VideoCorporate benefits packages may be shrinking, but voluntary benefits are skyrocketing. According to a recent survey, 6 of every 10 companies now offer at least one voluntary, or supplemental, benefit. Employees buy such products—most often some form of life, health, disability, or dental insurance—directly from vendors, usually through a payroll deduction. It's easy to see the appeal of voluntary benefits: they cost employers next to nothing, yet boost employee morale.
But voluntary benefits are not necessarily a win-win—in fact, they could be just the opposite. Consider the case of UnumProvident Corp., the nation's largest disability insurer. In 2003, voluntary offerings represented about 40 percent of Unum's U.S. brokerage sales. Over the past year, however, policyholders have accused the self-described "leader in income protection" of systematically denying disability claims.
Management at Unum, which recorded a net loss of $386.4 million in 2003, has denied the charges. But regulators in 45 states are conducting a joint market-conduct exam of Unum's handling of claims—the largest such review in U.S. history. That probe is likely to be completed sometime this summer.
Such problems with a vendor can turn into a morale-buster for employees, and a headache for their employers.
Worse, insult may be added to injury if employees who bought a product believe their employers endorsed the vendor in question. In practice, few companies stand by supplemental plans, because doing so makes it more likely that a program will fall under the purview of the Employee Retirement Income Security Act (ERISA)—which substantially raises a plan sponsor's reporting, disclosure, and fiduciary responsibilities. Warren Steele, senior vice president of marketing at insurer AFLAC, believes that less than 10 percent of the company's corporate clients treat voluntary programs as ERISA plans. (An official at AFLAC notes, however, that Mr. Steele does not know the exact percentage.)
Critics claim that it's in the vendor's interest for the sponsoring company to back its products—and not just to boost sales. Attorneys point out that, generally, ERISA favors insurers over employees in policy disputes. ERISA preempts some state law, which can mean cases are heard by judges, not juries—a huge plus for defendants. More important, ERISA prohibits workers from suing insurers for punitive damages.
In fact, when sued by a policyholder, an insurer's first move is usually to try to convince a judge to rule that a supplemental plan is an employee welfare benefit plan (and hence subject to ERISA). Such a ruling could be bad news for an employer, which can suddenly find itself running afoul of Department of Labor (DoL) regulations. As for policyholders, the inability to sue for punitive damages may make it difficult to find an attorney to take a case. "This is a disaster for employees," declares Joseph Belth, professor emeritus of insurance at Indiana University. "They're being taken to the cleaners."
Message: We Care
None of this is cheery stuff for companies with voluntary benefit programs. And that's getting to be a long list. According to Avon, Connecticut-based advisory firm Eastbridge Consulting Group, which conducted the survey cited above, sales of supplemental worksite insurance topped $4 billion in 2002, double the amount sold just five years earlier.
Scores of insurers offer such plans, including AFLAC, Unum, Liberty Mutual, AIG, Wachovia, and MetLife. Joe Foley, senior vice president of market development and communications at Unum, says that sales of the company's voluntary benefits have been increasing at nearly a 35 percent clip in the past several years. Notes Foley: "Voluntary has been our fastest-growing segment."
While critics charge that businesses launch voluntary benefit plans to camouflage cutbacks in their own company-funded programs, by and large the programs appear to be well intentioned. Even Mark DeBofsky, a partner and plaintiffs' attorney at Chicago law firm Daley, DeBofsky & Bryant, grants, "The employers' motives are usually good."
Telecommunications company Verizon Inc., for instance, maintains a program called Verizon Advantage. Through the plan, employees have access to group rates on automobile and homeowners' insurance. "Some employees can save oodles of money," says Sheila Small, an assistant treasurer for risk management and insurance who runs the program.
Voluntary programs also help promote the message that a company cares about its workers. Standard Register, a document-management company in Dayton, lets insurance vendors sell a wide array of financial products to employees. According to Richard Mayer, the total-rewards manager of the company, the program reinforces the idea that "Standard Register is a great place to work." Among the company's current voluntary offerings: auto insurance; homeowners' coverage; and extra long-term disability, life, and accidental-death insurance.
A Fine Line
Companies can run into trouble when they try to claim too much credit for these packages. Managers looking to steer clear of ERISA cannot endorse a voluntary plan. The difference between simply announcing a plan and endorsing it "can be a fine line," acknowledges AFLAC's Steele.
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