Plan sponsors are typically forced to wait for last minute guidance to satisfy year-end compliance obligations. As a result, those of us who work with these plans spend the last days of the year frantically ensuring plans are in compliance mode while friends and family ring in the new year with frivolity and festivities. While we can’t guarantee that won’t happen again this year, if it happens to you because you are evaluating the impact of the new disability claim procedures on plans, then shame on you. As discussed below, the information necessary to comply with the new rules is already available. So address these obligations now – then dig out your little-black-dress or tux, and join the year-end frivolity!
The final rule modifying the disability claims procedures, issued late last year, became effective January 18, 2017, and applies to claims for disability benefits which are filed on or after January 1, 2018. Plan sponsors should identify their claims procedures, plan documents and SPDs that may need to be updated to reflect the new rule. To assist in that endeavor, the key changes implemented by the new rule are summarized below.
- New Independence and Impartiality Provisions. These new provisions are intended to reduce the possibility of unfair claims review. The change requires that “decisions regarding hiring, compensation, termination, promotion, or other similar matters…must not be based upon the likelihood that the individual will support the denial of benefits.” That being said, the regulation does not represent a significant change from prior law as both industry practice and case law have generally protected procedural independence.
- New Disclosure Requirements. The new disclosure requirements mandate three new disclosures upon an adverse benefit determination. First, the plan must provide a “discussion of the decision” explaining the basis for disagreeing with views presented by certain professionals. The regulation requires the discussion when the plan administrator disagrees with the (1) “views presented by the claimant to the plan of health care professionals treating the claimant and vocational professionals who evaluated the claimant,” (2) “views of medical or vocational experts whose advice was obtained on behalf of the plan…regard[less of] whether the advice was relied upon in making the benefit determination,” and (3) “disability determination[s] regarding the claimant presented by the claimant to the plan made by the Social Security Administration.” Second, the plan must disclose the specific internal rules, guidelines, protocols, standards and other similar criteria which were relied upon in making the adverse determination. If such guidelines, protocols, etc. do not exist, the plan must make a statement saying so. Third, the plan must make a statement that the claimant is entitled to receive upon request and free of charge all the documents, records, and other information relevant to the claimant’s claim for benefits.
- Enhanced Review Rights. The final rule also requires affords enhanced rights to review and respond to new information before the final decision. The plan must promptly disclose (1) “new or additional evidence considered, relied upon, or generated by the plan, insurer, or other person making the benefit determination…in connection with the claim;” and (2) new or additional rationales forming the basis of the plan’s determination. The disclosures must be made free of charge and “as soon as possible and sufficiently in advance of the date on which the notice of [an] adverse benefit determination on review is required.”
- New Deemed Exhausted Provisions. The new deemed exhausted provision allows claimant to immediately pursue civil enforcement if the plan fails to strictly adhere to all the requirements of the ERISA claims procedures in connection with the claim.
- Expanded Definition of Adverse Benefit Determination. The new regulation adds that in the case of a plan providing disability benefits, the term ‘adverse benefit determination’ includes any cancellation or discontinuance of disability coverage that, except to the extent it is attributable to a failure to timely pay required premiums or contributions, has a retroactive effect with respect to a participant or beneficiary.
- New Culturally and Linguistically Standards. New standards apply when the claimant’s address is in a county in which ten percent or more of the population is literate only in the same non-English language (e.g. ten percent of the county is literate in Spanish but not English). In those circumstances, a notice will not be culturally and linguistically appropriate unless the plan meets the following requirements: (1) “[t]he plan provide[s] oral language…that include answering questions in any applicable non-English language and providing assistance with filing claims and appeals,” (2) “[t]he plan must provide, upon request, a notice in any applicable non-English language,” and (3) “[t]he plan must include in the English version of all notices, a statement prominently displayed in any applicable non–English language clearly indicating how to access the language services provided by the plan.”
- New Disclosure Requirements. The new regulation provides additional requirements to the process of notifying the claimant of the plan’s benefit determination following review. While the prior regulation required a statement of the claimant’s right to bring an action under § 502(a), the new regulation also requires the plan to describe any applicable contractual limitations periods applying to the claimant’s right to bring the action as well as the calendar date upon which the claimant’s rights expire.