Employers should take note that on April 1, 2018 more rigorous Department of Labor ("DOL") regulations take effect governing the administration of benefit claims and ensuing appeals under ERISA plans providing disability benefits. ("ERISA" refers to the Employee Retirement Income Security Act of 1974, the federal law governing private sector employee benefit plans).
These regulatory changes will have their most significant impact on private sector long-term disability plans. However, they will also affect those retirement plans (including 401(k) plans) that provide benefits upon disability. Short-term disability plans are generally not subject to these rules because they are typically exempt from ERISA as "payroll practices".
Those new regulations are a finalization of rules the DOL initially published in December 2016 interpreting the ERISA Section 503 "claims procedure" provisions. Initially to be effective January 1, 2018, the DOL has now announced that they will apply to claims filed on or after April 1, 2018.
To ensure compliance, employers who handle disability claims administration and appeals internally need to review their existing procedures and determine whether changes are necessary to comply with the new requirements. Employers who have third party administrators (TPAs) handling the process should be working with their TPA to assure that required changes are made to the administrative procedures. Plan sponsors should also review the Summary Plan Descriptions (SPDs) that are required to be distributed to plan participants to make sure that they are consistent with the new regulatory provisions.
Section 503 of ERISA generally requires employee benefit plans to provide written notice to any participant or beneficiary whose claim for benefits has been denied, and to provide the claimant with a full and fair process for review of any claims denial. A plan's failure to establish or follow claims procedures consistent with the DOL regulations results in a claimant being deemed to have exhausted the administrative remedies under the Plan and being entitled to file for relief in federal district court. By incorporating the requirements of the DOL regulations into plan procedures, a plan sponsor may be able to head off such federal litigation in appropriate cases.
One important change that these new regulations inject into the disability claims and appeals process is to prohibit a plan sponsor's decisions regarding the hiring, compensating, terminating, promoting or other similar matters with respect to a claims adjudicator, medical expert or similar individual from being based on the likelihood that such individual will support a denial of benefits. DOL's objective here is to insure the independence and impartiality of the claims and appeals decision makers.
Over the years, regulations and guidance under Section 503 has been updated and revised to provide enhanced protections to participants and claimants. Previously, plans were only required to provide a statement as part of an adverse benefit determination notification that an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, and were permitted to only distribute copies of such rule, guidelines, protocols, etc., upon request by a participant or claimant.
When the Final Rule takes effect for claims on or after April 1, 2018, the plan or insurer will now have an affirmative duty to provide the specific internal rules, guidelines, protocols, standards, or other similar criteria of the plan that were relied upon in denying the claim (or a statement that such criteria do not exist). This could increase the burden of complying with the regulations because of the need to include dense and verbose policy documentation in every adverse benefit notification. It could also increase costs to review claims manuals and other internal documentation to ensure that nothing in those materials have application to any given claim. At the very least, it will require plans and insurers to review their current practices to make sure such guidelines, rules, or protocols, if any, are included in adverse benefit determinations.
Another important change required by the Final Rule gives a claimant a right to review and respond to new information before a final decision on appeal. This will require that plans and insurers provide, free of charge, claimants with new or additional evidence considered, relied upon, or generated during the pendency of an appeal in connection with a benefit determination claim. For example, if a plan requests that a new medical report be generated after it has denied a claim for disability benefits, the Final Rule would require the plan to furnish the new report and give the claimant a chance to review and address it. Plans and insurers previously have only been required to provide such information upon request after the claim has already been denied on appeal.
If you have any questions on the application of these new claims procedure regulation to plans sponsored by your organization, please contact Frantz Ward attorney Jeff Perlmuter