There is often confusion surrounding the definition of a voluntary plan versus a voluntary option. Many believe a voluntary plan applies when an employee pays for the benefit on a pre- or post-tax basis, versus a plan where the employer pays for the benefit. While such an arrangement may be “voluntary option,” it may not be a “voluntary plan.”
Under the Employee Retirement Income Security Act (“ERISA”), a voluntary plan is a plan that is exempt from ERISA and therefore, exempt from its fiduciary (e.g. plan assets), reporting (e.g. Form 5500), and disclosure (e.g. plan documents) provisions. A voluntary plan must have minimal employer supervision, which is usually restricted to collection of employee contributions for remission to a third party entity. There are additional requirements, including:
- The employer is not permitted to contribute to the benefit;
- Participation in the program is completely voluntary for employees or members;
- The employer does not publicize or otherwise endorse the program, but rather, permits a third party to publicize the program; and
- The employer does not receive any consideration in the form of cash or otherwise in connection with the program.
Plans that fail to meet the safe harbor requirements will be subject to ERISA’s fiduciary, reporting and disclosure provisions, which means hefty penalties. Examples of voluntary plans are individual catastrophic plans or other individual policies. Many times employers will fail to meet the safe harbor requirements inadvertently by including the voluntary plan in open enrollment material, thereby publicizing the plan. Employers should be careful with such plans and ensure that the safe harbor is being met. For additional information, speak to your USI consultant.