Thrown A Bone
Some employers also subsidize voluntary benefits to sweeten the deal for participants. For example, Chipotle Mexican Grill Inc., a chain of 400 restaurants based in Denver, helps employees pay for pet insurance. Dan Fogarty, who works in marketing for the company, gets a discount on health coverage for his nine-year-old mutt, Pete. Monthly premiums for dogs run $15 to $30, increasing as the pet gets older; Chipotle contributes $10 a month toward that total. Given the skyrocketing cost of pet care, that contribution can mean thousands in savings for Fogarty. “It just means they care more, because most companies are cutting back,” says Fogarty. Chipotle’s gesture of generosity doesn’t cost much: of the company’s 120 office employees, only 20 purchase pet insurance, meaning that Chipotle earns goodwill from folks like Fogarty for an annual cost of $2,400.
The majority of U.S. corporations already offer at least one voluntary benefit, although precise estimates vary. Sullivan pegs the number between 60 and 70 percent. But not all voluntary benefits strike a chord with employees. At Clark, for example, where employees welcomed the switch to a voluntary dental plan after seeing the numbers, another voluntary perk—long-term care—flopped. “We couldn’t even get people to come to meetings,” admits Anderson.
To sweeten the deal, insurance vendors that sell auto and property-casualty insurance to consumers through employers offer discounts when possible. “We can provide a 5 to 15 percent discount because our marketing costs are lower selling to groups rather than individuals,” says Anne Herbster, vice president and manager of affinity marketing at Liberty Mutual. Knowing that Liberty Mutual’s payments will be coming from regular payroll deductions (as opposed to large installments) also makes Herbster more comfortable offering discounts, since there’s a greater certainty that employee payments will continue to roll in.
Companies like Liberty Mutual that specialize in homeowners’ and auto insurance have formed partnerships with other providers, such as vendors of pet insurance and prepaid legal services, in order to sell a portfolio of voluntary benefits. In fact, Bill Gorman, group sales manager at Veterinary Pet Insurance Co., a provider of pet insurance based in Brea, California, estimates that 50 percent of VPI’s corporate sales come from partnerships with Metropolitan Life, Marsh, and other large insurance providers seeking to add pet insurance to their other offerings. Increasingly, employers are allowing workers to pick and choose among multiple vendors. “We have several large customers that make multiple [providers] available and let employees choose from among them,” says Herbster.
Indeed, offering a choice of vendors is crucial for avoiding the major potential pitfall of voluntary plans: the risk that a vendor problem will trigger an employee lawsuit against the employer. A choice underscores the point that the employees, not the employer, are responsible for vetting and selecting vendors. According to attorney Richard Menson, a partner at McGuire Woods LLP in Chicago, a company should explain that its affiliation with a vendor does not constitute an endorsement. “I would be clear to employees that they are on their own as participants, and that the plans are not subject to the Employee Retirement Income Security Act,” he says. Menson adds that he hasn’t seen any ERISA suits over voluntary benefits go to court—because corporations are prudent about how they communicate voluntary benefits, and because most cases with merit are settled before trial. As an added safeguard, most insurance vendors provide employers with indemnification clauses that hold corporations harmless in case of any trouble.