Is It Possible to Opt Out of All Group Benefits?

Jun 09, 2015

We often hear this request from employees via their plan sponsor. The short answer is, it depends on your contract. Many contracts require 100% participation of all eligible employees, so the answer in that case would obviously be no. If your contract allows for less than 100% (75% is common) participation, an employee could opt out of all benefits.

Allowing employees to opt out, however, could present many problems for the employer. For example, what happens if an employee becomes disabled after opting out? How would the employer handle the fact that one of their employees is now without income, possibly for the rest of their working life? Would the employee be likely to sue stating they didn’t know what the consequences were? We routinely tell our clients to have opting out employees sign waiver forms indicating they are aware of the risks and nevertheless choose to opt out.

Another issue that could arise is whether the contract could be comprised if participation is found to be below the required limit. The employer has the fiduciary responsibility to administer the plan in accordance with the terms of the contract. The insurer could, in an extreme situation, render the contract null and void if participation limits fall below contract requirements. In other words, if they allow employees to opt out, they will also need to track the participation percentage.

In order to avoid these scenarios, we advise our clients, where possible, to require all employees to be covered for all benefits other than extended health and dental. Employees are allowed to opt out of these two benefits with proof of alternate coverage and still be considered a full participant. This can be accomplished simply by making the plan a requirement of employment.

Your TRG Consultant would be happy to review your policy in this regard, along with other policies that could affect your fiduciary responsibilities, at your convenience.

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