The Department of Labor (DOL) issued final regulations in December of 2016 (the “Regulations”) that add to the existing requirements for disability benefits claims. The Regulations add procedural steps and participant rights that must be included in a plan’s written claims procedures for disability benefit claims filed on or after January 1, 2018. Plan sponsors and administrators should understand the impact of these Regulations on the documentation and processing of disability claims and appeals under all of their benefit plans and arrangements. An often-overlooked aspect of the Regulations is the broad scope of arrangements that will be impacted, as the new requirements may affect any ERISA arrangement that provides benefits or rights upon a finding of disability. The new requirements will be applicable to many pension plans, 401(k) plans, retiree health plans, wrap plans, top-hat and deferred compensation arrangements, and other arrangements that provide benefits to participants in connection with a participant’s disability. The Regulations may even apply to employment agreements, severance agreements, or deferred compensation arrangements involving a single employee, if the arrangement is subject to ERISA. This Client Alert summarizes the key changes and additional requirements imposed by the Regulations, and provides action steps for employers to implement these requirements.
The Regulations incorporate procedural protections for disability benefits claimants similar to those that apply to group health plan claims under the Affordable Care Act. The new requirements apply to claims under ERISA arrangements that (1) condition availability of a benefit to the claimant on a showing of disability, and (2) require the claims decision-maker of the plan to make a determination of disability. For example, an arrangement will be subject to the new requirements if a finding of disability affects the vesting, timing, or calculation of benefits to a participant, and the determination of disability is made by a physician chosen by the plan administrator. On the other hand, arrangements will not be subject to the new requirements if they condition the availability of a benefit on a disability determination made by a party unrelated to the plan (e.g., the Federal Social Security Administration or, if used for a benefit other than the long-term disability plan, a company’s long-term disability insurer).
The Regulations impose the following new requirements on plans and plan administrators:
- Additional Requirements for Denial Notices. Benefit denial notices must contain a more complete discussion of the decision to deny the claim, including:
- An explanation of the basis for agreeing or disagreeing with the views of certain health care or vocational professionals, or with disability benefit determinations by the Federal Social Security Administration;
- The plan’s internal standards, protocols, or similar criteria used to make the decision, or a statement that none exist;
- If the determination is based on medical necessity, experimental treatment, or a similar exclusion or limit, an explanation of the scientific or clinical judgment for the determination, or a statement that such explanation will be provided free of charge upon request; and
- For denial notices at the initial claim stage, a statement of the claimant’s right to receive reasonable access to documents, records, or other information relevant to the claim for benefits.
- Claimant’s Right to Review and Respond Prior to Final Determination. Before a final determination is made on appeal, the claimant must be made aware of and have a reasonable opportunity to respond to any new or additional evidence or rationale(s) used in making the benefit determination.
- Additional Requirements for Denial Notice on Review. A notification of a denial of benefits on review must now describe any voluntary appeals procedures under the plan and include a statement of the claimant’s right to bring an action under Section 502(a) of ERISA. It must also state any contractual limitations period that applies, and the calendar date on which it expires.
- Deemed Exhaustion of Administrative Remedies. If an arrangement fails to follow the Regulation’s requirements, the claimant is deemed to have exhausted available administrative remedies, allowing the claimant to pursue a lawsuit on the basis that the plan failed to provide a reasonable claims procedure (other than certain de minimis failures that do not prejudice the claimant).
- Coverage Rescissions Treated as Adverse Benefit Determinations. Certain coverage rescissions will be treated as adverse benefit determinations (denials of benefits claims), triggering a plan’s appeal procedures. “Adverse benefit determination” now includes any cancellation of disability coverage that has retroactive effect, unless it is due to nonpayment of premiums by the claimant.
- Language for Notices. Denial notices must be provided in a culturally and linguistically appropriate manner. This means that, if the claimant to whom the notice is sent lives in a U.S. county in which 10% or more of the residents are literate only in the same non-English language, the plan must provide specific language services and accommodations in that applicable non-English language.
- Independent and Impartial Claims Decisions. Any hiring, compensation, termination, promotion, or similar decisions regarding a claims adjudicator or other claims-related employee (e.g., medical or vocational expert) cannot be based upon the likelihood that the individual will support a denial of claims for benefits.
All plan sponsors and administrators should review their arrangements and claims procedures to ensure that they comply with the additional requirements before January 1, 2018, including the following steps:
- For insured plans and plans with third-party administrators, plan sponsors should confirm that the carrier or administrator will implement the new claims procedures, and that the summary plan description and any other written claims procedures reflect the new requirements.
- For self-administered plans, plan sponsors should review and update the summary plan descriptions, claims procedures, and plan document (if necessary) to incorporate the Regulation’s procedural requirements. The plan sponsor should provide training to any claims adjudicators regarding the Regulations, and review any procedures regarding the hiring, compensation, or other employment decisions for employees involved in the claims determination or appeal processes.
- Employers should review existing employment agreements, severance agreements, and deferred compensation arrangements (including arrangements for a single employee) to determine whether the arrangement is subject to ERISA’s claims procedures (including the Regulations).
- In connection with a review of the plan’s claim procedures, plan sponsors may consider adding a contractual statute of limitations period for lawsuits following claims denials, and if they choose to do so, verify that any notices comply with the Regulation’s requirements to notify claimants of such limitations.
For more information about anything discussed in this Client Alert, please contact a member of the Maynard Cooper & Gale Employee Benefits and Executive Compensation Practice Group.