ERISA Disability Rule Update

The Employee Retirement Income Security Act (ERISA), passed in 1974, is a federal law pertaining to private industry pension and health and welfare plans that is designed to protect workers with minimum standards.

Section 503 of ERISA requires that every benefit plan provide written notice to all participants who have had a claim denied. This notice must be written in easy-to-understand language that explains the specific reasons why the claim was denied. The communication also must give the claimant the opportunity to request a review of the denied claim by the appropriate fiduciary – typically the plan sponsor.

Starting April 2, 2018, the Department of Labor issued final rules updating the procedures for disability claims.

Affected Plans
The Claims Procedure Regulations at C.F.R. §2560.503-1 affect all ERISA Plans, including:

• Tax qualified retirement plans (e.g., defined benefit pensions, 401(k) plans, profit-sharing plans)

• Health insurance plans

• Disability insurance plans

• Severance plans that pay benefits following a disability

• Nonqualified deferred compensation (NQDC) plans (that pay benefits upon disability) for select highly compensated workers

Specifically, the changes to the rules for disability claims affect plans that make disability determinations. Plans that rely on a third party – such as the Social Security Administration, a long-term disability insurance carrier, or other third-party payer of benefits – to make disability determinations are not impacted by the new rules.

These ERISA plans are subject to the new rules when a claimant's qualifying disabled status triggers eligibility for a benefit and his plan requires determination of disabled status by either the plan sponsor or an agent.

The new regulations are designed to promote fairness and accuracy in the claims review process to protect participants and beneficiaries. They were developed to emulate the external review processes required by the Patient Protection and Affordable Care Act (PPACA).

Timeline
On January 5, 2018, the Department of Labor announced the final rule changes. The new claims procedures were scheduled to go into effect on April 1, 2018. This means than even if plan document and summary plan descriptions (SPD) are not yet updated to include the new procedures, all disability claims filed as of this date must be administered in strict compliance with the new claims procedures.

By July 29, 2019, all summary plan descriptions (or summary of material modifications to the SPD) and related participant disclosures must be updated to reflect the new procedures for disability benefit claims that are filed after April 1, 2018. They also must be communicated and distributed to plan participants by July 29, 2019. It is recommended, however, that plan providers inform participants of the updated claims procedure as soon as possible.

Rule Changes
Note that there are no new compliance requirements in cases in which a claim for disability benefits is approved in full after the initial submittal. The new rules are described as follows.

Basic Disclosure Requirements
When benefits are denied, the notice must provide a complete, plain language explanation of the reasons.

Right to Claim File and Internal Protocols
In the past, benefit denial notices only needed to make back-up documentation accessible – upon request. Now, denial notices must include all relevant documents used to make the determination, such as internal rules, guidelines, protocols, standards or other similar criteria within the plan.

Right to Appeal
The new rule enables the denied claimant to request an escalated review, to which he can include new or additional evidence not submitted with the initial claim.

Fair and Impartial Review
Plans must ensure that the initial disability benefit claim review and any subsequent appeals are handled by independent and impartial reviewers. Furthermore, the plan must take pains to ensure there is no perception of impropriety, such as hiring, promoting, terminating or compensating reviewers based on the likelihood of that person denying benefit claims.

Noncompliance May Lead to Lawful Court Action
If a plan does not heed these new rules regarding appeal, a denied claimant is considered to have exhausted the appeals process and may proceed to pursue fulfillment of his disability benefits by filing a civil lawsuit. Furthermore, the plan must treat a claim as re-filed on appeal upon receiving a court's decision to reject the claimant's request for review.

Certain Coverage Rescissions are Adverse Benefit Determinations Subject to the Claims Procedure Protections
In cases where plan coverage is rescinded due to alleged misrepresentation of facts – such as coverage application errors – this is classified as a denied claim. Therefore, it is subject to the plan's appeals procedures. However, this provision does not apply to cases in which the participant has failed to pay plan premiums.

Plain Language
The final rule requires that benefit denial notices are written in plain and easy-to-understand language – including non-English disclosures and other translation services to claimants who reside in a county where 10 percent or more of the population speak the same non-English language.

Plan Sponsor Responsibility
The following are key issues to bear in mind regarding the new ERISA disability claim rules:

•  Disability benefit claims filed after April 1, 2018 must be administered in compliance with the new rules.

•  Disability claims administrators must be independent and impartial.

•  Plan sponsors must identify plans subject to the new requirements and comply with the stated deadlines for preparing and adopting amendments and communicating changes to participants.

To help comply with the new requirements, a plan sponsor may wish to consider amending the definition of disability to require a determination by the Social Security Administration or the sponsor's long-term disability insurance carrier rather than by the plan sponsor or its agent. Bear in mind that while this tactic is subject to certain legal restrictions, it would exempt the plan from the new procedural requirements.

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