It has been a long time coming, but the Department of Labor’s final rule regarding disability benefit claims procedures (the “Final Rule”) will finally take effect on April 2, 2018. Employers need to determine which of their ERISA plans will be subject to the Final Rule and implement the changes necessary to comply by April 2, 2018. Any benefit plan that is subject to ERISA and allows a claims administrator to exercise discretion in determining whether a participant is disabled (rather than relying on an independent determination from the Social Security Administration for example) must take steps to comply with the Final Rule. If a plan fails to follow the new procedures, disability claimants under the plan will generally be deemed to have exhausted administrative remedies and may immediately file suit to claim benefits.
Final Rule Requirements
The Final Rule contains a host of new requirements affecting the administration of claims that turn on a determination of disability, including:
- mandatory independent claims review;
- additional opportunities for claimants to review and respond to any new information or rationale used in denying a claim;
- additional content requirements for benefit denial notices;
- the treatment of certain rescissions of coverage as denials of benefits that trigger the plan’s appeals process; and
- the provision of English language assistance and foreign language versions of applicable notices.
If an affected plan fails to follow the new procedures, a participant whose disability-related claim is denied will generally be deemed to have exhausted administrative remedies and may immediately file a suit for benefits.
Plan sponsors should start by identifying which of their ERISA plans allow for an exercise of discretion by a claims administrator in determining the disability status of a participant. Again, it is this exercise of discretion – rather than the application of an impartial, objective standard – that implicates the Final Rule. Accordingly, claims under a health plan, a long- or short-term disability plan, or even a retirement plan could be affected. A plan that is subject to the Final Rule would have to be modified to incorporate the external review process and the other procedural requirements (such as the development of new claims related notices) by April 2, 2018. Claims administrators must also be prepared to comply in operation with the new procedures with respect to claims filed on or after April 2, 2018. Alternatively, an affected plan can be amended to eliminate the element of discretion by adopting an objective standard (such as a determination from the Social Security Administration or an insurance carrier providing LTD coverage) and thereby escape the requirements of the rule. For many plans, this form of compliance may be the best solution. Either way, the compliance clock is ticking so employers should take action now.