New ERISA Disability Claims Procedures - Apply for Claims Filed April 1, 2018 or Later

Summary

Final Dept. of Labor (DOL) regulations on disability claims procedures apply to disability claims filed on or after April 1, 2018, for ERISA plans that condition benefits or vesting on a determination of disability. Many — but not all — ERISA plans will need to be amended to comply with the final rule.

The plan and claims procedures must be amended to comply with the new ERISA disability claims rules where the plan fiduciary exercises discretion to determine whether a participant is disabled, rather than deferring to a determination made by another plan or entity (e.g., a Social Security disability determination).
If a plan provides disability benefits through an insurance policy and the carrier has authority to make the disability determination, the carrier—rather than the plan sponsor—needs to make sure its disability claims procedures (and probably also contract or plan document) are updated.
The ERISA plan administrator (almost always the plan sponsor) is required to send participants a summary plan description (SPD) or Summary of Material Modifications (SMM) describing the changes.

Plans Affected

The new rules were published by the DOL and affect only ERISA plans, so government and church plans that are exempt from ERISA are not required to comply. As noted in the opening summary, the new rules apply only to plans under which the plan fiduciary exercises discretion in determining if a participant is disabled, and not to plans that defer to a disability determination by a separate plan or entity. The types of plans that may be affected include not only short-term and long-term disability plans, but also possibly:

Group health plans that extend eligibility to disabled adult children (over age 26);
Life insurance plans that provide for premium waivers for totally disabled participants;
Retirement benefits that vest or are payable if a participant is disabled, regardless of age. This includes both qualified retirement plans (e.g., 401(k), 403(b) and defined benefit plans) and non-qualified deferred compensation “top hat” plans.

Action Steps for Employers

Employers should take the following steps to make sure their plans are compliant:

Determine which plans are subject to the new rules.
For plans that are subject to the new rules, either:
1. Amend the plan document and/or separate claims procedures to include the new procedures, and update claims and appeals denial notices. Such plan amendments must be executed by the end of the plan year (preferably earlier), and denial notices must be updated immediately; or
2. Amend the plan document to provide that the plan fiduciary does not have discretion to determine if a participant is disabled but, instead, defers to a disability determination made by a separate plan or entity (such as by the Social Security Administration or by the employer’s long-term disability plan). Such amendment can be prospective only, so must be adopted before April 1 or before its effective date, if later; or
3. If the plan fiduciary does have discretion to determine disability but relies on the claims procedures of a disability insurer or TPA, confirm with the insurer or TPA that their procedures and notices have been updated, and ensure that the plan language on claims procedures states that the insurer’s or TPA’s claims procedures apply. (Amend the plan if necessary.)
For consolidated plans that provide insured disability benefits and for which the insurer has discretionary authority to determine disability, review the “wrap” plan document and SPD to make sure they state that the insurer has discretionary authority and that the insurer’s disability claims procedures apply, and amend the plan if necessary.
Coordinate with insurers and TPAs, and make sure all claims filed after April 1, 2018 are administered in accordance with the new disability claims procedures, whether or not the plan document or claims procedures have been formally updated.
Give plan participants an SMM or a new SPD explaining the new claims procedures. We recommend sending this as soon as possible, although the ERISA deadline is no later than 210 days after the end of the plan year .
When a participant’s claim or appeal is denied, make sure the notices and/or documents provided have been updated to include the new timelines and procedures.

What do the New Rules Require?

The purpose of the final rule is to add procedural protections to ensure “full and fair” claims review and appeals process for disability claims, similar to the process required under the Affordable Care Act (ACA) for group health plans. If a plan fails to comply with any of the new procedures, the claimant will be deemed to have exhausted administrative remedies and can immediately file a suit (in federal court) for benefits. (There is a limited exception for violations that are de minimis, non-prejudicial, due to reasonable cause or matters beyond he plan’s control, and do not reflect a pattern or practice of non-compliance.) The final rule includes the following requirements:

All individuals involved in the disability determination process must be impartial and independent, including “vocational experts” as well as medical experts, health care providers treating the claimant, claims adjudicators and others. This requires external (not in-house) review of claims.
Notice of claim denial: more information is required than under the prior regulations, including an explanation of all reasons the claim was denied. The plan must explain its reasons for disagreeing with any disability determination by the Social Security Administration, with the views of health care providers who treated the claimant, with health care or vocational professionals who presented to the plan on behalf of the claimant or from whom the plan requested advice. A notice of claim denial also must explain if the denial was based on medical necessity or experimental treatment, or alternatively may state that such explanation will be provided upon request at no cost to the claimant.
If a claim is denied, the claimant must have access to the entire claims file before the appeals phase, including evidence and expert testimony, and an opportunity to respond to any new information or new rationale for the denial.
Rescissions of disability benefit coverage that apply retroactively will generally be treated as benefit denials, which will trigger the plan’s appeals process.
Notice of adverse benefit determination (denial of an appeal): must notify of any plan/contractual time limit on the period to file a civil lawsuit, and must specify the calendar date on which the period ends.
Required notices must be written in a “culturally and linguistically appropriate” manner (the same standard that applies under the ACA to group health plan claims and appeals), which means they must provide English language assistance and also must be available in foreign languages.