Dealing with disability claim procedures: Plan sponsors need foolproof plan by April 1

In order to avoid an unwanted April Fools’ Day surprise, employee benefit plan sponsors need to review their existing ERISA claims procedures and plan documents to determine whether any revisions are required to comply with the new U.S. Department of Labor (DOL) regulations that become effective for disability claims filed after April 1, 2018.

Which types of plans may be subject to the new rules?
The rules potentially apply to any ERISA employee benefit plan that provides disability benefits. As a result, in addition to employers’ health and welfare plans, all qualified retirement plans, whether they are defined contribution or defined benefit, need to be reviewed. Furthermore, while exempt from many of ERISA’s provisions, nonqualified deferred compensation plans are not exempt from the ERISA claims procedures requirements and thus must also be checked. This blog will only discuss the rules as they pertain to qualified and nonqualified retirement plans.

Which plans will have to change their procedures to comply with the new rules?
The good news is that not all plans of the types described above will have to revise their claims procedures. The only ones that are affected by the new rules are those that grant the plan administrator the authority and discretion to determine a participant’s disability status. If the plan’s “disability” definition provides that a participant is considered disabled if such participant qualifies for disability benefits either under Social Security or the plan sponsor’s long-term disability plan, then the new rules don’t apply and no change is required.

What are the new rules?
In general, the updated claims procedure rules require impartiality and independence in decision-making and will require plan administrators to go through additional steps and provide more detailed information when denying claims (either initially or upon appeal). In addition, the rules specify circumstances under which plans will be required to include culturally and linguistically appropriate language in denial notices and offer translation assistance.

For more information, please see the DOL Fact Sheet’s description of the rules here.

What should affected plan sponsors do before April 1?
For those sponsors of plans that currently leave disability determinations to the plan administrator, there are two options:

(1) Amend the plan’s disability provisions so that, effective for claims filed after April 1, 2018, participants’ eligibility for disability benefits under Social Security or the plan sponsor’s long-term disability plan will qualify such participants for disability benefits under the plan.

(2) Administer any claims after April 1 in accordance with the new rules. If this option is elected, and the plan document currently includes a detailed description of the claims procedures, the plan document will need to be amended, effective for claims filed after April 1, 2018, to reflect the new rules so that the plan will be administered in accordance with the plan’s terms. A summary of material modifications to the plan’s summary plan description will also be needed to communicate the change to participants.

Given the complexity of the new ERISA claims procedure requirements for disability claims, plan sponsors may wish to consider option 1 if they wish to avoid having to administer and communicate these rules. However, before proceeding with this alternative, they will need to first consult their ERISA advisers to ensure that their current plan provisions may be amended without violating the applicable Internal Revenue Service (IRS) anti-cutback rules for any plan provided disability benefits or rights already earned before the amendment effective date.

If you have any questions regarding the new rules or the above-described two alternatives, please contact your Milliman consultant.

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