Earlier this year the Department of Labor announced that its final rule amending the claims procedures for plans providing disability benefits under Section 503 of the Employee Retirement Income Security Act (ERISA) will become effective April 1, 2018. In light of this compliance deadline, this article provides a brief overview of the new disability claims procedure regulations, describes the types of plans impacted by the new requirements, and highlights key action steps employers sponsoring plans with disability benefits should take to ensure compliance by the April 1, 2018 deadline.
Which ERISA Plans are Impacted?
The new regulations apply to plans that meet the following criteria:
- are subject to ERISA;
- provide for disability benefits; and
- require the plan administrator to determine whether an individual is disabled.
That means in addition to impacting most health plans, the new regulations may impact deferred compensation plans (including ESOPs) if it provides for disability benefits. In many deferred compensation plans, disability accelerates vesting, waives allocation or accrual requirements, and/or accelerates distributions when a participant severs employment due to disability. However, the regulations will impact only those employee benefit plans under which a plan fiduciary (rather than an external entity such as the Social Security Administration or the employer’s long-term disability insurer) makes an independent determination of a participant’s disability.
What Are the New DOL Requirements?
In general, the new regulations require that plans offer reasonable disability claims procedures, provide more information to participants when denying disability benefits (both initially and on appeal), and ensure an impartial review process. Key changes reflected in the new disability claims procedures include the following:
- benefit denial notices must contain a more complete discussion of any decision denying a claim for disability benefits;
- before a final decision is made on a disability benefit appeal, the claimant must be made aware of, and have a reasonable opportunity to respond to, any new or additional evidence or rationale used in making an adverse benefit determination on appeal;
- appeal denial notices must describe any contractual limitations period that applies to the claimant’s right to bring a lawsuit under ERISA, including the calendar date on which the contractual limitation period expires for the claim;
- if a plan fails to follow the requirements of the regulations, the claimant will be deemed to have exhausted available administrative remedies, giving the claimant the ability to bring a lawsuit on the basis that the plan failed to provide reasonable claims procedures;
- claim and appeal denial notices must be provided in a “culturally and linguistically appropriate manner,” which means that if the claimant to whom the notice is sent lives in a U.S. county in which 10% or more of the residents are literate only in the same non-English language, the plan must provide specific language services and accommodations in the applicable non-English language; and
- any hiring, compensation, termination, promotion, or similar decisions regarding a claims adjudicator or other claims-related employee (e.g., medical or vocational expert) cannot be based on the likelihood that the individual will support a denial of benefits.
Next Steps for ERISA Plan Sponsors
Sponsors of plans that provide benefits in the event of disability should proceed as follows:
- Determine whether their plans will be subject to these final regulations.
- If so, review their claims and appeals processes, plan language, and denial notices.
- Ensure that any denial notices issued offer to make any criterion relied upon in denying a claim, as well as an explanation of any scientific or clinical judgment, available to a participant upon request.
- Make any other necessary modifications and plan amendments. Many plans already have language that satisfies the new requirements, so it’s possible that no changes would be required.
- Communicate any changes to participants either through an updated summary plan description or summaries of material modifications.
If you have any questions about the impact of the new regulations on your company’s employee benefit plans or need help drafting a plan amendment or summary of material modification a Shuttleworth attorney would be glad to assist you.