Brokers in the Crosshairs of Voluntary Benefits Lawsuits

Since December 2025, the law firm Schlichter Bogard has filed four class action lawsuits against several very large employer group welfare plans and—in a novel move—their insurance brokers.

The core allegation is that plan participants paid too much for voluntary benefits in large part due to excessive (and allegedly undisclosed) commission compensation for the brokers.

For going on two decades, attorney Jerry Schlichter has spearheaded a veritable litigation movement to challenge excessive fees in the retirement account space, earning him the nickname of “401(k) Tort Terror.” That work resulted in three unanimous U.S. Supreme Court victories, over $750 million in settlements, and an estimated annual $2.8 billion in 401(k) fee reductions. It is fair to say that Schlichter’s litigation reshaped the 401(k) advisory market.

His attention is now on the voluntary benefits space. The federal complaints, which include substantively identical claims, outline several untried theories that the courts will sift through over the coming months and years. They allege that:

• The employer plan defendants breached their ERISA fiduciary duties by not diligently selecting or monitoring voluntary benefits offerings or service providers, and by allowing brokers to collect unreasonable and excessive fees;
• The broker defendants are fiduciaries because they select the insurance carrier and manage claims; and
• The brokers violated their fiduciary duties by receiving excessive compensation for their services.

The complaints cite tens of millions of dollars in broker compensation that, they allege, was more than a third of the total premium dollars spent across the years of the involved benefits plans. The complaints further claim that the broker defendants withheld lower-cost voluntary benefits options from the employers. (It is important to note that the complaints assume that lower-cost benefits and reduced commissions are completely correlated and if you “fix” the latter, you will fully reduce the cost of the former.)

Breaking Down the Case

A few other noteworthy elements of the complaints:

• First, all of the quantitative data is taken directly from each plan’s Form 5500 annual filings;
• Second, the complaints assert, without any supporting factual statements, that the broker compensation was undisclosed up front and that the brokers did not present alternative options for the voluntary benefits in question; and
• Third, the complaints hinge on the voluntary benefits being ERISA plans because the claims are all grounded on ERISA-derived fiduciary duties for both the employers and brokers.

On this last point, there is a four-part safe harbor that dictates the conditions under which voluntary benefits are not considered ERISA plans and would therefore fall outside the scope of these legal challenges:

• An employer or employee organization does not make any voluntary benefit contributions;
• Participation in the program is completely voluntary for employees or members;
• The sole functions of the employer or employee organization with respect to the program are, without endorsing the program, to permit the insurer to publicize the program to employees or members, to collect premiums through payroll deductions or dues checkoffs, and to remit the premiums to the insurer; and
• The employer or employee organization receives no consideration (cash or otherwise) in connection with the program, other than reasonable compensation, excluding any profit for administrative services rendered in connection with payroll deductions or dues checkoffs.

The non-endorsement component is where most large employers’ plans trigger ERISA status. The U.S. Department of Labor has opined that an employer “will be considered to have endorsed a group insurance” benefit, and therefore not qualify for the safe harbor, “if the [employer] expresses…any positive, normative judgment regarding the program.” A positive, normative judgment exists when an employer encourages member participation or “engages in activities that would lead a [participant] reasonably to conclude” that the program is part of a benefit arrangement maintained by the employer. So, activities like including voluntary benefits programs in employer brochures or other promotional materials alongside major medical offerings likely disqualifies the voluntary benefit program from the safe harbor.

The complaints cite a recent ComplianceBug analysis that purportedly “discovered [that] more than 80% of ‘worksite and voluntary benefits’ plans are…subject to ERISA despite employers (and their brokers) believing the plans were exempt from compliance requirements under DOL Reg. § 2510.3-1(j)’s ‘voluntary plan safe harbor.’” Plaintiffs in the lawsuits point to the voluntary benefits’ inclusion on Form 5500s as evidence that the employers (and brokers) believed these benefits were ERISA plans.

In ERISA’s prohibited transaction regime, payments by ERISA plans to “parties in interest” are effectively barred unless there is an exemption to the prohibition. Brokers and other plan service providers are clearly “parties in interest” under this law. Section 408(b)(2) contains a general exemption that allows plan fiduciaries to contract with parties in interest and pay them if “no more than reasonable compensation is paid” for the provided services. Whether the broker compensation at issue in the lawsuits was “reasonable” will be a central question as the litigation proceeds.

The most aggressive and untested allegations in the complaints assert that the brokers themselves are ERISA fiduciaries and therefore have direct liability for any excessive compensation that was paid and harm done to participants. That assertion is based in part on the claim that the brokers did not provide a full range of options for each voluntary benefit and so were essentially exercising discretionary control over the design of the plan.

Again, the plaintiffs do not appear to have actual knowledge of whether alternative options were presented to the plan fiduciaries at any point or what else was considered. That will be fodder for the discovery process. Early commentary in insurance trade outlets questions whether the brokers-as-fiduciaries claims will stick. If they don’t, but the broker compensation is found excessive, the employer defendants (as clear plan fiduciaries) will carry the liability.

Among other things, the plaintiffs are seeking declarations of breach of fiduciary duties by the defendants, disgorgement of profits made by the defendants, removal of plan fiduciaries, and reforms to the voluntary benefits plans.

Risks to the Industry

The complaints are getting attention both within the broker and employer plan communities. The lawsuits present an obvious risk for brokers, but they may have broader repercussions for industry reputation and employer-broker engagements in the future. Like the 401(k) excessive fee cases, these lawsuits point a spotlight at benefits brokers; we could see any number of results from that, including increased policymaker scrutiny and/or tougher negotiating of compensation by employers.

To mitigate these risks, brokers may want to consider three strategies:

• Ensure that you are presenting (and documenting) a variety of options to employers for each voluntary benefit, at least in part to counter arguments that you are acting as a fiduciary with discretionary authority over the plan design;
• Relatedly, arm your plan fiduciary clients with sufficient information to evaluate the options and do meaningful comparison shopping (including on fees); and
• Disclose your voluntary benefit compensation up front like you do for compensation related to group health plans to minimize excessive fee exposure (notably, this just moves up the timeline of what is included after the fact on the publicly available Form 5500s).

Many of you likely already do some, if not all, of these things. We may ultimately learn that the employer defendants in the pending cases had the information and options they needed to make informed decisions between voluntary benefits programs and broker compensation arrangements. But if they did not, and if you have clients that have not historically been making these evaluations, now may be the time to start.