Are "Voluntary" Benefit Plans Subject to ERISA?

 October 15 2019     Diane Cross

Many employee benefit plans offered through a private-sector employer are subject to ERISA. For certain voluntary plans, however, employers are often asking if those plans are subject to ERISA. For example, programs that may qualify as voluntary can include life, disability, critical-illness and accident insurance plans (among others). As with most employee benefit compliance matters, there is not a quick yes or no answer to this question. Explained further below, ERISA does provide for a safe harbor for certain voluntary plans - meaning that if the safe harbor requirements are met, plans that would otherwise be subject to ERISA are exempt.  

Voluntary Plan Safe Harbor

Generally, there are four requirements of the voluntary plan safe harbor and the first two requirements are fairly straightforward:

  • Participation in the benefit plan must be completely voluntary; and 
  • Must be entirely employee paid (with no employer contributions made in any form for any employees). 

This means that all employee contributions must be after-tax to meet the safe harbor – salary contributions made on a pre-tax basis through a Cafeteria/Section 125 plan are considered employer contributions.

Next, the employer must not endorse the plan. Generally, the employer’s involvement with the plan is the key for determining whether the plan is exempt under the voluntary safe harbor. In simple terms if you endorse it, you own it (for purposes of ERISA). Actions taken by an employer to endorse a plan can include selecting the insurer, negotiating the terms of the plan, saying the plan is subject to ERISA, and assisting employees with making claims for benefits. For purposes of the voluntary safe harbor, endorsement does not include making the plan available to employees or publicizing the availability of the plan, collecting premiums through payroll, and submitting the premium payments to the insurer. Finally, under the safe harbor, employers are prohibited from receiving any compensation that exceeds reasonable reimbursement for collecting and remitting premium payments.

What does it mean if the plan is subject to ERISA?
Depending on the type of plan and benefits offered, there may be substantial compliance obligations. These compliance requirements may include, but are not limited to, 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 any are substantial changes made to the plan, annual reporting requirements (e.g., Form 5500) and potential obligations under other laws and regulations governing employee benefit plans. However, being subject to ERISA also comes with certain protections under the law. For example, ERISA plans are generally protected against lawsuits for punitive and other types of damages under state laws with respect to their benefit plans.

Given the above, it’s important for employers to review the voluntary safe harbor requirements to understand when “voluntary” plans are actually considered voluntary under ERISA’s safe harbor. If an employee benefit plan is exempt from ERISA, the plan sponsor does not have to comply with certain requirements. On the other hand, if a voluntary plan fails to meet the requirements of the voluntary plan safe harbor, it is subject to ERISA and its requirements. To avoid any unexpected surprises, employers should understand if their voluntary plans are (or are not) subject to ERISA. Please contact your HORAN representative with any questions.