The Hidden Risks of Voluntary Benefits—and the Fiduciary Blind Spot Letting It Happen
Voluntary benefits may seem harmless—low-cost perks offered without employer contributions. But beneath the surface, many are loaded with high commissions, low value, and virtually no oversight.
ERISA doesn’t carve out exceptions just because you didn’t pay for them.
Executive Brief: Unpopular Truths About Popular Perks
Voluntary benefits are often pitched as employee-friendly extras. If the plan sponsor endorses the benefit, selects the vendor, and facilitates enrollment, fiduciary standards apply.
And if those standards aren’t met? You could be on the hook for unreasonable fees, undisclosed conflicts, or failure to monitor vendors.
Even if the plan sponsor doesn’t pay for the benefit.
Popular Perks, Hidden Pitfalls
Vision, dental, accident insurance, critical illness coverage, hospital indemnity, and legal assistance are the most common voluntary offerings.
But the real issue isn’t popularity—it’s revenue.
Commissions exceeding 50% of premiums
Vendors hand-picked by brokers with conflicts of interest
No RFPs, benchmarking, or transparency on plan performance
When the employer allows payroll deductions, hosts enrollment through its platform, and markets the benefit under its brand—courts and regulators may determine a fiduciary duty exists.
Even when it’s “voluntary,” it’s not hands-off.
Trojan Horse of Voluntary Benefits
What the Law Says (and What You Can’t Ignore)
ERISA and the CAA require all plan-related expenses to be reasonable, and fiduciaries must exercise prudence, diligence, and loyalty in vendor selection.
That includes benefits the employer doesn’t pay for—as long as the plan is involved in endorsing or facilitating them.
Courts have consistently found employer facilitation requires fiduciary oversight. And recent DOL guidance reinforces this standard.
ERISA §404(a): Requires acting “solely in the interest of plan participants” and “defraying reasonable expenses of administering the plan.”
CAA §202 and §204: Reinforce obligations to monitor fees and vendor conduct—including through disclosure and audit rights.
According to McGuireWoods LLP, a national law firm with deep ERISA and fiduciary expertise: “Undisclosed broker commissions and revenue-sharing arrangements for supplemental benefits are likely to face increasing scrutiny under ERISA.”
As with other plan vendors, if you didn’t verify pricing, document the decision, and confirm disclosures—you’re exposed.
Don’t expect the “voluntary” label to shield you.
Case Study: Hospital Indemnity Plans
One of the fastest-growing voluntary benefits is also one of the most troubling.
Hospital indemnity insurance sounds useful—fixed payouts if you’re admitted to the hospital. But these plans often:
Pay as little as $50–$200 per day
Come with exclusions denying coverage for most hospitalizations
Include commission rates of 40–60%—without disclosure to the employer or participant
Worse, they’re marketed during open enrollment with glossy visuals and optimistic promises—none of which explain how little they actually cover.
Employees think they’re getting security. What they’re often getting is a big fat fee generator—for someone else.
Employees Think They’re Getting Security
Fiduciary Checklist for Voluntary Benefits
If your plan offers voluntary benefits, here’s what fiduciary oversight requires:
✅ Review Compensation Demand full disclosure of all broker and vendor compensation—including commissions, bonuses, and overrides.
✅ Benchmark Value Compare products and pricing across vendors. If a benefit can’t withstand a market check, it doesn’t belong on your platform.
✅ Reevaluate Platform Agreements Don’t let brokers or enrollment platforms control your lineup. You’re the fiduciary, not the feature sponsor.
✅ Communicate Clearly Make sure benefit summaries are accurate and don’t overpromise. If employees misunderstand what’s covered, your plan could be blamed.
✅ Document Your Process Maintain records of how vendors were selected, how fees were reviewed, and what steps were taken to ensure prudence.
Key Takeaways
Voluntary benefits often come with hidden costs, low value, and high legal exposure
ERISA and the CAA apply if your plan facilitates or endorses these offerings
Brokers and vendors may push high-commission products that fail basic fiduciary standards
Committees must apply the same diligence to voluntary benefits as they do to core plan design
Ask for compensation disclosure, review the contracts, and bring it to your fiduciary committee for real discussion
Protect your participants—and your plan—by demanding transparency, oversight, and value
The PBM Field Guide Is Coming
The tools to operationalize PBM reform are on the way.
This summer, Nautilus is launching the PBM Field Guide at RosettaFest 2025 in Denver—a practical roadmap to apply the best of state reform, align with fiduciary principles, and take back control of your pharmacy benefits.
The guide is structured around the Six Pillars of Fiduciary-Aligned PBMs:
Clinical stewardship
Full financial transparency
Unconflicted procurement
Data ownership & protection
Local access & provider fairness
Attestation & oversight
Advisers and employers will be able to:
Make confident, compliant decisions in the best interest of plan participants
Use open-source RFP language, contract terms, and transparent pricing standards
Avoid hidden fees, audit obstacles, and rebate distortions
Build oversight systems that keep vendors honest—and participants protected
RosettaFest 2025
Join the Brightest Minds, Leaders, and Change Makers.
Tired of the dark? Join us at RosettaFest 2025—and help build the future of pharmacy benefits. You’ll never look at PBMs the same way again.
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📬 PAY IT FORWARD: Feel free to forward this offer to your broker, PBM, or other vendors. Don’t hesitate to tell them you will favor validated vendors as part of your modernized procurement processes. Strong compliance and better benefits begin with validation.
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