29 C.F.R. §2560.503-1
The DOL’s revised ERISA disability claims procedures regulations will be taking effect early next month, and plan sponsors should take a hard look at plan processes over the next few weeks to ensure compliance. The new requirements apply to disability benefit claims filed after April 1, 2018, after a 90-day delay postponed the effective date from January 1, 2018. The revised regulations combine detailed participant notice requirements with a new strict compliance standard for disability benefit claims, increasing both expectations for plan procedures and litigation exposure for plans that don’t meet those expectations.
In the preamble to the final regulations, the DOL hints that the changes were not made to reduce litigation, but to acknowledge that litigation may be a part of the “full and fair review” process. The DOL cites a istudy of ERISA benefits litigation from 2006 through 2010, which concluded that cases involving long-term disability accounted for a whopping 64.5% of litigation, while health care plan litigation during the same period constituted only 14.4%. Later , the DOL states that “[b]ecause the claimant may have limited opportunities to supplement the [litigation] record…it is particularly important that the claimant be given a full opportunity to develop the record that will serve as the basis for the review…[.]” Plan sponsors, then, should ensure their plan’s disability benefits claim procedures will withstand judicial scrutiny.
In the preamble to the regulations, the DOL notes seven major provisions of the final rule:
- claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination;
- benefit denial notices must contain a complete discussion of why the plan denied the claim and the standards applied in reaching the decision, including the basis for disagreeing with the views of health care professionals, vocational professionals, or with disability benefit determinations by the Social Security Administration;
- claimants must be given timely notice of their right to access their entire claim file and other relevant documents and be guaranteed the right to present evidence and testimony in support of their claim during the review process;
- claimants must be given notice and a fair opportunity to respond before denials at the appeals stage are based on new or additional evidence or rationales;
- plans cannot prohibit a claimant from seeking court review of a claim denial based on a failure to exhaust administrative remedies under the plan if the plan failed to comply with the claims procedure requirements unless the violation was the result of a minor error;
- certain rescissions of coverage are to be treated as adverse benefit determinations triggering the plan’s appeals procedures; and
- required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.In keeping with this theme, the regulations introduce a strict compliance standard for disability benefits claims procedures. The regulations provide that if a plan fails to follow the claims procedure requirements (with a limited exception), the claimant will be deemed to have exhausted the plan’s administrative procedures, meaning that the claimant can bring a lawsuit and the plan’s determination regarding disability may not receive the special deference otherwise available. The preamble emphasizes that this standard “is stricter than a mere ‘substantial compliance’ standard.” While the regulations provide an exception for de minimis violations, that exception is only available if the de minimis violation (a) does not cause (and is not likely to cause) “prejudice or harm to the claimant,” (b) the violation was “for good cause or due to matters beyond the control of the plan,” and (c) “the violation occurred in the context of an ongoing, good faith exchange of information between the plan and the claimant.” The exception is unavailable “if the violation is part of a pattern or practice of violations by the plan.”
A number of these provisions change the adverse benefit determination notice requirements. The requirement to provide a “discussion of the decision” (see 29 C.F.R. §2560.503-1(g)(1)(vii)), is both a new requirement and a familiar one. In the preamble, the DOL notes that “[i]n the Department’s view, the existing claims procedure regulation for disability claims already imposes a requirement that denial notices include a reasoned explanation for the denial.” Noting that many disability claims notices currently provided by plans are “not consistent with the letter or spirit of the Section 503 Regulation,” the DOL has added additional regulatory specifics with a goal of reinforcing transparency and, in the DOL’s words, “appropriate dialogue” between plans and claimants. Another example of the changes is the new requirement that plans issuing a notice of denial on review must include not only a statement of the participant’s right to bring an action under ERISA §502(a), but also a description of any plan-specific limitations period for bringing a claim (including the calendar date on which the contractual limitations period expires for the participant’s claim).
While the clock ticks down to the effective date of the new requirements, plan fiduciaries should consider consulting with benefit counsel to determine what changes are necessary to ensure plan compliance.