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Failure to comply with claim-review requirements can put employers at risk
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The U.S. Department of Labor's (DOL's) new procedures for processing disability claims
take effect April 1. Any employer-sponsored plan that deals with disability claims should be amended as needed. If plan documents have not yet been updated, employers should still prepare to handle claims under the new procedures, benefits attorneys advise.
final rule, published in the
Federal Register in December 2016, originally was to apply to all claims submitted as of Jan. 1, 2018, but in November 2017 the DOL delayed the final rule's implementation date by 90 days.
The rule is intended to give U.S. workers
new procedural protections when dealing with plan fiduciaries and insurance providers that deny their claims for disability benefits. In brief, the rule:
The new procedures apply to any claims for disability benefits made under an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA).
Not Just 'Disability' Plans
"The regulations could impact retirement plans, medical coverage and other types of benefits," said Steven Mindy, a partner in Alston & Bird's compensation, benefits and ERISA litigation practice in Washington, D.C.
While the procedures pertain to short-term and long-term disability plans, "it's not the title of the plan that matters, it's the nature of the benefits and whether the claim is based on a finding that the person is disabled," Mindy explained. "A retirement plan might have a provision where a committee decides whether or not an employee is disabled for purposes of receiving a disability retirement. In this case, the new disability claims procedures would need to be implemented for the retirement plan."
"A profit sharing plan might condition receipt of a share of a contribution on a participant's remaining employed until year-end or working up to 1,000 hours in a year, and those terms often make exceptions if the person failed to meet the standard as a result of becoming disabled," said benefits attorney Carl Lammers, managing associate at law firm Frost, Brown Todd in Louisville, Ky. Among other examples he offered:
If disability decisions made as of April 1, 2018, do not comply with the new disability claims procedures, and the claim is later litigated, participants can sue under ERISA and the regulations, Mindy noted. "If you don't follow the new rules, the participant can get to court more quickly and can avoid the internal claims-review process, which puts the plan in an unfavorable position."
"A court will give no deference to an administrative determination, nor limit review to the facts and documents that were assembled as the administrative record," Lammers noted.
"Even if the employer is not able to get their documents amended to include the new provisions, they should start following the new claims procedures with respect to processing claims received" and work to amend plan documentation as soon as possible, Mindy advised.
Fully Insured vs. Self-Funded Plans
If employers have fully insured plans, they should monitor their insurance providers to ensure that the new procedures are being followed, Mindy said. "For the most part, insurers have started implementing these procedures," and they have reason to do so, since the courts can hold them liable as plan fiduciaries for a fully insured plan, he noted.
For self-funded plans, typically managed by a third-party administrator (TPA), "there's obviously more for plan sponsors to look at" because the employer bears greater liability for noncompliance, Mindy added.
If a TPA determines that a disability claim is valid, "either the plan document, insurance contract or service agreement—as applicable—needs to require that that third party comply with the new DOL rules," Lammers said.
[SHRM members-only toolkit:
Managing Disability Benefits]
Plan sponsors should issue a summary of material modifications (SMM) for the summary plan description. The SMM should outline the disability claims procedure changes and be distributed to participants within 120 days after the end of the plan year in which the change is made,
as ERISA and the DOL require.
"Fast action is needed for a plan that is primarily focused on providing disability income, but most employers will find they rely on an insurance carrier or third-party administrator to make the needed operational and document changes on these plans," Lammers said. "The less obvious application of these rules to other types of benefits programs, like retirement plans, will place a higher burden on employers for analysis and action before the first disability claim is received after April 1."
"Practically speaking, the changes to the documents will be fairly small, but the changes need to be communicated," Mindy noted.
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