After much delay and uncertainty, the U.S. Department of Labor’s final rule on disability benefit claims procedures is set to become effective April 1. The rule, which applies to ERISA employee benefit plans (including retirement, severance and “top hat” plans) that provide disability benefits, strengthens and expands the rules governing claims and appeals for such benefits currently in effect. Employers need to consider how the rule will impact their employee benefit plans and what they must do to comply.
Plans Subject to the Rule
An ERISA-governed employee benefit plan offering disability benefits is subject to the rule if the plan’s claims adjudicator must make a determination of disability in order to decide the claim. For this purpose, it does not matter whether the underlying plan is a pension, 401(k), welfare benefit or nonqualified (top hat) plan. Alternatively, if the availability of a plan benefit is conditioned on a finding of disability by a party other than the plan (e.g., the Social Security Administration or the employer’s long-term disability plan), the claim is not subject to the rule.
Plans subject to the rule must ensure that any disability benefit claims filed on or after April 1 comply with the new standards. In addition, plans that include disability claims procedures as part of the plan document may need to be amended to comply with the rule. Qualified 401(k) and pension benefit plans must be amended by Dec. 31.
Summary of Major Provisions
The rule’s major provisions enhance disclosure requirements, modify appeal procedures and incorporate some standards introduced by the Affordable Care Act.
Enhanced Disclosure Requirements
The rule expands the categories of information that must be included in benefit denial notices at the initial claims and appeals stage. For example, benefit denial notices must incorporate the following:
- 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 medical and/or vocational professionals, or with disability benefit determinations by the Social Security Administration.
- A statement that the claimant is entitled to receive the entire claim file and other relevant documents upon request. Currently, such statements are required only in denial notices at the appeals stage.
- Either the internal rules, guidelines, protocols, standards or other similar plan criteria used in denying a claim, or a statement that none of these was used. Currently, denial notices are permitted to include a statement disclosing that such rules were used and that a copy is available upon request.
The rule also requires benefit denial notices at the appeals stage to include a discussion of any applicable contractual limitations periods in the plan, including the calendar date on which the limitations period expires for the claim.
Modified Appeal Procedures
Plans may not deny benefits on appeal based on new or additional evidence or rationales that were not disclosed during the initial claims stage unless the claimant is given copies of such new or additional evidence or rationales and a reasonable opportunity to respond.
Extension of Group Health Benefit Protections
The rule extends to disability claims certain standards the Affordable Care Act added for group health benefit claims:
- Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination.
- Certain rescissions of coverage must be treated as adverse benefit determinations that trigger the plan’s claims and appeals procedures.
- Required notices and disclosures issued under the plan’s claims procedures must be written in a culturally and linguistically appropriate manner.
Failure to Implement the Rule
Except for de minimis errors that meet certain criteria, the failure to satisfy the rule deems a claimant to have exhausted his or her administrative remedies under the plan. In such a case, the claim or appeal is deemed to have been denied on review without the exercise of discretion by a plan fiduciary and the claimant may immediately pursue the claim in court.
Next Steps for Employers
Plan sponsors need to review their plans to determine whether such plans provide disability benefits and, if so, whether the rule applies. This review should encompass not only short- and long-term disability plans, but also ERISA-governed retirement, severance and “top hat” plans that provide disability benefits. If the rule applies, appropriate steps should be taken to amend plan documents, prepare necessary participant communications and confirm proper administration of any disability claims filed on or after April 1.