The Voluntary Benefits Reckoning: What the Schlichter Lawsuits Mean for Employers and Brokers

On Episode #1 of The EOB Podcast, we pulled back the curtain on one of the biggest shakeups currently hitting the employee benefits industry: the Schlichter voluntary benefits lawsuits.

And to be clear, this is much bigger than a few isolated legal cases.

These lawsuits could fundamentally reshape how employers, brokers, consultants, and carriers approach voluntary benefits, fiduciary responsibility, and compensation transparency moving forward.

Throughout the episode, we broke down the legal implications, industry practices, and hidden financial structures behind voluntary benefits in plain English because frankly, too many employers are already sitting on potential ERISA exposure without even realizing it.

One of the biggest themes throughout our conversation was this: “The old ‘employees pay for it, so it’s not our problem’ mindset is officially dead.”

Why These Voluntary Benefits Lawsuits Matter

The lawsuits center around voluntary employee benefits programs like:

• Accident coverage
• Critical illness plans
• Hospital indemnity plans
• Cancer policies
• Supplemental insurance products

Historically, many employers viewed these benefits as separate from fiduciary responsibility because employees paid the premiums themselves.

But what we’re now seeing is a major challenge to that assumption.

The allegations claim that certain employers and brokers failed to:

• Properly vet benefit offerings
• Monitor commissions
• Evaluate loss ratios
• Act prudently as fiduciaries
• Disclose embedded compensation structures

And that changes the conversation entirely.

For years, voluntary benefits were often treated like an afterthought. Employers assumed they lived outside ERISA oversight, brokers sold them aggressively, and very few people stopped to ask deeper questions about commissions, plan value, or fiduciary responsibility.

Now the industry is being forced to look much closer.

The Biggest Misconception We See About ERISA Safe Harbor

One of the biggest misconceptions we continue seeing in the benefits space is the belief that voluntary benefits are automatically exempt from ERISA simply because employees pay for them.

That is not how ERISA safe harbor works.

To actually qualify for safe harbor protection, employers have to meet very specific requirements, including:

1. No employer contributions
2. Completely voluntary participation
3. Limited employer involvement
4. No employer profit or indirect compensation

And this is where many organizations unintentionally create risk.

We see employers accidentally step outside safe harbor protections all the time through:

• Open enrollment presentations
• Internal benefits communications
• Payroll arrangements
• Technology credits
• Benefit promotion
• Claims reminders
• Administrative involvement

Even something as simple as saying: “We’re excited to offer this great new benefit this year…”

…can potentially be viewed as endorsement.

That’s the kind of nuance many employers never realized existed.

Hidden Commissions Are Finally Being Scrutinized

A major part of this episode focused on compensation transparency.

Some of the allegations discussed in these lawsuits involve commission structures reportedly reaching:

• 55%
• 64%
• 70%
• Even 80%+ in certain first-year arrangements

That gets attention quickly.

Especially when many employers — and certainly many employees — have no idea how these compensation arrangements actually work behind the scenes.

We also discussed loss ratios, which measure how much premium revenue actually goes back to employees through claims.

Some industry insiders participating in the broader discussion around these lawsuits referenced loss ratios as low as 17% to 23% for certain voluntary products.

If those numbers are accurate, that creates major questions around value, transparency, and fiduciary oversight.

And honestly, that’s where this entire conversation starts heading:

• What are employees actually paying for?
• How much compensation is embedded in premiums?
• Were alternative products evaluated?
• Was there a documented vetting process?
• Were employers fully informed?

Those are the types of questions we believe are going to become increasingly common moving forward.

Fiduciary Responsibility Cannot Be Delegated Away

One of the most important points we discussed throughout the episode is that fiduciary responsibility ultimately stays with the employer.

You can hire advisers.
You can hire consultants.
You can hire vendors.

But you cannot fully delegate away fiduciary responsibility.

That’s a major misconception we still see across the industry.

At the end of the day, plan sponsors are still responsible for:

• Oversight
• Monitoring
• Prudence
• Vendor evaluation
• Benefit selection
• Process documentation

And importantly, this is not about perfection.

It’s about process.

The organizations in the strongest position are typically the ones that can clearly show:

• Why decisions were made
• What vetting occurred
• What alternatives were reviewed
• How compensation was evaluated
• How employees’ best interests were considered

That documentation and intentionality matter.

A lot.

The Industry Is Moving Toward Transparency

One thing we strongly believe is that the future of employee benefits is going to involve significantly more transparency.

That includes:

• Compensation disclosure
• Vendor accountability
• Fiduciary governance
• Benefits education
• Documented decision-making
• Performance evaluation

And honestly, we think that’s a good thing.

There is nothing wrong with brokers, consultants, or advisers making money when they provide real value.

The issue becomes whether compensation is hidden, excessive, or influencing recommendations in ways employers and employees do not fully understand.

That’s where this conversation starts becoming much bigger than just voluntary benefits.

Because once organizations start asking harder questions about:

• commissions
• disclosure
• transparency
• fiduciary process

…it naturally expands into other areas of healthcare and benefits administration as well.

What Employers and Brokers Should Do Right Now

One of the biggest takeaways from this episode is that employers and advisers should not wait around assuming this issue will simply disappear.

Whether these lawsuits ultimately succeed or not, they are already forcing the industry to reevaluate long-standing practices.

Right now, employers should be:

• Reviewing voluntary benefit arrangements
• Evaluating ERISA safe harbor status
• Requesting compensation disclosures
• Improving documentation processes
• Monitoring plan performance
• Reviewing loss ratios
• Auditing vendor relationships
• Establishing more defensible fiduciary procedures

And advisers should be asking themselves:

• Can we clearly defend our compensation?
• Can we explain our recommendations?
• Are we documenting our process?
• Are we acting in clients’ best interests?
• Are we being fully transparent?

Because transparency is no longer optional long term.

The industry is moving in that direction whether organizations are ready or not.

Final Thoughts: The Fiduciary Wake-Up Call Is Here

This episode was not about fearmongering.

It was about awareness.

For years, many voluntary benefit arrangements operated with very little scrutiny and very little transparency. That environment is changing quickly.

What these lawsuits really represent is a broader fiduciary wake-up call for the entire benefits industry.

And in our opinion, the organizations that adapt early — through transparency, documentation, education, and intentional governance — are going to be in a much stronger position moving forward.

The reality is simple:
Being proactive is far easier than being reactive.

And that’s exactly why we wanted to have this conversation now.

FAQ: Voluntary Benefits Lawsuits and ERISA

What are the Schlichter voluntary benefits lawsuits?

These lawsuits allege that certain employers and brokers failed to properly oversee voluntary benefit plans, monitor commissions, and fulfill ERISA fiduciary obligations.

Are voluntary benefits subject to ERISA?

Some voluntary benefits may qualify for ERISA safe harbor exemptions, but employers must meet strict requirements to maintain that exemption.

Why are hidden commissions being discussed?

The lawsuits claim some commission arrangements may have created conflicts of interest and excessive compensation structures that were not fully transparent.

What is fiduciary responsibility in employee benefits?

Fiduciary responsibility requires employers and plan sponsors to act prudently and loyally in the best interests of employees when selecting and managing benefit plans.

What should employers do now?

Employers should review voluntary benefit arrangements, evaluate fiduciary exposure, improve documentation processes, and request greater transparency from advisers and vendors.

Listen to the Full Episode

To hear the full conversation and explore more discussions around healthcare benefits, fiduciary strategy, and industry transparency, visit The EOB Podcast.

If your organization is evaluating employee benefits strategy, fiduciary governance, or compliance processes, now is the time to start asking deeper questions.