- Administrators of employee benefit plans governed by ERISA should make sure now that the claims procedures contained in their affected benefit plans comply with new regulations applicable to disability benefits.
- The new regulations, intended to ensure the independence and impartiality of plan decision-makers when determining disability benefit claims, are effective for any claims filed after April 1, 2018.
- Timely compliance is critical, especially in light of the recent proliferation of disability claims in ERISA litigation.
This month is a critical time for administrators of employee benefit plans governed by the Employee Retirement Income Security Act of 1974, as amended (ERISA), to make sure that the claims procedures contained therein comply with the new U.S. Department of Labor (DOL) regulations applicable to disability benefits, which are effective for claims filed after April 1, 2018. Any claims for disability benefits made after April 1 must be handled in accordance with the new regulations, which are intended to ensure the independence and impartiality of plan decision-makers when determining disability benefit claims. Timely compliance with the regulations is critical, especially in light of the recent dominance of disability claims in the ERISA litigation landscape.
Types of Plans Affected by the Regulations
Generally, the regulations apply to all plans subject to ERISA. It is important not to be deceived by the reference to disability claims and focus only on review of "disability" plans. ERISA plans include those that provide health and welfare benefits such as medical, health, dental, vision, life, accident or disability insurance plans as well as retirement plans such as 401(k), profit sharing, defined benefit or cash balance plans. In addition, because nonqualified deferred compensation plans are also subject to ERISA's claims regulation provisions, such plans also are covered by the new regulations.
Plan administrators should review the benefits provided by each of their ERISA plans and determine whether such plans are affected by the new regulations. If a plan's claims adjudicator must make a determination of disability (i.e., make a determination regarding an individual's ability to engage in gainful activity due to a physical or mental impairment) in order to decide a claim, the claim is subject to the new regulations. This means that plan administrators should review whether their plans provide for a benefit upon the occurrence of a disability, accelerated vesting upon the occurrence of a disability, the waiver of allocation of accrual requirements for receiving employer contributions upon the occurrence of a disability or the acceleration of a plan benefit upon the occurrence of a disability to see if the plan needs to meet the requirements of the regulations.
While many plans are subject to the rules set forth in the regulations, the regulations provide that certain plans do not need to be amended to comply with the new regulations. If a plan provides a benefit, the availability of which is conditioned on the finding of disability made by a party other the plan, then a claim for such benefits is not treated as a disability claim subject to the new regulations. Examples of situations where the determination is made by a party outside of the plan include when the finding of disability is tied to a determination of disability made by the Social Security Administration or by the employer's long-term disability plan.
Strict Compliance Mandated
The regulations provide that strict compliance with the regulations is required. In the event that a plan subject to the regulations does not strictly comply with the regulations, claimants bringing claims for disability benefits after April 1, 2018, will be deemed to have exhausted the plan's administrative remedies. Such claimants may pursue any remedies available to them under Section 502(a) of ERISA, including bringing a suit in federal court.
Changes Made by the Regulations
The regulations made a number of changes to the rules governing claims for disability benefits. Specifically, the major items required by the regulations are listed below.
- Claims and appeals must be decided in a manner to ensure the independence and impartiality of the people involved in making the benefit determination.
- Benefit denial notices should contain a complete discussion of why a plan denies a claim and should include the standards applied in reaching the decision.
- Claimants are to be given timely notice of their right to access their entire claim file and other relevant documentation and are to be guaranteed rights to present evidence and testimony in support of their claim.
- Claimants are to be given timely 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 fails 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 a plan's appeals procedures.
- Notices and disclosures issued under the regulations must be written in a culturally and linguistically appropriate manner.
To avoid noncompliance with the regulations, plan sponsors and administrators should take the following steps.
- Review Plan Documents. Determine which plans are subject to the regulations. If a plan is subject to the regulations, determine if the plan's claims procedures should be amended to comply with the regulations or if the plan's claims procedures should be amended to exempt the plan from the regulations.
- Update Plan Documents. After making the determination for each affected plan, update the claims-related provisions of each plan document, including summary plan descriptions (SPDs) and the relevant plan policies and procedures to reflect the determination made with respect to each plan. If modifying a plan to meet the requirements of the regulations, the updated provisions should reflect that claims adjudicators will give disability claims a full and fair review.
- Revise Disability Claim and Appeal Denial Notices. In addition to the general notice requirements, the regulations require that claims denial notices for claims made after April 1, 2018, include a "discussion of the decision," including a basis for disagreeing with the views presented by the claimant, the views presented by a healthcare professional on behalf of the claimant or a determination by the Social Security Administration. For disability benefits that are medical in nature, the denial notice must contain an explanation of the scientific or clinical judgment for the determination. Appeal denial notices should be revised to include the time limitation as to when a claimant can bring a claim in federal court under Section 502(a). All notices must also be presented in a culturally and linguistically appropriate manner, which means that the plan must provide oral language services to claimants such as answering questions in a non-English language and providing assistance with filing claims in any applicable non-English language.
- Coordinate with Third-Party Administrators and Other Claims Administrators. Plan administrators need to contact their third-party administrators and other claims service providers and coordinate to ensure that their administrative procedures and disability-related correspondence is in compliance with the regulations.