Author: Scott

 

In physics and systems theory, Critical Point Theory teaches us that there is always a single point where the least amount of force can create the greatest positive change—a tiny, well-placed adjustment at a point of maximum leverage can create outsized effects.  For a 200,000 ton ocean liner moving at 25 knots, a critical course correction occurs by manipulating a rudder one one-thousandth of the size of the vessel. For employers, that critical point exists in their employee benefits program too.

It’s not during renewal season. It’s not when negotiating claims. The critical point is the moment of broker selection.

The identity of your broker is extremely important, because, as discussed below, the broker makes or breaks plan success.  But the CRITICAL POINT—the time and place of greatest impact—is the BROKER SELECTION MOMENT, because only then can you find the best broker and only then can you ensure that you have negotiated the best that broker can provide.

 

Understanding the Benefits Delivery System

Every employer wants the same thing: the best results for their employees at the lowest possible cost. “Cost” can take many forms—premium dollars, claim losses, administrative resources, and even the distraction of HR staff from higher-value work.

In this system, carriers loom large. They are gigantic organizations with tremendous resources and leverage. Employers can’t change their carrier’s policies—but they can change how their carriers are managed. And that hinges on one decision: choosing the right broker and making sure that broker is on your side (and not on the carrier’s side).

 

The Outsized Role of the Broker

A strong broker does far more than bring carriers to the table. They:

• Negotiate aggressively with carriers to control costs.
• Design and manage plans that balance employer budgets and employee needs.
• Provide resources and services that take the administrative load off HR.
• Operate transparently to ensure fair pricing and alignment with employer goals.

A weak broker, by contrast, leads to poor carrier outcomes, frustrated employees, and unnecessary fiduciary risk.

 

Why the Broker Selection Moment Is the Critical Point to Positive Outcomes

When employers run a broker search, something unique happens: all candidates are on a level playing field. At this moment, every broker—large or small—puts forward their best resources, their most competitive pricing, and their strongest value proposition.

This is the true critical point of benefits management. Employers who focus their time and energy here—and who invest in this stage– gain leverage that cannot be replicated at any other stage.

Fail to capitalize, and the opportunity disappears. Brokers who were chosen casually or based on relationships will rarely perform at their peak once the selection process is over.

And DIY RFPs leave employers blind to hidden weaknesses or conflicts of interest.  HR and/or procurement staff simply do not know the industry tricks enough to turn promises into future deliveries.  They are essential parts of the process, but using internal resources only at this critical moment will not be sufficient.

 

How Employers Can Capture This Leverage

To maximize results at the critical point, employers should:

• Run broker RFPs frequently, not once every decade.
• Engage fiduciary professionals to design, manage, and evaluate the process objectively.
• Treat broker selection as a benefits governance decision, not just procurement.

Handled properly, the broker selection moment sets the course for years of benefits performance.  A modest investment at this stage will pay off multi-thousand-fold—like the rudder of the great liner.

 

Cofi’s Role

At Cofi, we specialize in helping employers seize the leverage of the critical point. We’re not brokers—we’re fiduciaries. Our team runs rigorous, transparent RFPs that level the field, expose conflicts, and ensure employers choose brokers who will deliver the best results for their people.

If you want to improve employee outcomes, reduce costs, and strengthen fiduciary compliance, the time to act is clear: invest in the broker selection process.

 

Voluntary benefits have become a standard part of the modern benefits package. But the industry hasn’t always looked the way it does today—and its evolution raises important questions about cost, value, and ethics.

 

The Early Days: Kitchen Table Sales

Twenty years ago, voluntary benefits were simple. Employees were offered a handful of individual insurance products—often cancer insurance or accident coverage—at relatively low cost.

Sales were informal. Young brokers, just entering the industry, pitched products over the kitchen table or in company cafeterias. Because sales volumes were low, commission rates were high. Employers often allowed payroll deductions but otherwise stayed hands-off.

The result was a “buyer beware” environment. Products tended to be poor value propositions, commission percentages were ridiculously high, claims were difficult to collect, and employees were left to navigate denials on their own.

 

The Big Consultants Take Over

As time went on, large insurance consultants spotted the opportunity. They saw three things:

• High commission rates.
• A captive employee audience.
• Access to employer relationships and distribution channels.

Using their scale and influence, consultants convinced employers to actively promote voluntary benefits. Sales exploded. Today, you’ll even see voluntary benefits advertised during the Super Bowl.

 

What Didn’t Change: Commissions and Product Quality

With booming sales and massive scale, one might expect the industry to lower commissions and improve products. Instead, the opposite has been true.

Because voluntary benefits remain largely unregulated, commission structures have stayed high and product value has lagged. The outcome: the insurance industry grows richer, while employees are left with weak benefits and poor claims experiences.

 

The Ethical and Fiduciary Question

Employers and HR leaders should reflect on the implications of this shift. Allowing high-commission, low-value products into your benefits program may generate short-term revenue sharing, but it raises:

• Ethical concerns: Are employees being sold products that don’t serve them well?
• Fiduciary concerns: Could employers face exposure for allowing predatory practices?

The voluntary benefits market has evolved—but not for the better.

 

Moving Forward

Employers don’t need to accept the status quo. With the right oversight, voluntary benefits can provide real value to employees without hidden conflicts or inflated commissions.

At Cofi, we believe employers should hold the industry accountable. That means running competitive RFPs, benchmarking broker arrangements, and ensuring that voluntary benefits serve employees first—not carriers or consultants.

 

Final Thought

Voluntary benefits have evolved from cafeteria pitches to billion-dollar marketing campaigns. But evolution doesn’t always equal progress. Employers who want to improve outcomes—and protect themselves—must rethink how these programs are sourced and managed.

 

When it comes to voluntary benefits, many employers assume they can simply “opt out” of ERISA oversight. But the reality is far more complicated—and far riskier.

The ERISA exemption for voluntary benefits is an all-or-nothing proposition. Employers either do absolutely nothing and let brokers run the show—or they step fully into their fiduciary role and accept full responsibility to protect employees. Anything in between exposes employers to compliance failures.

 

What the ERISA Exemption Requires

For a voluntary benefits program to qualify as ERISA-exempt, the employer’s involvement must be minimal. Specifically, the employer may only:

• Make the program available.
• Process payroll deductions for premiums.

The employer cannot:

• Promote or endorse the program.
• Intervene in claims.
• Regulate broker behavior or compensation.
• Oversee plan design or administration.

In short, employers are not permitted to do the very things they normally would to ensure their benefit plans are fair, efficient, and in employees’ best interests.

 

The Compliance Gap: Too Much, Too Little

Because the rules are so rigid, most employers land in a dangerous middle ground:

• They do too much to qualify for the exemption (by promoting or supporting the benefits).
• But they do too little to satisfy ERISA’s fiduciary standards.

That means employers offering voluntary benefits are often non-compliant—sometimes without realizing it.

 

What Full ERISA Compliance Demands

If an employer accepts ERISA’s application, compliance isn’t optional. Employers must actively monitor and manage their voluntary benefit programs across multiple dimensions, including:

• Regular broker evaluation to ensure performance and integrity.
• Loss ratio management to confirm products deliver real value to employees.
• Premium management to control costs.
• Commission management to prevent excessive or hidden compensation.
• Overselling prevention to protect employees from being pressured into purchasing products that are not suitable.
• Claims support to assist employees facing denials.

Few employers meet these standards consistently. The result? Brokers profit, while employees face inflated costs and weak protections.

 

The Stakes for HR Professionals

HR leaders who continue business as usual should understand both the ethical and legal risks. Choosing to “look the other way” isn’t an option. The choice is clear:

• Hands off entirely—and concede employee protection to brokers.
• Fully hands on—and embrace the ERISA fiduciary role.

There is no middle ground.

And the first option (hands-off) is certainly not in employees’ interests.  The broker’s interest?  Big time—no employer scrutiny, open access to employees, no need to disclose to employer, etc..  But never in the employees’ interests.

Bottom line:  There are only two ways an employer can satisfy its legal and ethical duty to employees with regard to voluntary benefit plans:  1. Do not offer them; or 2.  Offer them but manage them with the same fiduciary care that the employer pays to its employer-funded plans.

 

How Cofi Helps Employers Get it Right

At Cofi, we help employers navigate this all-or-nothing landscape. Our fiduciary services ensure that voluntary benefits programs are designed, managed, and monitored in the best interests of employees—while also protecting employers from compliance gaps.

If you offer voluntary benefits, don’t leave yourself in the non-compliance zone. Make sure you are not relying on the ERISA exemption and partner with a fiduciary ally who can help you offer voluntary benefits right.

 

Final Thought

The ERISA exemption for voluntary benefits is not a gray area. It’s black and white. Employers who try to take the middle road often end up exposed, and leaving hands off exposes employees. By embracing full fiduciary responsibility—and getting the right fiduciary partner—you will protect your employees and your organization.

A Hidden Risk When Terminating a Defined Benefit Pension Plan

For many employers, terminating a defined benefit (DB) pension plan is a long-awaited milestone. It means freedom from ongoing Pension Benefit Guaranty Corporation (PBGC) premiums, large vendor fees, and administrative distractions.

But the very moment you’re poised to exit can also be when your vendors take advantage. Many plan sponsors aren’t aware of the predatory fee practices some actuaries, recordkeepers and administrators employ during the termination process.

Why Fees Spike When Plans Terminate

When a DB plan terminates, every service provider tied to that plan loses ongoing revenue. That includes the plan’s lawyer, auditor, and especially the actuary and plan recordkeeper/administrator.

It’s natural for termination work to cost more — after all, the administrator has extra tasks. A reasonable benchmark: termination fees about three times your normal annual actuary and administration fees.

But in reality, many incumbent providers inflate fees to five to ten times the annual cost. They’re banking on you not shopping the market at this critical time.

Why vendors inflate termination fees

• They’re losing future administrative revenue and want to recoup it upfront.
• They expect clients won’t check the market or question the quote.
• They assume employers fear disruption if they switch vendors mid-stream.  Not true.
• They rely on the fact that other, larger numbers at play will dull fee sensitivity.  (“What’s a couple hundred thousand when a $100 million is at play?”)

A Real-World Case Study

One Cofi client with a $100 million DB plan received an $800,000 quote for termination services from its actuary/administrator— five times its normal $160,000 annual fee.

We ran a fiduciary RFP for the actuarial and plan termination services and found a highly qualified firm who did the same work for $180,000. The employer not only saved $620,000, but also upgraded the quality of service during the process.

Three Steps to Protect Your Company’s Bottom Line

1. Get a firm fee quote early.
   As soon as plan termination is on the horizon, ask your actuary/administrator for a firm fee quote covering all termination services.
2. Benchmark against the three-times rule.
   If the quote exceeds roughly three times your annual fee, immediately run an RFP for the termination services.
3. Lock in future termination fees now.
   If you’re three or more years from plan termination, perform a full RFP for administrative services today — and require each candidate to commit to a firm termination fee in the contract.

The Co-Fiduciary Advantage

Terminating a defined benefit plan is complex enough without overpaying. Acting proactively, benchmarking fees, and running a competitive process can save hundreds of thousands of dollars.

At Cofi, we’re fiduciaries — not brokers — focused on protecting employers from unnecessary costs and ensuring a smooth plan termination.