By Alden Bianchi
Yesterday, I claimed that “voluntary benefits have gone mainstream [ ] despite that some folks are not happy about it.
”While the term “voluntary benefits” can refer to a broad range of benefits, my claim is principally directed at accident insurance, critical illness coverage, and hospital indemnity insurance.
The reference to some folks not being happy about it refers to the long-standing dispute over the efficacy of voluntary benefits – a dispute that is, at least in my view, over: the market has spoken, and it has done so resounding in their favor as evidenced by the year-over-year growth of voluntary benefit programs. What is missing, however, is a clear understanding on the part of employers that sponsor voluntary benefit programs that these programs can carry with them certain fiduciary obligations.
Individuals who are fiduciaries of these programs – whether by default (e.g., board of directors), by formal designation (e.g., members of fiduciary committees), or by exercising administrative discretion – must adhere to applicable fiduciary standards. Among other things this means that:
- They must exercise prudence, diligence, and loyalty in vendor/service-provider selection and must also monitor their vendors and service-providers.
- They must ensure that expenses are reasonable.
- They must act solely in the interest of plan participants.
This post is not intended as a comprehensive discourse on the particulars of sound fiduciary governance. Rather, where the oversight of fiduciary compliance relating to voluntary benefits is concerned, there three critically important things to which fiduciaries should pay attention:
(1) What are employees paying by way of broker and vendor compensation (including commissions, bonuses, and overrides)?
(2) Whether the offered insurance products are competitive? and
(3) Are the benefits clearly and accurately communicated?
The broker disclosure rules adopted under the Consolidated Appropriations Act, 2021, which helpful with item (1), should be considered as a starting point. For example, some brokers claim that override commissions need not be disclosed. Fiduciaries may need to demand this information separately. Item (2) requires benchmarking; and item (3) requires, at a minimum, a proper summary plan description.
