The Department of Labor (DOL) issued final regulations that add to the existing requirements for disability benefits claims. The regulations add procedural steps and participant rights that must be included in a plan’s written claims procedures for disability benefit claims filed on or after April 1, 2018. The rule is intended to give U.S. workers new procedural protections when dealing with plan fiduciaries and insurance providers that deny their claims for disability benefits.
All ERISA-covered plans that (1) condition the vesting, timing or calculation of benefits to a participant, upon the plan’s finding of disability (rather than relying on the determination of a third party, such as the Social Security Administrator) and (2) require the claims decision-maker of the plan to make a determination of disability are potentially affected by the final rules. This may include welfare plans, retirement plans (whether frozen or not) and top-hat plans. For example, the rule:
ensures that disability claimants receive a clear explanation of why their claim was denied as well as their rights to appeal a denial of a benefit claim and to review and respond during the course of an appeal to any new or additional evidence the plan relied on in connection with the claim
requires that a claims adjudicator cannot be hired, promoted, terminated or compensated based on the likelihood of denying claims.
Specifically, the final regulations add the following procedural requirements to the disability claims process:
- Conflict of interest criteria: The regulations add specifics on the impartiality and independence of claims adjudicators, service providers and vendors.
- Action item: Double-check that vendor contracts (including those with medical and vocational experts) and employment relationships do not tie financial incentives and employment decisions to claim outcomes, such as providing bonuses for denied claims.
- Expanded benefit denial notice information: Benefit denial notices must provide a more detailed description of the reason for the claim denial and may also have to be written in a linguistically and culturally appropriate manner.
- Action item: Notices should be revised, as applicable, to include an explanation of why the plan administrator disagrees with the opinions of the participant’s health care professionals or the Social Security Administration’s determination of disability.
- Action item: Plan administrators must inform participants, in benefit denial notices, that they are entitled to access, free of charge, all documents relevant to the adverse claim determinations.
- Action item: Provide claimant a right to review and respond. Plan administrators must provide participants with any new evidence (such as a physician review report or transferrable skills assessment) being considered by the plan during the appeal process, as soon as it is available and determined to be relied on during the appeal process, and before an appeal-level denial is issued.
- Action item: Ensure the plan’s appeal administration includes this process. The DOL did not change the 45-day deadline by which a plan must make a decision on an appeal request, so this additional step will put significant pressure on the decision deadline.
- Action item: Plan administrators should advise participants that they are entitled to receive, upon request, any notice relevant to the determination in an applicable non-English language. Specifically, if a disability claimant’s address is in a county where 10 percent or more of the population is literate only in the same non-English language, benefit denial notices must include a prominent statement in the relevant non-English language about the availability of language services. The plan would also be required to provide a verbal customer assistance process in the non-English language and provide written notices in the non-English language upon request. DOL has identified a list of counties that would require notices to be written in a culturally and linguistically appropriate manner upon request.
- Contractual limitations period: If the plan sets forth a limitation period in which the claimant can bring suit for a denial of benefits, the benefit denial notification must include a description of the contractual limitations period and the actual calendar expiration date.
- Action item: Limitation language is recommended in disability plans. Without this language, courts will rely on state law. Employers must make sure any limitation to filing suit is calculable to an exact deadline because that date must be provided to a claimant whose claim for benefits is denied at the final appeal level.
Consequences of failure to establish or adhere to claims processing rules: If a plan fails to establish claims procedures or a plan administrator fails to adhere to the claims processing rules, claimants may skip the plan’s claims procedures (including the appeal process). If a claimant requests an explanation for why a plan failed to follow the plan’s claims procedures, the plan administrator must respond in writing in 10 days.
- Action item: To minimize litigation risk, plan administrators should ensure the plan administration process is always followed and that any minor deviation is noted with sufficient explanation in the claim filed.
Plan sponsors and administrators must understand the impact of these regulations on the documentation and processing of disability claims and appeals under all of their benefit plans and arrangements. It is important to note that these procedures (and therefore these changes) do not apply when a plan conditions the finding of a disability on the determination made by a party other than the plan/plan sponsor for purposes other than making a benefit determination under the retirement plan. For example, if the retirement plan document provides that benefits shall be paid to a person who has been determined to be disabled by the Social Security Administration or under the employer’s long-term disability plan, the ERISA disability claims procedures do not apply to the retirement plan.
For insured plans and plans with third-party administrators, plan sponsors should confirm that the carrier or administrator will implement the new claims procedures and that the summary plan description and any other written claims procedures reflect the new requirements. For self-administered plans, plan sponsors should review and update the summary plan descriptions, claims procedures and plan document (if necessary) to incorporate the regulations’ procedural requirements.
We are available to review and confirm that your ERISA-covered disability plans have been properly amended to implement the new requirements before the April 1 compliance deadline.