Voluntary Insurance Benefits: Employer Responsibilities

Insurance agents/brokers often encourage employers to offer employees the opportunity to purchase, entirely at employee cost (through salary deduction), voluntary insurance providing payments if they become disabled, incur dental or vision expenses, die (i.e., supplemental group life insurance), become injured in accidents, become hospitalized (i.e., hospital indemnity insurance), or get cancer or other critical illnesses.  Do such voluntary insurance benefits create any responsibilities on the employer?  As explained below, the answer is “yes” if the benefits are provided through a group or group-type insurance policy and the employer endorses the program. 

In general, unless an important regulatory exception applies, a voluntary insurance program providing health, disability, or death benefits is treated as an “employee welfare benefit plan” for purposes of the Employee Retirement Income Security Act of 1974 (ERISA), which imposes various responsibilities on the employer and its financial or human-resources staff members who oversee the plan.  Such responsibilities include (a) providing employees with summary plan descriptions (SPDs), (b) filing annual reports (Form 5500) with the U.S. Department of Labor, and (c) prudently managing the program, as fiduciaries, to ensure that the insurance is not too costly in comparison to the value of its benefits.

The important regulatory exception applies to group or group-type insurance programs offered by an insurer to employees under which (a) no contributions are made by the employer (i.e., 100% of the premiums paid by the employees), (b) participation in the program is completely voluntary for employees, (c) the employer receives no consideration in the form of cash or otherwise in connection with the program (other than reasonable compensation for administrative services actually rendered in connection with payroll deductions), and (d) the sole functions of the employer with respect to the program are to permit the insurer to publicize the program to employees, to collect premiums through payroll deductions, and to remit them to the insurer (i.e., the employer does not endorse the program).

If not careful, an employer can (intentionally or unintentionally) endorse its voluntary insurance benefit program and thus cause the program to become subject to ERISA, which imposes responsibilities on the employer as described above.

In December 2025, several large employers were sued for allegedly having endorsed their voluntary insurance programs but without having satisfied their resulting ERISA fiduciary obligations to prudently select insurers and monitor the program premium amounts to ensure that employees were not paying too much.  The lower dollars involved in voluntary insurance programs maintained by small employers are unlikely to attract the attention of plaintiff lawyers.  Nevertheless, no employer should endorse its voluntary insurance benefit program, unless the employer is willing to treat the program as an employee welfare benefit plan subject to ERISA and take on the resulting responsibilities.