Litigation Against Employers and Benefits Consultants for Excessive Premiums
Prominent employers and benefits consultants are currently embroiled in litigation initiated by Schlichter Bogard LLC. These lawsuits focus on alleged fiduciary breaches concerning excessive premiums for voluntary benefits like accident, critical illness, cancer, and hospital indemnity insurance, which are typically not employer-subsidized. This legal scrutiny accentuates industry challenges related to premium management and regulatory compliance requirements.
Included in these lawsuits are United Airlines, CHS/Community Health Systems Inc., Universal Services of America LP, and Laboratory Corp. of America Holdings. The legal actions extend to benefits consultants Gallagher Benefit Services Inc., Mercer Health and Benefits Administration LLC, Lockton Companies LLC, and Willis Towers Watson US LLC, with accusations of self-serving practices perceived as detrimental to plan participants. This situation underscores the industry's ongoing struggle with fiduciary oversight and ethical conduct.
The extensive lawsuits, averaging 50 pages each, assert that the parties involved failed to adequately oversee their benefits plans, leading to participants incurring excessive premiums. Specifically, the case against United Airlines and Mercer highlights negligence in selecting suitable carriers and effectively managing broker commissions. Furthermore, the suit accuses these entities of self-dealing, alleging that Mercer withheld information about lower-cost insurance options to enhance its compensation.
Regulatory Compliance and Safe Harbor Provisions
The legal filings indicate a significant regulatory compliance element, focusing on voluntary benefits fully funded by employees through payroll deductions. For these plans to qualify for a Department of Labor safe harbor provision under 29 C.F.R. § 2510.3-1(j), four criteria must be satisfied: no employer contributions, voluntary participation, non-endorsement by the employer, and reasonable administrative compensation. Allegations against United Airlines suggest non-compliance with these requirements, misrepresenting voluntary benefits as governed by ERISA through public disclosures.
The lawsuits further allege that United permitted brokers to advise costly plans with low loss ratios to employees. Additionally, they emphasize Mercer’s role as a fiduciary, accusing them of not offering United Airlines all potential cost-saving alternatives. This situation presents significant implications for risk management in selecting underwriting options and maintaining compliance with industry standards.
These proceedings raise critical questions about the fiduciary responsibilities in offering voluntary benefits and the accountability of brokers and employers in ensuring value for their employees. Insurance industry stakeholders are closely monitoring the developments, as the outcomes may affect ERISA obligations and regulatory compliance practices for employers and benefit consultants. As the situation progresses, the industry anticipates further legal and operational ramifications for the involved parties.