The Department of Labor (DOL) has issued a final rule amending its claim procedure regulation, 29 C.F.R. § 2560.503-1, to better protect those seeking disability benefits. Disability claims comprise the vast majority of lawsuits seeking benefits under the Employee Retirement Income Security Act of 1974 (ERISA). Employee benefit plans must strictly comply with the new regulatory requirements for all claims filed on or after Jan. 1, 2018 — including any necessary amendments to plan documents and internal claims-handling procedures.
The changes will likely prolong the administrative process and slightly increase plan expenses. There is now a built-in incentive to follow the rules, however, as a non-compliant plan can lose its discretionary authority on a case-by-case basis and have its claims more readily overturned in court. Areas of change plan providers should note include:
1. Loss of discretionary authority
If a plan violates any of the rules for disability claims, the claim is deemed denied without the exercise of discretionary authority. This gives the claimant the right to file a lawsuit without further delay and will allow a court to decide the merits of the claim de novo, without any deference to the fiduciary who violated the rules. As a result, the plan would lose its main judicial advantage (plan decisions and interpretations are reversed only upon an abuse of discretion), and the denial could be more easily overturned.
The only exception to this rule is if the plan’s violation was: (i) de minimis; (ii) non-prejudicial; (iii) attributable to good cause or matters beyond the plan’s control; (iv) in the context of an ongoing good-faith exchange of information; and (v) not reflective of a pattern or practice of non-compliance. This is a much more demanding test than the “substantial compliance” standard most courts currently follow with respect to regulatory compliance.
In addition, a claimant may (but is not required to) request that the plan explain in writing any violation. The plan must respond within 10 days by specifically explaining the violation and why it believes the claimant should not be permitted to file a lawsuit at that time.
2. Independence and impartiality of decision makers
Disability claims must be “adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision.” This includes a prohibition on rewarding or punishing someone based upon “the likelihood that the individual will support the denial of benefits.” Most courts already weigh such conflicts of interest against plans, which have adapted by avoiding such conflicts in the first place. However, claimants may now be better equipped to obtain discovery of such conflicts in any judicial proceeding. § 2560.503-1(b)(7)
3. Information required with all denial notices
A denial notice must “discuss” the decision, including an explanation of why the plan agreed or disagreed with: (i) the claimant’s treating health care professionals and/or any evaluating vocational professionals; (ii) medical or vocational experts used by the plan, even if not relied upon; and (iii) any Social Security Disability determination provided by the claimant.
A copy of any internal rules and guidelines the plan relied upon must now be affirmatively provided without request to the claimant (or otherwise a statement that such materials do not exist). Previously, such documents only had to be provided upon request. In the preamble to the final rule, the DOL expressed its view that plans may never deny or conceal information by claiming it is proprietary or confidential.
All denials must also include a statement that the claimant is entitled to receive all relevant information upon request and free of charge. Previously, this statement only had to be included in the final denial.
4. All evidence and rationales must be provided before the final denial
Before a plan can deny an appeal, it must first provide the claimant — free of charge — with any new or additional evidence considered, relied upon or generated, as well as any new or additional rationales that will be used to deny benefits. Most likely, such evidence will take the form of an expert medical or vocational opinion. The claimant must be provided a reasonable opportunity to respond before the denial is issued, even if that means an extension must be given. This back-and-forth will go on until there is no new evidence or rationale forthcoming on behalf of the plan.
5. Any plan deadline to file a lawsuit must be disclosed in (and should not expire before) the final denial
In 2013, the U.S. Supreme Court in Heimeshoff v. Hartford Life & Accident Ins. Co. upheld a plan provision that caused the claimant to lose her right to file a lawsuit about a year after receiving her final denial. Recognizing the importance of such provisions, the DOL will require a final denial to describe “any applicable contractual limitations period that applies to the claimant’s right to bring … an action [under ERISA], including the calendar date on which the contractual limitations period expires for the claim.” The DOL clearly states in the preamble to the final rule its belief that any contractual limitations period that expires before the final denial is issued (or even less than a reasonable amount of time thereafter) is per se impermissible.
6. Culturally and linguistically appropriate notices
Plans must provide language services, such as a telephone customer assistance hotline, that will include answering questions and providing assistance in any “applicable non-English language,” which means any non-English language in which 10 percent or more of the county’s population is literate only in that language. Denial notices must include a prominently displayed explanation of how to access these language services.
7. Retroactive rescissions of coverage included
The claims procedures apply to any “adverse benefit determination,” which now specifically includes any rescission of disability coverage having retroactive effect (unless it was caused by a failure to pay required premiums or contributions on time).
All plans providing any benefits conditioned on a finding of disability must be prepared to comply with these rules beginning in 2018.