It might be tempting to conclude that the recent Department of Labor regulations on disability claims procedures is limited to disability plans. However, as those familiar with the claims procedures know, it applies to all plans that provide benefits based on a disability determination, which can include vesting or payment under pension, 401(k), and other retirement plans as well. Beyond that, however, the DOL also went a little beyond a discussion of just disability-related claims.
The New Rules
The new rules are effective for claims submitted on or after January 1, 2018. Under the new rules, the disability claims process will look a lot like the group health plan claims process. In short:
- Disability claims procedures must be designed to ensure independence and impartiality of reviewers.
- Claim denials for disability benefits have to include additional information, including a discussion of any disagreements with the views of medical and vocational experts and well as additional internal information relied upon in denying the claim. In particular, the DOL made it clear in the preamble that a plan cannot decline to provide internal rules, guidelines, protocols, etc. by claiming they are proprietary.
- Notices have to be provided in a “culturally and linguistically appropriate manner.” The upshot of this is that, if the claimant lives in a county where the U.S. Census Bureau says at least 10% of the population is literate only in a particular language (other than English), the denial has to include a statement in that language saying language assistance is available. Then the plan must provide a customer assistance service (such as a phone hotline) and must provide notices in that language upon request.
- New or additional rationales or evidence considered on appeal must be provided as soon as possible and so that the claimant has an opportunity to respond before the claims process ends.
- If the claims rules are not followed strictly, then the claimant can bypass them and go straight to court. This does not apply to small violations that don’t prejudice the claimant.
- As with health plan claims, recessions of coverage are treated like claim denials.
- If a plan has a built-in time limit for filing a lawsuit, a denial on appeal has to describe that limit and include the date on which it will expire. Basically, claimants have to know that they need to sue by a certain date. The DOL noted in the preamble that, while this only applies to disability-related claims, they believe any plan with such a time limit is required to include a description or discussion of it under the existing claims procedure regulations.
More information about the changes is available in this DOL Fact Sheet.
What to Do
While January 1, 2018 might seem like a long way off at this point, employers and plans need to consider taking the following steps early next year:
- For insured disability plans, plan sponsors need to engage their insurance carriers in a discussion about how these procedures will apply to them and what changes are needed to the insurance contracts. Some insurers may be slow to adopt these new procedures, which could put plan sponsors in a difficult position.
- For self-funded disability plans, plan documents will need to be updated, and procedures put in place.
- For retirement plans, there are some decisions to make. Recall that the procedures only apply if a disability determination is required. One way to avoid this is to amend the definition of disability so that it relies on a determination by the Social Security Administration or the employer’s long-term disability carrier. For defined contribution plans, this is likely to be the most expedient approach.
For defined benefit pension plans, this may not necessarily work. To the extent the disability benefit results in additional accruals, such a change may require a notice under 204(h) of ERISA. If a disability pension allows participants to elect a different from of benefit, then any change in the definition it may have to apply to future accruals under the plan, which means a disability determination may still be required for many years to come. Additionally, tying a disability determination to something other than the SSA raises similar issues if the plan sponsor changes disability carriers or plans that change the definition of disability.
Further, before going down the road of changing disability definitions, plan sponsors may want to consider whether a more restrictive definition, like the SSA definition, is consistent with their benefits philosophies. For plan sponsors who that cannot (or choose not to) amend their retirement plan disability definitions, plan documents must be amended before January 1, 2018 to incorporate these rules and procedures must be developed to address them.
- All plans that have lawsuit filing deadlines, even if they don’t provide disability benefits, should revise their notices to include a discussion of that deadline.