The year-end is rapidly approaching! To avoid costly penalties from inadvertent errors in the year-end rush, plan sponsors should begin talking with their service providers now about what must be done by year-end. Our first installment looked at participant notices that may need to be provided by year-end. Our second installment discussed required retirement plan amendments. This final alert focuses on the changes to the required claims procedures for disability benefits.
Amendments to Disability Claims Procedure
The Department of Labor has revised the claims procedure regulations with respect to disability claims. These changes affect all ERISA-covered plans that provide disability benefits. Clearly short-term and long-term disability plans are impacted, but companies must also consider their retirement plans. Retirement plans that provide for benefits upon disability, such as vesting, continued accruals, or early withdrawals, will have to comply with the new rules unless disability is determined only by reference to a third-party determination, such as the company’s long-term disability carrier or the Social Security Administration.
The new regulations change the current disability claims procedures in seven areas:
1. Impartiality in adjudication of claims
- Plans must ensure that no decision regarding the hiring, termination, compensation, or promotion of any individual involved in the claims process (such as a claims adjudicator or medical expert) is tied to an expectation that the individual will favor a denial of benefits.
2. Disclosure requirements for adverse benefit determinations
- All adverse benefit determinations must now be accompanied by a more detailed explanation of the decision. Plans must ensure this explanation includes a number of new required disclosures. These include, but are not limited to, a discussion of the basis for the determination, details of the plan’s internal rules and procedures for making the determination, and a notice that all supporting documentation is available to the claimant free of charge upon request.
3. Right to review
- Claims administrators must now give certain disclosures before issuing an adverse benefit determination. These disclosures must provide claimants with any new or additional evidence or rationale considered in making the determination and afford the claimant an opportunity to respond before the determination is issued.
4. Notice of limitation period for section 502(a) actions under ERISA
- In addition to the existing requirement that all plans providing disability benefits include a statement of the claimant’s right to bring an action under section 502(a) of ERISA, plans must now also include a statement describing any relevant contractual limitation period governing that right. Plans must clearly state the limitation period’s expiration date.
5. Consequences for failure to comply, with limited exceptions
- A plan’s failure to strictly comply with all regulations will be deemed a failure to provide a reasonable claims procedure. However, the new regulations provide limited exceptions to this rule for certain de minimis violations.
6. Amended definition of “adverse benefit determination”
- The term has been expanded to include any rescission or cancellation of disability coverage that is effective retroactively.
7. New requirement for culturally and linguistically appropriate notices
- If a claims notice is sent to an address in any United States county in which ten percent or more of the population residing in the county is literate only in the same non-English language, then the notice must include a conspicuous statement in the applicable non-English language detailing how claimants may access alternative language services. Notices in non-English languages must then be available upon request. Plans must also provide oral resources, such as a telephone hotline, in applicable non-English languages.
While most of these changes apply only to claims filed on or after January 1, 2018, certain notice requirements applied in 2017. As a result, affected retirement plans should be amended by year end to reflect the new claims procedures. Other affected plans, such as long-term and short-term disability plans should be updated as soon as practicable to ensure the 2018 benefit booklets and summaries reflect the correct claim procedures.