorneys warn that a voluntary plan insurer’s first move when sued by one of your staff will be to try to get the legal burden shifted from itself to you.

Two seemingly innocent things that can be turned against you in court -

o  The written announcement to tell employees about the new voluntary benefit, and

o  getting involved if there’s a dispute between an worker and the plan provider.

Be careful with announcements When you offer a new voluntary benefit, the natural tendency is to attempt to get employees pumped up to participate. But you are able to get in trouble when individuals  get the impression the firm endorses the plan. Helpful practices -

o  Don’t put the announcement on organizational letterhead

o  Put a disclaimer on the description

o   either exclude your voluntary offerings from employees’ benefits manuals or list them separately, and

o  hold open enrollment at a different time than for ERISA plans (401(k), main health plan, etc.).

In addition, if the provider offering the voluntary plan has competitors, you could want to remind workforce the provider of the voluntary plan isn’t the only game in town. Some firms pass along lists of competing providers.

Avoid involvement in disputes as with your ERISA plans, chances are workforce will come to you when they have a problem with a voluntary plan. Your first inclination is to help.

But many experts warn it’s better to stay out. Reason -  Courts see this as the action of a plan sponsor. But you are able to steer someone in the right direction (e.g., giving a contact name to call) while remaining neutral in the dispute.

Good intentions gone bad

From an ERISA standpoint, the most dangerous voluntary plan design is one that is partially compensated by the organization, even if employees pay the bulk of the cost.

In a major ruling several years ago (Burgess v. Cigna Life Insurance), a USA  district court ruled against an corporation with a voluntary supplemental disability plan in which the firm compensated a portion of premiums on behalf of its lower-compensated staff members.

While most personnel paid the entire premium â.” and firm made clear to individuals  the plan was a voluntary benefit â.”the court said it didn’t matter.  The act of contributing to some employees’ premiums made it an ERISA plan.