One safe harbor that many employers take advantage of is voluntary benefits programs that are exempt from ERISA. These voluntary plans can offer a variety of benefits to employees, but in order to be exempt, businesses must be careful to follow all requirements to meet the safe harbor provision. A recent case, McCann v. Unum Provident, argued last October before the U.S. Court of Appeals for the Third Circuit provides a good illustration regarding the steps employers need to take to qualify for the safe harbor provision.
- Clearly a Third Party Insurance Offering: The voluntary benefits programs’ safe harbor protection applies specifically to programs offered to employees not by the employer but by a third party. While a business may choose to allow them to make the offer to their employees, it is in no way involved with the offering but instead simply allows the insurer to advertise the program to employees. The employer can collect premiums for the insurer, but only from employees who have elected to take part in the program. If a certain type of insurance is supposed to be offered as part of the standard employee benefits package, then employees are more likely to view that offering as being from the company than an outside party.
- Employer Endorsement: When offering a voluntary benefits program, an employer must be careful not to act in a way or make statements that appear to endorse a particular offering. HR and management should carefully review any information being shared by the business as well as by the third party insurer to confirm it is clear of any language that may violate the safe harbor and cause the program to come under ERISA protections.
- Multiple Providers of Options: While in some cases there is only one viable option to provide a certain type of insurance program, when possible, businesses are encouraged to offer multiple options for voluntary plans to their employees. The business can, at the very least, state that a particular offering is a third party insurer and that other options may be available. Further, HR should consider any additional options that become known in the future and offer those as appropriate to their workforce.
- Limiting Eligibility Criteria: When offering a third party program, the employer is not at all responsible for determining whether a specific individual is eligible for a particular program. While the insurance offered itself may have particular requirements, creating those limitations is left to the insurer, not the business.
In the case at hand, the employer offered disability insurance in such a way that the employees were not clear it was a third party offering. Instead, there was evidence that the employer endorsed the program by stating that the program was offered by an industry leader and further, that the program had been chosen by the business to provide disability insurance. The court found that, because of the endorsement by the company and the fact that a reasonable employee would believe the program was being offered by the business and not a third party, that if fell under the protections of ERISA.