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October 2021   Volume 19, Number 10        


Make Sure Voluntary Insurance Plans Are Really Voluntary

A voluntary plan that turns out not to be voluntary can also be a complicated maze of paperwork for an employer.

Voluntary plans provide benefits exclusively funded by employee premiums with limited employer involvement. The plans are popular because they allow employees to choose benefits that best fit their needs. Voluntary plans range from dental to life insurance and from financial counseling to pet insurance.

Employers like voluntary plans because they can attract and help keep employees who appreciate the opportunity to personalize their coverage. Plus, if the plans meet federal guidelines for a voluntary plan, the plans will be exempt from ERISA (Employee Retirement Income Security Act of 1974) regulations, which sets the minimum standards for voluntarily established retirement and health plans in private industry.

Although most employee benefit plans offered through an employer are subject to ERISA, the regulations have a safe harbor exemption that allows employers to offer certain types of insurance programs without having to follow extensive reporting, disclosure, and fiduciary requirements. These compliance obligations can include:

  • Preparing and operating the plan according to a written plan document
  • Providing employees with a summary plan description and summary of material modifications when there are substantial changes made to the plan
  • Annual reporting requirements and other obligations under COBRA, HIPAA, and other laws and regulations governing employee benefit plans.

Exempt plans usually fall within the following categories: medical, surgical, hospital, vacation and prepaid legal services.

However, if the employer fails to meet the stringent requirements of the voluntary plan safe harbor, a medical plan, such as a vision or dental, can be subject to ERISA.

There are four requirements a plan must meet to qualify for safe harbor:

  • Voluntary participation: The benefit plan must be completely voluntary. If the employee automatically receives the coverage and it’s paid for by the employer, then it is not voluntary. Plus, employers cannot require employees to attend meetings about voluntary benefits.
  • No employer contributions: Employers cannot contribute to the costs. Nor can they allow salary contributions to be made on a pre-tax basis through a Cafeteria/Section 125 plan since these are considered employer contributions. Therefore, all employee contributions must be after-tax. Safe harbor rules also do not allow employers to reimburse employee premium expenses, which includes payments under tax-advantaged reimbursement arrangements like health reimbursement accounts (HRAs).
  • No employer endorsement: An employer should not take any action that makes it look like they are endorsing a benefit plan. An employer is showing they are endorsing a plan when they select the insurer, negotiate the terms of the plan, limit coverage to select groups or classifications of employees, or assist employees with making claims for benefits. However, employers can make the plan available to employees and publicize the availability of the plan, collect premiums through payroll deductions, and submit the premium payments to the insurer.
  • Employers receive no reimbursement: Employers shouldn’t receive any compensation other than reasonable compensation, excluding any profit, for administrative services rendered in connection with payroll deductions.

If you’re in doubt as to what qualifies as safe harbor, confer with qualified counsel to be sure your voluntary plans are not subject to ERISA.

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In this issue:

This Just In

How to Determine When Protections Apply to ADA and COVID “Long Haulers”

Make Sure Voluntary Insurance Plans Are Really Voluntary

Is It Possible to Save Too Much for Retirement?

Using Health Insurance Discounts to Fight Vaccination Hesitancy



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