The DOL issued final regulations that changed the handling of claims and appeals of disability determinations under benefit plans governed by ERISA. Here is what your benefits department needs to know and do:
1. Effective Date. The rules are effective for disability determinations filed after April 1, 2018.
2. Which Plans Must Comply? The new rules apply to claims under disability benefit plans subject to ERISA, as well as other ERISA plans that condition a benefit upon the determination of a disability. This latter category can include top hat plans, 403(b) plans, 457 plans, 401(k) and profit sharing plans, defined benefit plans, and ERISA severance plans. In other words, any ERISA plans that reference a participant becoming disabled as a condition of payment must comply with the new rules. Please note that some programs that provide benefit payments upon the finding of a disability may be classified as “payroll practices” that are not subject to ERISA. Consult with your attorney to determine whether a particular benefit program should be classified as a payroll practice or an ERISA plan.
3. Will the Changes Affect Insured Plans? While your insurance carriers may update your insured benefits, you should review their updates for compliance with the final DOL rules. Also, because the claims procedures are often described separately in an employer’s Summary Plan Description, you will have more flexibility as to modifications of these procedures than you would have with respect to language in the insurance contract itself.
4. When Must a Plan be Amended? Plan amendments should be adopted on or before the end of the applicable plan year (December 31, 2018, for calendar year plans). The amendments should be retroactive to April 1, 2018 and govern disability determinations filed after April 1, 2018. After April 1, 2018, disability determinations should be made in compliance with the new regulations, regardless of whether the plan has been amended.
5. How Best to Structure the Plan Amendment? One could avoid dealing with the new regulations by referencing a third-party determination of disability, such as a determination by the Social Security Administration. The practical problems with that approach are that the Social Security Administration can take a long time to determine that a disability exists, and the SSA definition may be a more restrictive definition of disability, which could raise employee relations concerns. Also, in the qualified retirement plan area, a more restrictive definition may result in an impermissible cut-back of an accrued benefit, such as where a retirement subsidy attaches to a finding of a disability. For these reasons, we recommend that most employers adopt additional claims procedure provisions for a disability determination, which additional provisions can simply be added to each applicable ERISA plan (i.e., each ERISA plan that conditions a benefit on a determination of disability) and can be sent out as an SMM( Summary of Material Modification).
6. What Do the New Rules Require? The DOL has added eight significant provisions to the existing rules governing claims procedures. The major provisions are:
a. Impartiality. Claims and appeals must be adjudicated in a manner designed to ensure independence and impartiality of the persons involved in making the benefit determination.
b. Complete Discussion of Denial. 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.
c. Timely Notice. 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.
d. New or Additional Evidence. 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.
e. Employer’s Failure to Comply May Trigger De Novo Review. 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.
f. Rescissions Are Adverse Determinations. Certain rescissions of coverage are to be treated as adverse benefit determinations triggering the plan’s appeals procedures.
g. Culturally and Linguistically Appropriate Disclosures. Required notices and disclosures issued under the claims procedure regulation must be written in a culturally and linguistically appropriate manner.
h. Statute of Limitations. Denial letters must inform the claimant of any limitation periods on filing appeals or filing a lawsuit.
7. Summary of Action Steps. Examine your policies or plans that condition benefits on a disability determination, and determine whether such plans or policies are subject to ERISA. If a plan or policy is subject to ERISA, disability claim determinations filed after April 1, 2018 are subject to the new claims procedures. Make sure that the decision-maker (whether a plan committee or TPA) is aware of the new rules even before you amend your plan. Because the DOL regulations modify many terms and procedures contained in your standard claims procedures, we think that most employers will most effectively comply by merely adding to their existing plans and policies new claims procedures governing disability determinations. You may wish to contact your attorney for assistance in amending your plans and policies.