Department of Labor to Review Disability Claims Regulations
Dec 28, 2017
On November 22, 2017, the Department of Labor (“Department”) delayed the effective date of final disability claims procedures regulations from January 1, 2018 to April 1, 2018, applicable to disability claims filed on or after that date.
The purpose of the delay is to give the Department additional time to review the regulation under Executive Order 13777, which directs federal agencies to review existing regulations and make recommendations regarding those that can be repealed, replaced, or modified to make them less burdensome. The Department noted the objections from various stakeholders and members of Congress following the issuance of the final regulations who asserted that the regulations will drive up disability benefit plan costs, cause an increase in litigation and, in so doing, impair workers' access to disability insurance benefits. The Department sought additional comments on the regulations, particularly with respect to increased costs of resolving claims, increased litigation and the potential for decreased coverage under disability plans.
Although designed primarily for disability and other welfare benefit programs, the disability claims procedure regulations would apply to all ERISA retirement plans that pay benefits or accelerate vesting upon the participant’s disability, if the plan is involved in the finding of disability. This includes non-qualified deferred compensation plans as well as tax-qualified pension plans.
If the regulations become effective, the plan’s claims procedure language will need to be revised to reflect the new requirements, and the process for reviewing claims for disability benefits will also need to follow those requirements. The following items are the key items in the regulation:
Disclosure Requirements. Benefit denial notices must contain a more complete discussion of why the plan denied a claim and the standards it used in making the decision. For example, notices must include a discussion of the basis for disagreeing with a disability determination made by the Social Security Administration if presented by the claimant in support of his or her claim.
Claim File and Internal Protocols. Benefit denial notices must include a statement that the claimant is entitled to receive, upon request, the entire claim file and other relevant documents. Currently, this statement is required only in notices denying benefits on appeal. Benefit denial notices also must include the internal rules, guidelines, protocols, standards, or other similar criteria of the plan that were used in denying a claim, or a statement that none were used. Currently, denial notices are not required to include these internal rules, guidelines, protocols, or standards; instead denial notices may include a statement that such rules, guidelines, protocols, or standards were used in denying the claim and that a copy will be provided to the claimant upon request.
Review and Respond to New Information. Plans may not deny benefits on appeal based on new or additional evidence or rationales that were not included when the benefit was denied at the claims stage, unless the claimant is given notice and a fair opportunity to respond.
Conflicts of Interest. Plans must ensure that disability benefit claims and appeals are adjudicated in a manner designed to ensure the independence and impartiality of the persons involved in making the decision. For example, a claims adjudicator or medical or vocational expert could not be hired, promoted, terminated, or compensated based on the likelihood of the person denying benefit claims.
Deemed Exhaustion. If a plan does not adhere to all claims processing rules, the claimant is deemed to have exhausted the administrative remedies available under the plan, unless the violation was the result of a minor error and other conditions are met. If the claimant is deemed to have exhausted the administrative remedies available under the plan, the claim or appeal is deemed denied on review without the exercise of discretion by a fiduciary and the claimant may immediately pursue his or her claim in court. A plan also must treat a claim as re-filed on appeal upon the plan's receipt of a court's decision rejecting the claimant's request for review.
Communication Requirements in Non-English Languages. Benefit denial notices have to be provided in a non-English language in certain situations, using essentially the standard applicable to group health benefit notices under the Affordable Care Act. Specifically, if a disability claimant's address is in a county where 10 percent or more of the population is literate only in the same non-English language, benefit denial notices must include a prominent statement in the relevant non-English language about the availability of language services. In such cases, plans also would be required to provide oral language services in the relevant non-English language and provide written notices in the non-English language upon request.
Disputes involving disability benefits are not common in retirement plans, but the existence of the disability benefit in the plan requires an administrative system to be in place even if disability claims are not routinely filed. To avoid having to comply with the new, more burdensome regulations, sponsors may wish to consider whether disability benefits may be removed from the plan. For example, in many tax-qualified defined benefit plans, disability benefits that are considered “ancillary” may be removed without violating the anti-cutback rules under Internal Revenue Code Section 411(d)(6). However, it may not be possible to remove provisions providing for accelerated vesting or waiver of accrual conditions upon disability. Removing the benefits can also raise issues for nonqualified plans, at least with respect to existing deferrals, but may be removed with respect to deferrals credited or accrued in the future.
Newport Group expects that the Department will revise the regulations prior to the delayed April 1, 2018 effective date. Employers should monitor the progress of the Department’s review and consider any necessary revisions to their plan documents and communication materials when final guidance is issued.