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.