Hidden Legal Risk for Employers.

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 increase employees’ morale and benefits satisfaction. an Aon survey found 77 percent of organizations offer at least one voluntary benefit.

But what happens when there’s a legal dispute between one or more of your employees 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 might  be covered under ERISA, even when it wasn’t an company’s intention to formally “sponsor” the plan.

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

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

• the written announcement to tell staff members about the new voluntary benefit, and

• getting involved when there’s a dispute between an worker and the plan vendor.

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

• Don’t put the announcement on organizational letterhead

• Put a disclaimer on the description

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

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

Also, when the provider offering the voluntary plan has competitors, you may want to remind staff members 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 staff members will come to you when they have a problem with a voluntary plan. Your first inclination is to help.

But many specialists 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 perilous voluntary plan design is one that is partially compensated by the corporation, even when employees pay the bulk of the cost.

In a major ruling several years ago (Burgess v. Cigna Life Insurance), a United States  district court ruled against an business with a voluntary supplemental disability plan in which the firm compensated a portion of premiums for its lower-compensated workers.

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