Voluntary Benefits Move into the ERISA Litigation Crosshairs

Employee-paid accident, critical-illness, cancer, and hospital-indemnity insurance have long occupied a quiet corner of employee benefit plan administration. That changed in late 2025, when four putative class actions were filed against large employers and their benefits consultants. The cases seek to apply now all-too-familiar retirement plan excessive fee theories to voluntary insurance products.

The actions filed in late 2025 are Brewer v. CHS/Community Health Systems, Inc., Braham v. Laboratory Corporation of America Holdings, Pimm v. United Airlines, Inc., and Fellows v. Universal Services of America, LP. Two overlapping actions against Banner Health, Hannum v. Banner Health and Haller v. Banner Health, followed in April and May 2026.[1]

The cases remain at an early stage, and the complaints contain allegations rather than adjudicated findings. Even so, the cases highlight governance issues that employer plan sponsors should evaluate now, and place new emphasis on how employers select, classify, communicate, pay for, and monitor these benefits.

What are Voluntary Benefits?

The term “voluntary benefit” is used in the employee benefits industry to describe certain supplemental insurance programs made available through the workplace, most often including accident, critical illness or cancer, and hospital-indemnity coverage. Employees elect the coverage and pay the full premium on an after-tax basis through payroll deduction. Unlike comprehensive medical coverage, these products typically pay a fixed cash amount when a specified event occurs.

The Voluntary Benefit Safe Harbor

Department of Labor regulations[2] provide a safe harbor excluding certain group insurance programs from the definition of an ERISA employee welfare benefit plan. To satisfy the safe harbor: (1) the employer must make no contribution to the cost of coverage; (2) employee participation must be completely voluntary; (3) the employer’s sole functions, without endorsing the program, must be limited to permitting the insurer to publicize the program and collecting and remitting premiums; and (4) the employer may receive no consideration, in cash or otherwise, other than reasonable compensation, excluding profit, for administrative services actually rendered in connection with the payroll deductions.

The third condition is often the most difficult to meet. The employer must remain neutral and avoid conveying a message that it recommends or stands behind the product. The line between permissible ministerial assistance and endorsement is fact specific. The employer’s employee benefit plan documents, enrollment materials and other employee communications, involvement with selecting and designing products to be made available, government reporting and broker selection and compensation are all factors potentially relevant to a determination about the extent of the employer’s involvement.

Overview of Legal Theories and Claims

The recent class action lawsuits include several common interrelated legal theories and claims.

The programs are ERISA benefits. The plaintiffs cite alleged employer conduct to support their position that the insurance products at issue are ERISA plans and should be treated as such. They point to Forms 5500 that allegedly treat the voluntary products as part of an ERISA plan and identify the employer as the plan sponsor. Although a Form 5500 filing is not conclusive evidence of an ERISA-governed plan, the reporting may be difficult to square with a later claim that the employer merely allowed an insurer to market a non-ERISA product. In addition, the complaints allege employer involvement beyond ministerial payroll deduction as potential evidence of endorsement, including discretion over carrier and broker selection, involvement with plan administration including pricing and product offerings, and practices such as employer-branding of program materials, maintenance and distribution of enrollment materials and reminders, eligibility communications, and marketing assistance.

Brokers and Consultants Acted as Fiduciaries. The complaints characterize the employer’s brokers or consultants as functional fiduciaries because of their alleged discretion or control over plan administration, carrier selection, and plan assets. Whether a consultant exercises the discretion or control required for fiduciary status – and whether premiums or insurance-related interests constitute plan assets – will be important and likely contested questions.

Fiduciary Breaches. Plaintiffs allege breaches of ERISA’s duties of prudence and loyalty. They contend that fiduciaries failed to investigate and monitor carriers, premiums, broker compensation, product value, and claims experience; failed to conduct competitive bidding or meaningful market checks; and retained arrangements under which employees allegedly paid excessive premiums. Plaintiffs argue that these failures resulted in financial harm to participants and seek to hold both employers and consultants accountable.

Excessive Compensation. Plaintiffs challenge both direct and indirect broker compensation. The complaints cite high commission percentages and low estimated loss ratios – the percentage of premiums used to pay claims – as evidence that participants received poor value. ERISA does not prescribe a minimum loss ratio or require a request for proposal (RFP) at fixed intervals. A central question will be whether fiduciaries followed a prudent, loyal, and well-documented process under the circumstances for understanding, benchmarking, and monitoring broker compensation.

Prohibited Transactions and Self-Dealing. The complaints assert prohibited transactions and self-dealing claims under ERISA Section 406, alleging that plan assets were used to overcompensate parties-in-interest and that brokers and consultants influenced arrangements benefiting themselves. They allege that brokers embedded substantial commissions in employee-paid premiums and provided employers with things of value, such as subsidized or lower-cost services, in return for retaining those arrangements. The burden will be on defendants to establish that the services provided were necessary and that compensation was reasonable.

Practical Steps for Employers

These lawsuits do not establish that every employee-paid voluntary benefit is an ERISA plan, or that every broker commission or low loss ratio is inherently unlawful. They do, however, show that voluntary benefits can no longer be treated as administratively incidental. Employers should be prepared to explain and document both the program’s ERISA classification and the process used to evaluate participant value, service-provider compensation, and conflicts of interest.

What follows are some practical steps that employers can take:

1. Inventory and classify each offering. Determine, product by product, whether your voluntary benefit arrangement is intended to satisfy the voluntary benefit safe harbor or be administered as an ERISA plan. Ensure that the determined classification is reconciled with and appropriately reflected (or not reflected) in plan documents, summary plan descriptions, enrollment materials, websites, contracts, payroll practices, and Form 5500 filings.
2. Test safe-harbor practices. Where non-ERISA treatment is intended, review employer contributions, voluntariness, use of logos and messaging, enrollment platform presentation, carrier selection, negotiation practices, claims assistance, and all consideration or ancillary services received from insurers and brokers.
3. Use a fiduciary process when ERISA applies. Identify the responsible fiduciaries of the plans. The fiduciaries should periodically assess the choice of carrier, policy terms, premiums, commissions, loss ratios, claim and denial experience, enrollment and claims support, and participant complaints. A full RFP is not always required, but a market check may be appropriate. Document the information reviewed, alternatives considered, and reasons for the decision.
4. Map direct and indirect compensation. Require written disclosure of commissions, bonuses, revenue sharing, enrollment payments, credits, subsidies, and any other direct or indirect compensation. Consider whether “free” or discounted services are funded by voluntary benefit commissions and whether decision-makers have financial incentives tied to placement. Evaluate compensation against services and available alternatives. Require these disclosures contractually when negotiating agreements with vendors.
5. Preserve the record and review risk protection. Employee benefit plan governance committee minutes should reflect information reviewed, questions asked, alternatives considered, and the basis for decisions. Retain RFPs, market check documentation, benchmarking reports, contracts, and any corrective-action records. Review fiduciary-liability coverage and contractual indemnification, and document record retention policies on a regular basis.

If you have questions about whether your voluntary benefits are subject to ERISA or the governance processes you have in place for overseeing your employee benefit plans and programs, please contact Karen Hartford or any member of Verrill’s Employee Benefits & Executive Compensation Group.

[1] On June 11, 2026, Haller v. Banner Health was consolidated into Hannum v. Banner Health, and Hannum was designated as the lead case.
[2] 29 C.F.R. §2510.3-1(j).