Robert Wood, in Jackson Lewis’ Benefit Law Advisor, asks – and implies an answer to – the simple question of whether group employee life policies and plans are worth the risk for mid-size and smaller employers. He points out that conversion and related rights granted by such plans to employees place a significant administrative burden on employers that, if performed poorly, can give rise to fiduciary liability. Having litigated such cases, I would second his thought, which is why I am passing along his post. There are certain features of such group policies, related to the rights of employees to convert the group coverage to individual coverage, that are difficult for employers to administer successfully, and about which they are often relatively uninformed. As a result, they may find themselves exposed to fiduciary liability based on a plan benefit about which they knew little and/or which they were ill prepared to administer.
I am not saying that smaller employers shouldn’t provide such benefits; benefits are important, including group life. Indeed, I have lost track of the number of benefit cases in which I have been involved where the only life insurance available to a surviving spouse was that provided by the deceased spouse’s employer. What I am saying, though, is that if an employer is going to provide that benefit, they need to understand exactly what it provides and proactively plan for how the employer is going to administer that benefit. Learning about the complexity of that particular form of benefit only after the fact is a recipe for an employer to incur fiduciary liability.