DOL's Final Rule on Disability Claims Procedures to Take Effect April 1

Benefit plan sponsors will not be granted a further delay

Stephen Miller, CEBS By Stephen Miller, CEBS January 10, 2018
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The U.S. Department of Labor (DOL) announced on Jan. 8 that the date by which employee benefit plans must comply with a final rule on disability claims procedures would not be delayed beyond April 1.

The final rule, published in the Federal Register in December 2016, was to apply to all claims submitted on or after Jan. 1, 2018, with a transitional provision applying to denial notices issued through the end of 2017. 

Last November, the DOL delayed the final rule's full applicability 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. For example, the rule:

  • Ensures that disability claimants receive a clear explanation of why their claim was denied as well as their rights to appeal a denial of a benefit claim and to review and respond during the course of an appeal to any new or additional evidence the plan relied on in connection with the claim.
  • Requires that a claims adjudicator cannot be hired, promoted, terminated or compensated based on the likelihood of denying claims.

Employer groups and members of Congress had asserted that the new procedures would drive up disability benefit plan costs and cause an increase in litigation and, in so doing, impair workers' access to disability insurance benefits. The 90-day delay was intended to give the DOL additional time to consider these objections.

Upon review, the DOL said that critics of the rule had not established that it would impose unnecessary regulatory burdens or significantly impair workers' access to disability insurance benefits.

[SHRM members-only toolkit: Managing Disability Benefits]

Employers' Next Steps

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). "Any ERISA plan that provides for benefits based on a disability determination, including 401(k), pension and other retirement plans, is affected by this rule change," said Eric Gregory, an attorney at law firm Dickinson Wright's Troy, Mich., office.

"Many short-term disability arrangements are merely payroll practices, where the employer continues the employee's normal salary for several weeks or months while the employee is disabled," explained Mark Holloway, senior vice president and director of compliance services at Lockton, a benefits and actuarial services firm in Kansas City, Mo. The new procedures won't apply to non-ERISA arrangements where an insurer does not pay benefits.

However, if an insurer is acting as a third-party administrator for a self-insured program, Holloway advised that employers do two things:

  • Obtain assurances from the third-party administrator that it will handle the new requirements.
  • Update third-party administrator agreements to address these responsibilities.

Likewise, for employers with self-funded disability plans or retirement plans with benefits based on disability determinations, "plan documents and summary plan descriptions will need to be updated" and new complaint procedures will need to be put into place, Gregory said.

For employers that maintain insured disability plans, "communication with the insurance carrier to discuss how the new procedures will be applied and documented will be important," he noted.

Related SHRM Articles:

Temporary Disability Insurance Requirements by State, SHRM Online State & Local Updates, December 2017

Disability Plans Must Follow Claims Procedures Final Rule, SHRM Online Benefits, February 2017

Get Disability Benefits on Employees' Radar, SHRM Online Benefits, October 2016


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