New federal rules apply for processing disability claims made under employee benefit and executive deferred compensation plans after April 1, 2018. Employers sponsoring retirement plans, disability plans, or nonqualified deferred compensation plans for executives offering payments on a finding of disability must amend plan documents to comply with these rules.
The new claims procedure is designed to give disability claimants a full, fair and prompt administrative hearing, designed to ensure the independence and impartiality of the decision maker. If an employer’s competing interests impair the fairness of a plan’s disability claims process, a claimant may go directly to court and skip the administrative step. Complying with the new administrative process may avoid much of the risk and cost of litigation, and may allow a court to give deference to the employer’s denial of a disability claim if the matter does go to court.
Deadlines for Decisions. Disability claims must generally be processed within 45 days, with limits on how long any extension may be. The claims procedure deadlines must be disclosed to plan participants (such as in the plan summary) and the process must comply with the deadlines.
Initial Denial of Disability Claim. If a disability claim is denied, the employer must advise the claimant in writing and include the following:
- Explain the denial in detail. Include cites to plan provisions supporting the denial, and provide specific reasons for not following any recommendations of the Social Security Administration, a treating physician or a vocational professional.
- A notice denying disability benefits must include a statement that the claimant can receive, upon request and free of charge, a copy of the entire claims file containing the relevant documents and records upon which the denial was based. If the employer used any internal rules or protocols for denying the claim, it must provide them to the claimant or state that none were used.
- If the denial is based on an exclusion or limit under the plan, the employer must explain the scientific or clinical basis for applying the exclusion or a statement that such an explanation will be provided free of charge upon request.
On an appeal of an adverse decision, the employer must:
- Give the claimant, free of charge and in any advance of the deadline for deciding the appeal any new or additional evidence or rationale that can be used to deny the disability claim, on appeal. The claimant must have sufficient time to respond to the new evidence, and the employer must consider that response.
- Advise the claimant of the right to submit written comments on appeal. If the claimant has new information before the employer has made a final decision on the disability claim, the employer must permit the claimant to present that information.
- Provide a detailed explanation of why the claim was denied on appeal.
- Advise the claimant of the right to bring a civil action under ERISA to contest a denial of a disability claim, once the administrative procedure is completed.
Employer Action Items
To comply with the new disability claims procedures for retirement, top-hat and other employee benefit and executive compensation plans, an employer should:
- Update its plan documents and summaries to comply with the new rule as soon as possible,
- Review agreements with insurers and other vendors handling the employer’s disability benefits plan to determine who is responsible for complying with the new rules, and
- Update the employer’s internal procedures for processing disability claims.