Voluntary Benefits: A Small Wave With Big Potential

After prominent plaintiffs’ law firm Schlichter Bogard LLP batch-filed four similar complaints last year against employers alleging breaches of fiduciary duty related to premiums charged for voluntary benefits, the retirement industry began scrutinizing what could become the next big wave of Employee Retirement Income Security Act litigation.

In addition to the Schlichter firm’s batch filing and a subsequent complaint in May, a federal judge in California ruled last month that an employer’s actions brought a supplemental benefit within the purview of ERISA. In a September 30 order, U.S. District Judge Andrew Schopler, of the U.S. District Court for the Southern District of California, ruled that although an employer called its supplemental disability policy a “voluntary plan,” the employer’s actions—receiving commissions and fees, and endorsing the insurance policy as part of its own welfare benefit plan—brought the benefit under ERISA’s purview.

“As a broad sweep, insurance benefits, whether medical or ancillary, are going to be the next wave of litigation,” says Brea Dantin, a retirement plan consultant at Shepherd Financial. “We’ve already started to see it.”

Voluntary Benefits Background

The complaints in these cases generally allege that employers offering these unsubsidized programs—typically accident, critical illness, cancer and hospital indemnity insurance—could, and should, have negotiated lower premiums for employees. According to the plaintiffs, higher premiums may stem from excessive broker commissions and compensation paid to the consultants that administer the programs. The complaints also claim that the employers offering these voluntary benefit programs did so without first engaging in a request for proposals process.

A voluntary benefit is generally excluded from the definition of an “employee welfare plan” because it is not established or maintained by the employer. The Department of Labor has established a safe harbor that, if satisfied, ensures a voluntary benefit is not considered an employee welfare benefit plan and is therefore exempt from ERISA. A plan is exempt if all four of the following conditions are met:

• No employer contributions are made;
• Participation is completely voluntary;
• The employer’s role is limited to permitting brokers to publicize the arrangement to employees—without endorsing the arrangement—and collecting employee premiums through payroll deductions that are remitted to the insurer; and
• No payment is made to the employer—in cash or otherwise—except for reasonable compensation for payroll administration.

How Safe Is the Safe Harbor?

While employers can benefit from the safe harbor, Dantin says using it can be “as clear as mud”—particularly, determining whether an employer has endorsed a benefit.

Dantin says the endorsement factor is often seen as the most difficult safe harbor requirement to satisfy because there is no clear definition of what is considered an “endorsement.”

Examples of activities the DOL has said may be considered endorsement include establishing eligibility criteria under which employees may enroll, using the employer’s name and logo on promotional materials and negotiating the terms of insurance coverage.

The DOL, which has recently sided with employer-defendants in many ERISA litigation matters, has yet to weigh in on the voluntary benefits issue. Dantin says that if the DOL weighs in, it might expand on some safe harbor rules to clarify what employer actions cause a plan to “cross the line” into being covered by ERISA. However, the DOL could be slower to respond unless there is a significant uptick in litigation, according to Dantin.

There have been 12 voluntary benefits lawsuits filed since December 2025, according to analysis from Encore Fiduciary.

Lindsey Camp, an ERISA litigation partner at defendants’ firm Holland & Knight LLP, says the safe harbor is “an important guidepost” but is not dispositive of whether a plan is subject to ERISA. With voluntary benefits litigation presenting a “new theory of liability” it may take time to get DOL guidance, Camp says.

Regarding the trajectory of voluntary benefits litigation, Dantin says it is too early to tell whether enough money is at stake in the cases for plaintiffs’ attorneys to “really run with it the way they do with retirement plan [litigation].”  Only after a settlement or a finding in favor of the plaintiffs will the litigation’s potential magnitude become clearer, she says.

Although the industry hopes employers will offer the best-priced, highest-quality benefit programs, the threat of litigation could lead employers to step back and avoid negotiating premiums, making voluntary benefits more expensive for employees, Dantin cautions.

Camp says the most important action employers can take to prepare for potential litigation is to be decisive about whether to treat a voluntary benefit as an ERISA plan and ensure their day-to-day decisions align with that choice.