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New ERISA Disability Regulations – Comply Now or Wait for a Possible Delay?

Insight & Impact - Labor & Employment Regulatory Newsletter John Barlament

ISSUE: In December 2016, the U.S. Department of Labor ("DOL") issued final regulations relating to claims procedures for disability benefits. These regulations came at the tail end of President Obama's administration. The claims procedures provided for some immediate, and rather modest, changes. But they made more substantial changes for claims made on or after January 1, 2018. Many plan sponsors have begun identifying how these rules will impact their claims administration process. That is likely a good idea.

Read more Insight & Impact from August 2017:

IMPACT: Scope of Rules.The new regulations are somewhat unique in how broadly they apply. They clearly apply to disability plans which are subject to ERISA's claims procedure rules (e.g., some, but not all, short-term disability plans; most long-term disability plans). But they also apply to other plans that base benefits upon an individual's disability. For example, retirement plans may provide for a benefit distribution, or perhaps vesting, upon a disability. The new regulations apply to the retirement plan's determination of whether a "disability" exists. Thus, plan sponsors should examine all health, welfare, retirement plans – and even executive compensation plans – to determine if they are impacted by these new rules.

Note that there is an exception where a plan does not determine "disability" but instead relies upon a different entity's determination of disability. For example, suppose a retirement plan provides a benefit if a person is determined to be "disabled" by the Social Security Administration or an employer's long-term disability plan. The decision is being made by the third party entity. That entity (e.g., the employer's long-term disability plan) may be subject to the new claims procedure rules. Or it may not (e.g., the Social Security Administration). But the retirement plan would not be subject to the new rules because it is not making its own, independent determination of "disability". It is just relying on another entity for that determination.

New Rights for Individuals. Under the new regulations, individuals covered by the plan receive new rights and plans have new obligations. These include:

  • Denial notices must discuss why the claim was denied. This includes an explanation if the plan disagrees with the individual's experts. The standards used by the plan must be discussed;
  • Appeal-related denial notices must include a statement about the individual's right to bring a legal action and any deadlines applicable to such an action;
  • If the plan considers new or additional evidence or rationales, the plan must notify the individual;
  • If at least 10% of residents in a claimant's county speak the same non-English language, the notice may need to contain a discussion of language assistance services;
  • If the plan fails to strictly follow the rules, the individual may bring a lawsuit without exhausting the claims procedure; and
  • Those who are deciding claims and appeals on behalf of the plan must be independent and impartial.

Act Now or Wait? The DOL notice announcing a review of these regulations (View Rule) suggests (but does not firmly promise) that the DOL may make an announcement about its review in September 2017. That may provide enough time for plan sponsors to work in October through December 2017 to ensure compliance. But many plan sponsors may find that time period too short to take action. For those who are comfortable waiting (knowing they may need to act more quickly at the end of the year), a modest wait is fine. But for those who need additional time, they likely must act now, even though the regulations may be delayed, modified or revoked.

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