Worksite marketing can be profitable for those who invest the time and energy in learning how to efficiently and effectively penetrate it. However, the potential rewards of successfully working in the worksite marketing arena sometimes blind agents and companies to the potential compliance risks inherent in it. Though many of these potential compliance risks are similar to those companies must deal with in individual markets, a number of risks have a unique twist that can elude agent and company attention.

Sales process risks

Enrolling employees requires an insurance license and proper training as an insurance agent. Enrollers should be licensed as insurance agents and appointed by the company prior to actively engaging in enrolling employees.

A company should exercise care that enrollers are vetted and checked to ensure they meet the company’s normal standards for agents. Lower standards for enrollers may raise questions about the company’s selection policies and practices and increase the risk that enrollers will be unsuitable or inappropriate appointments.

Enrollers should receive adequate training to properly carry out their roles as agents. Though their job duties may sometimes appear to be primarily administrative, they must be knowledgeable about the products they sell and the companies they represent, and be able to answer questions appropriately.

In some cases, this training is the general agent’s responsibility, and in others, the company’s. The general agent’s contract should spell out who is responsible. Companies should periodically check the level of knowledge and skill of enrollers by monitoring application errors, complaints and interviews with enrollers.

During the sales process, pressure from employers to have employees participate in the program can have ERISA implications. The general agent or enroller should be sensitive to the sales environment and provide feedback to the employer regarding what is and is not appropriate. Enrollers should never suggest that participation is a requirement for employment, a company benefit or a company plan or program.

Involving current or former employees in the sales or enrollment process to provide recommendations is often inappropriate because of the potential for providing inaccurate information or for those employees becoming involved in the solicitation of a product they are not licensed to sell. The general agent should never pay a company employee to participate in the sales or enrollment process since it gives the appearance of a rebate or kickback. Participation of company employees in the sales process can also give the impression that the plan is a company plan, creating ERISA implications.

The employer should never provide sales materials or personalize approved sales material since this can have ERISA implications by making it appear that employment requires purchase or that the worksite program is a company plan.

Disclosure issues

The enrollers should be fluent in the language spoken by the employees so they can answer questions and provide proper disclosure of the features, benefits, costs, etc. of the products being sold. Differences in language often are the basis for claims of improper or inadequate disclosure.

In a worksite marketing situation, the greater the complexity of the product or the administrative process, the greater the likelihood of improper disclosure. The products sold should have limited, easily explained features, be guaranteed or simplified issue, and have simple administrative procedures.

The quality of the written sales materials provided to employees is directly related to the risk of improper or inadequate disclosure. Companies are wise to develop sales material especially for worksite sales. Specially developed sales materials are usually more effective at managing compliance risk than general application sales materials. General agents and companies should caution enrollers not to develop and use their own unapproved sales materials. These include banners, posters, meeting handouts, etc.

Suitability

Conducting a need-based sale is difficult in worksite markets. There is often little time available at enrollment, and based on the market, a reluctance to follow up at a later date. The lack of information about the employees’ financial situation and needs suggests that clear, logical guidelines are needed regarding how much should be sold. For example, basing the amount of coverage to be provided on the income of the employee can help reduce potential suitability issues, but does not eliminate it. Companies are wise to caution employees that their life insurance purchase may not meet their entire need and that they should have their financial needs evaluated.

Post-sale issues

The company or general agent should provide all post-sale service, except for issues related to payroll deductions for the purchase. Only the employer can properly answer payroll deduction questions. However, employers are sometimes tempted to answer other questions. The more involvement the employer has with administrative issues related to the products, the more likely it is there will be ERISA implications because of the appearance that the sale is part of an employer plan rather than an independent program.

Enrollers should be knowledgeable about company administrative procedures so they can answer questions accurately. They should be trained to be able to identify the difference between a question and a verbal complaint and how to handle the latter appropriately.

Ongoing enrollments require the presence of an enroller or agent and cannot be done by the company as part of employment process, because this gives the appearance that the plan is a company program or benefit, which can have negative ERISA implications.

Replacements

If the purchase of a worksite marketed product results in a replacement of an individual insurance product, state replacement regulations must be followed.

Group insurance policies are not covered by state replacement regulations and term insurance replacements by term insurance products are typically not considered replacements. However, the marketing creativity of companies has led to a number of individual, permanent and universal life products being sold in the worksite market. The company should determine in advance if the replacement of an old agreement or program by a new one requires that state replacement regulations be followed.

If the company determines that this is the case, then there should be 2 levels of due diligence performed by the company to avoid potential compliance problems resulting from undisclosed or improperly handled replacements.

When a new program replaces an old one, the company should determine that the new program has been properly presented to the company and employees as a replacement, including the impact the change of plans will have on employees. This should occur for any replacement situation. The agent should identify the potential negative impact of the new program on employees, and all employees should be counseled to contact the replaced company to determine if their policy could be converted to an independent one. This analysis and disclosure should be documented in case questions arise later.

Once the new plan goes into effect and new policies are being sold, the agent and company should comply with all state replacement requirements for the individual policies sold. Sometimes this can involve a great deal of work, since multiple replacement forms that are signed by the agent or enroller and employee may be required. Enrollers should be closely supervised to make certain they follow state replacement regulations. Agents should be given clear guidelines regarding the required policies and procedures to be followed. The company should implement and carry out supervisory procedures to monitor if replacement procedures are being followed.

Compensation

Compensation to an employer can have ERISA complications that should be avoided. The agent or company can pay for the additional administrative cost of payroll deduction, but payments should be minimal and should not give the impression of a bonus, rebate or kickback to the employer or some of its employees.

Agents should be cautioned not to provide incentives to business owners for supporting worksite marketing. An agent must exercise care to avoid any monetary payments or non-monetary considerations to business owners or employers’ management, since they can give the appearance of a rebate. Rebates are typically prohibited. For example, an employer may provide coffee and pastry for the employees as part of the worksite marketing kick-off meeting and charge the agent for the cost. The agent’s payment for this would be appropriate. If the agent reimburses the employer for actual costs incurred in conducting worksite marketing efforts at his/her company, the agent should have company invoices or other bills that specify what was paid for. However, it is typically inappropriate for the agent to pay the employer, its owner, or employees (e.g., the head of human resources) based on the sale of policies to employees.

The agent should also be careful in providing gifts to the employer, its owner or employees. For example, one agent sent a gift certificate worth $250 to the president and chief financial officer of a company and gift certificates worth $100 to the shift supervisors and the personnel manager. The purpose of the gifts was to “thank” them for their help. Any gifts provided should not be so expensive or so frequent that they give appearance of a rebate.