Thirty years ago, a law firm started suing employers over how they managed their 401(k) plans. Float, bad advice, excessive fees, low-value funds. Three cases went to the Supreme Court. They won all three – 27-0 across individual justice votes. They made billions and fundamentally changed how retirement plans work in this country.
That same firm just filed five class-action lawsuits targeting employers and their benefits brokers. The argument: voluntary benefits are being selected to maximize broker commissions, not employee outcomes. And because those products connect to the health plan, it creates fiduciary exposure for the employer.
They’ve been running mock trials on these cases for three years. Winning against themselves hundreds of times.
Why This Should Matter to You
If you’re a CEO or CFO, think about it this way. You negotiate every other vendor relationship. You scrutinize every other line item. But your health plan – one of your top three expenses – runs on a compensation structure you probably haven’t examined closely. Not because you don’t care, but because nobody told you to look.
These lawsuits are telling you to look.
What the Industry Doesn’t Have Yet (But Needs)
Here’s what’s interesting. There’s a concept starting to gain traction called a Control Account. Think of it like an escrow for benefits commissions – an independent account where all commissions flow, controlled by the employer, with the consultant’s fee paid out of it. Excess stays in the account. Rolls over. Clean 5500 filings. No conflicts of interest.
Almost nobody is doing this yet. It’s new enough that most brokers haven’t heard of it, and the ones who have are still figuring out how it works in practice. But the idea is sound, and the legal pressure that will eventually push the industry toward something like it is already here.
The 401(k) industry went from Wild West to heavily regulated in about a decade. Benefits is on the same path. The employers who start paying attention to how their broker gets paid – and whether that compensation structure creates risk – will be ahead of the curve when the rules change.
And the rules are going to change.
Is your benefits compensation structure something you’ve actually examined – or just inherited?
