Update: New Disability Claims Regulations
Feb 2, 2018
On January 5, 2018, the Department of Labor (“Department”) announced that the new disability claims procedure regulations will go into effect on April 1, 2018. As we previously shared, the Department had delayed the effective date of the new rules from January 1, 2018 to April 1, 2018, in order for it to consider comments and data submitted by interested parties regarding the impact the new rules would have on costs and, ultimately, on workers’ access to disability insurance coverage. In announcing its decision, the Department stated that the comments and information it had received during the delay did not demonstrate that the new rules would impose unnecessary regulatory burdens. As a result, the new rules will take effect with respect to all disability benefit claims filed on or after April 1, 2018.
The new rules apply not only to traditional disability benefit plans, but also to ERISA-covered retirement plans (qualified and nonqualified) that pay benefits or accelerate vesting upon the participant’s disability, if the plan is involved in the finding of disability.
To comply with the new rules, 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 need to follow those requirements. For plan sponsors that use a Newport Group-sponsored volume submitter or prototype plan, the claims procedure language in those documents will be updated by us to the extent necessary. However, following a compliant claims review process, and providing compliant notices regarding claims decisions, is generally the responsibility of plan sponsors.
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.
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 (“SSA”) 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. If a disability claimant's address is in a county in the United States where 10 percent or more of the population is literate only in the same non-English language (as determined in guidance published by the Secretary of Labor), 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.