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HB Counsel Client Alert – Effective Now: New Claims Procedures for Disability Plans

The U.S. Department of Labor’s (“DOL”) Final Rule[1] that updated the procedures for disability benefit claim determinations became effective as of April 1, 2018, for claims filed on or after that date.

In 2010, the Affordable Care Act (“ACA”) significantly modified claims procedures for group health plans; however, procedures for disability plans remained unchanged until implementation of the Final Rule.  The Final Rule generally aligns procedures for disability claims with those for group health plan claims.  The terms of the Final Rule apply not only to disability plans, but any plans that require disability determinations (e.g., health, defined benefit, 401(k), ERISA covered 403(b), and top hat plans).

The DOL had previously delayed implementation of the Final Rule due to complaints by some lawmakers and stakeholders that the new claims requirements would result in increased costs for employers offering disability plans.  After a 90-day review period of the potential impact of the new claims procedures, the DOL determined that no changes or further delays were necessary.  Notification regarding the Final Rule’s April 1, 2018 effective date was not issued until January 5, 2018[2], leaving many plan sponsors required to make plan amendments mid ERISA plan year.

Key Changes for Disability Plans

  • Implement Mandatory Disclosure Requirements

Adverse benefit and appeal determinations must now include the following information:

  • An explanation of the basis for disagreeing with or not following the “views” of treating and consulting medical and vocational specialists, and any Social Security Administration determinations presented by the claimant.
  • Specific internal rules, guidelines, protocols, standards, or other similar criteria of the plan relied upon in making the adverse determination, or a statement that such do not exist.
  • Prior to rendering an adverse appeal determination, the plan must provide the claimant, free of charge, any new or additional evidence considered, relied upon, or generated by (or at the direction of) the plan in connection with the claim, as well as any new or additional rationale. The claimant must be given a reasonable amount of time to respond prior to the deadline for the adverse benefit determination.
  • Appeal decision letters must describe any applicable contractual limitations period that applies to the claimant’s right to bring action, including the calendar date on which the contractual limitations period expires for the claim.
  • Adverse benefit determinations must be provided in a “culturally and linguistically appropriate manner” if a claimant’s address is in a country where ten percent or more of the population of that country are literate only in the same non-English language.

Amend Definition of “Adverse Benefit Determination”

The term “adverse benefit determination” now includes any rescission of disability benefit coverage that has a retroactive effect, except where the rescission is due to the claimant’s failure to timely pay required premiums or contributions toward the cost of coverage.

Conflicts of Interest Must be Avoided

  • Claims and appeals for disability benefits must be adjudicated in a manner designed to ensure the independent and impartiality of the persons involved in making the decision.
  • Decisions regarding hiring, compensation, termination, promotion, or other similar matters, with respect to an individual rendering a determination, must not be made based upon the likelihood an individual will support the denial of disability benefits.

Strict Compliance with Procedures Required

If a plan fails to strictly adhere to all ERISA procedural requirements when processing disability claims (excluding certain small errors), then the claimant is deemed to have exhausted the administrative remedies under the plan – and may file a lawsuit in court under Section 502(a), even when all remedies have not yet been exhausted.

Next Steps

Employers who sponsor disability plans should take the following actions to ensure that the Final Rule is currently applied to disability claims:

  • Review plan documentation and amend any claims language to reflect the provisions of the Final Rule.
  • Review and amend plan materials provided to participants that contain disability claims procedures including the summary plan description, plan enrollment materials and guides, and any communications or documentation that may be provided by an external vendor.
  • If utilizing an external vendor for disability plan administration, then it is important to review the terms of the vendor’s service agreement to determine whether the vendor assumed responsibility for complying with new laws and liability for any failures to comply.
  • Provide disability plan participants with notice of the change in claims procedures. Check with an external vendor to determine whether or not the vendor has or will provide participants notice.

The content herein is provided for educational and informational purposes only and does not contain legal advice.  Please contact our office if you have any questions about the impact of the Final Rule on your disability benefit plans.

Dated:  April 26, 2018

[1] 81 Fed. Reg. 92316 (Dec. 19, 2016) (“Final Rule”).

[2] See January 5, 2018 announcement