Hidden Legal Risk for Companys.

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

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

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

In many cases, employers 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 employer.

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

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

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

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

o  getting involved when there’s a dispute between an staff member and the plan provider.

Be cautious with announcements When you offer a new voluntary benefit, the natural tendency is to try to get staff pumped up to participate. But you can 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), primary health plan, etc.).

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

Prevent involvement in disputes as with your ERISA plans, chances are workers 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 hazardous voluntary plan design is one that is partially paid by the company, even when workers pay the bulk of the cost.

In a major ruling a few years ago (Burgess v. Cigna Life Insurance), a United States  district court ruled against an employer 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 compensated the entire premium â.” and firm made clear to people  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.