The law firm of Schlichter Bogard has ushered in the new year with not one, but four class action lawsuits. These lawsuits are quite different than what we’d previously seen, in that medical and retirement plans were not targeted. Instead, voluntary benefits such as critical illness, indemnity plans, accident, and cancer plans are the bullseye. This strategy employed is a typical “Schlichter litigation dump,” whereby the firm files multiple, nearly identical complaints across various jurisdictions. And it marks the first major ERISA-focused attack on voluntary benefit programs.
These lawsuits are notable in part because of the categories of defendants they mention: in addition to naming four employers (Community Health Systems Inc., Laboratory Corp. of America Holdings, Universal Services of America LP, and United Airlines Universal Services of America LP), they also name four benefit consulting firms (Gallagher Benefit Services Inc., Mercer Health & Benefits Administration LLC, Lockton Companies LLC, and Willis Towers Watson US LLC). The naming of these large employers and major brokerages as defendants will likely set the stage for future litigation of this kind to name all of the participating actors involved in a fiduciary breach.
Particularly because this naming pattern is likely to continue, now is a great time to review what employers need to do to be good stewards of their benefit programs and act in the best interest of their employees. But, employers should first become confident in which of their benefit offerings are and aren’t subject to ERISA. Even though we don’t yet know how everything will pan out, in light of this new set of lawsuits, employers that have historically assumed their voluntary benefits are exempt from ERISA’s fiduciary duties should take a fresh look and really make sure they qualify for that exemption. In general, voluntary benefits may avoid ERISA if they meet the Department of Labor’s ERISA voluntary plan safe harbor, which requires that:
- Employee participation be completely voluntary;
- The employer make no contributions (and not permit employees to make pre-tax contributions);
- The employer’s role be limited to minimal administrative functions (such as payroll deductions); and
- The employer receive no compensation beyond reasonable reimbursement for administrative costs
If any of these conditions aren’t met, the plan may be subject to ERISA, bringing fiduciary duties and prohibited transaction rules into play. Many employers have assumed their voluntary plans are not subject to ERISA, but these lawsuits challenge that assumption. They appear to allege that the voluntary benefit arrangements in question failed to satisfy the ERISA voluntary plan safe harbor, either because of the level of employer involvement, the structure of broker compensation, or the influence consultants exercised over plan design and carrier selection. Employers don’t usually spend a lot of time focused on voluntary benefits compared to the medical or retirement benefits, but they should turn their attention to them now. A few of the other pragmatic steps employers should take include:
- Being more selective about how they vet vendors
- Monitoring broker/consultant compensation more vigorously
- Reading the contracts they have with third parties
- Implementing a workable process to document decisions
- Reviewing their plan designs and premiums
- Building a strong fiduciary governance system
As we mentioned, these recent allegations have also thrust brokers and consultants right in the middle of these lawsuits, and the question of whether they are acting as functional fiduciaries and unwittingly participating in prohibited transactions is an important one. The lawsuits place new emphasis on the influence employers transfer to consultants in designing their benefit plans, especially when it comes to voluntary benefits. Under ERISA, a party does not need to be formally named a fiduciary to be treated as one. Brokers and consultants can become functional fiduciaries if they:
- Exercise discretionary authority over plan design, administration, vendor selection, disposition of plan assets, etc.; or
- Influence decisions while receiving compensation tied to those decisions.
These cases signal that plaintiffs are increasingly willing to argue that brokers crossed the line from advisor to fiduciary—particularly in voluntary benefit arrangements where compensation structures are less visible.
So, what steps can we recommend to brokers and consultants to mitigate their risk? For these entities, the first and most critical step is determining whether a voluntary benefit arrangement is subject to ERISA. From there, risk mitigation depends on acting consistently with that determination. Incorporating strategies like those offered below can help brokers/consultants avoid legal and reputational concerns leading to a loss of clients, possible loss of revenue streams, and allegations of prohibited transactions.
We suggest:
- Making a more concerted effort to increase transparency regarding compensation, meaning ALL commissions, overrides, incentives, and bonuses;
- Documenting all steps taken in arriving at your recommendations regarding carriers and plan designs. Avoid “steering;”
- Determining whether or not your voluntary benefit plan recommendation meets the ERISA safe harbor. Clearly document your analysis and convey your findings to your employer/client. If needed, reach out to a specialist for help with this determination;
- Clarifying your role and what decisions you do or do not control. Define your fiduciary status, if any, during the initial engagement; and
- Educating your clients and encouraging them to adopt workable fiduciary governance practices.
What’s new is not that ERISA can apply to voluntary benefits, but that plaintiffs are now aggressively testing those boundaries and naming brokers directly when they believe the safe harbor has been compromised. We wouldn’t be surprised to see even more legal proceedings throughout 2026 dealing with fiduciary responsibilities. In response, employers and brokers/consultants will need to be more proactive and vigilant when addressing fiduciary duties than ever before.
Lumelight can certainly help make compliance easier with our Fiduciary Solutions package. We’ve designed a process that will support employers and advisors by giving them the tools necessary to achieve an organized system of governance. Please reach out to us at sales@lumelight.com if you’d like more information.
