In January 2018, the Department of Labor announced that the final regulations amending the claims procedure requirements for disability benefits will become effective on April 1, 2018. Employers sponsoring plans providing benefits upon a participant’s disability may be affected by the new rules. In addition to welfare plans such as long-term disability plans, the new rules will also apply to certain retirement plans and non-qualified deferred compensation arrangements.
Employers should act by April 1, 2018 to ensure operational compliance with the new rules. The new rules require employers to update the claims procedures found in any plan providing a benefit upon a participant’s disability and under which the plan administrator has the ability to determine whether or not the participant is disabled. Plans that simply rely on a determination of disability made by the Social Security Administration or a third-party who is not the plan administrator might not be affected by the new rules. Employers should review their plans, with the assistance of counsel, to determine whether or not the new rules will apply.
The new rules impose several requirements for processing the plans’ determination of disability, which include:
- Claim denial notices must include specific information supporting the basis for denial including guidelines, protocols, internal rules, and standards relied upon.
Disagreement and Scientific Information Disclosure and Explanation
- Claim denial notices must also provide a basis and explanation for any disagreements with the opinion of a health care or vocational expert, or a Social Security Administration disability determination, and provide information as to any scientific information relied upon in denying the claim.
Requirement to Disclose Records
- Administrators must notify participants of the right to receive copies of all records and documents relating to the claim free of charge.
Opportunity to Review and Respond to New Information
- If an employer relied on new information or evidence in an appeal determination that was not considered in the initial denial, the employer must disclose such new information or evidence to the participant.
Participant’s Right to Bring Action
- Following final denial determinations, plan administrators must provide a statement addressing the right to bring court action, including the date by which action must be brought under any applicable contractual limitations.
Deemed Exhaustion of Claims and Appeals
- If the employer does not adhere to its claims processing rules (other than a minor error), it will be deemed that the participant has exhausted all administrative remedies and is therefore permitted to file suit.
Independence and Impartiality
- Employees with the authority to make disability determinations must be impartial and independent, and the employer cannot give authority to employees based on the likelihood that the employee will support a denial of benefits.
Retroactive Rescission of Coverage
- Certain rescissions of coverage are treated as adverse benefit determinations that will trigger the plan appeals procedures.
Communication in Other Languages
- If applicable, denial notices may have to be provided in languages other than English.
Employers should be prepared to amend plan documents as needed, and administer disability determinations in accordance with these new rules. Employers should be particularly careful with any retirement, severance, and nonqualified deferred compensation plans containing payouts as a result of a participant’s disability.
Employers may contact Calfee to discuss whether these rules apply to their plans, whether their plans need amendment, what their amendment options are, and what changes may be necessary in plan administration procedures.