On March 26, 2019, Associate Attorney John Sexton attended the webinar “DOL Disability Claims Regulations: Effects on Employee Benefit Plans-Best Practices for Plan Sponsors, SPD Modifications, Required Disclosures, Appeals and ERISA Compliance.” The webinar focused on the Department of Labor’s new disability claims regulations.
The “Final Rule,” as represented by 81 Fed. Reg. 92316, was issued on December 19, 2016. The new procedures are effective for claims for disability benefits filed on or after April 1, 2018. These new procedures alter and focus on notice, disclosure, and process.
First, denial letters must now provide additional information. All claim and appeal denial letters must include a statement regarding the claimant’s entitlement to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim. This statement was previously only required for appeal denial letters. Appeal denial letters must now also include the calendar date on which the contractual limitation period expires.
Plan sponsors must also now explain the basis for disagreeing with or not following the views rendered by any treating physician. It is insufficient for the plan or reviewing physician merely to state the plan or physician disagrees with or rejects the treating or evaluating professional’s views. The plan must discuss the basis for disagreeing with those views. Additionally, one must also explain the basis for disagreeing with or not following any disability determination presented by a claimant.
One must notify the claimant that he or she has the right to review the entire claim file. Fiduciaries should attempt to keep the record robust through additional documentation. This assists in responding to reviews and keeping a record in the event the matter winds up in litigation. Another new disclosure enhancement is the affirmative obligation to include the protocols used concerning the denied claim.
This regulation states that if the plan failed to strictly adhere to the claim’s procedure rules, then the claimant is deemed to have exhausted administrative remedies. In these situations, a reviewing court would defer not to the plan’s decision; instead, the court would review the dispute under a de novo standard of review. There exists a limited exception to the strict adherence standard if the error satisfies a number of characteristics.
Fully-insured welfare plans should make sure to contact their insurer and request a confirmation of compliance with the new regulations. Even if one delegates all fiduciary authority over disability claims, the plan sponsors have a fiduciary duty to monitor service providers. Self-funded plans administered by third parties can include in the service agreement a clause that requires the administrator to comply with the new Department of Labor rules. Self-administered and self-funded welfare plans must review their claim and appeal notices to make sure they comply with the new regulations.
These regulations could also impact retirement plans. The nature of the benefits is the relevant aspect. For example, a retirement plan may base a condition on a participant working a certain number of hours in a year, subject to a person becoming disabled.
The regulations may increase the costs of administering disability benefits under an ERISA plan. The strict compliance requirement may result in increased litigation. Plan sponsors should contact their insurers and administrators, review their notices, and issue a summary of material modifications (SMM) outlining the changes to make sure they continue to fulfill their fiduciary duties.