What Should Employers Do About the Delay In the New Disability Claims Procedure Requirements?

by Bond Schoeneck & King PLLC
Contact

Bond Schoeneck & King PLLC

On November 24, 2017, the United States Department of Labor ("DOL") announced a 90-day delay in the effective date of regulations that will significantly change the claims procedure requirements for employee benefit plans covered by the Employee Retirement Income Security Act ("ERISA") that provide disability benefits ("New Disability Claims Requirements"). The New Disability Claims Requirements are now scheduled to become effective for disability claims filed after April 1, 2018, as opposed to the current requirement of becoming effective for disability claims filed on or after January 1, 2018. This change gives employers an additional 90 days to modify the disability claims procedures in their ERISA-covered plans with disability benefits ("ERISA Disability Benefit Plans"). It is also possible that prior to April 1, 2018 the DOL could further delay the April 1, 2018 effective date of the New Disability Claims Requirements, and/or modify or rescind the New Disability Claims Requirements.

This uncertainty over the future of the New Disability Claims Requirements raises questions about how employers with ERISA Disability Benefit Plans should proceed:

  • Employers That Have Already Made the Changes To Comply With the New Disability Claims Requirements – If an employer has already amended its ERISA Disability Benefit Plans to include the New Disability Claims Requirements, it is recommended that such amendments be retained for now. Each such employer should monitor any additional action that might be taken by the DOL to change and/or rescind the New Disability Claims Requirements.
  • Employers That Have Not Yet Started To Make Changes To Comply With the New Disability Claims Requirements – If an employer with ERISA Disability Benefit Plans has not yet made changes to comply with the New Disability Claims Requirements, that employer will need to decide whether to delay making those changes until the DOL provides additional guidance on what it intends to do with the New Disability Claims Requirements. The DOL has asked for comments by December 11, 2017 on whether the April 1, 2018 effective date should be delayed further, and whether the New Disability Claims Requirements should be changed or rescinded. Although it is possible the DOL could delay the April 1, 2018 effective date further and/or change the New Disability Claims Requirements, it is not yet clear whether that will occur. If an employer decides to delay making changes to comply with the New Disability Claims Requirements, it will avoid any additional time and expense that might arise if the DOL changes and/or rescinds the New Disability Claims Requirements. However, such an employer should also be aware that even if it does not make changes to comply with the New Disability Claims Requirements, it: (1) could still be obligated to comply with several federal court decisions that require a full and fair review when reviewing claims for disability benefits in an ERISA Disability Benefit Plan; and (2) should make sure that it satisfies any applicable full and fair review requirements when handling such disability claims.

Why Did the DOL Delay the New Disability Claims Requirements?

On October 12, 2017, the DOL published a document in the Federal Register asking for comments on a proposed 90 day delay in the effective date of the New Disability Claims Requirements, and for comments and data on the merits of rescinding, modifying, or retaining the New Disability Claims Requirements. The DOL said it received approximately 110 comment letters, with many commentators strongly supporting a delay of more than 90 days (most requested a delay of six months to a year) and at least as many commentators equally strongly opposing any delay of any length.

The DOL said that the decision to delay the effective date for the New Disability Claims Requirements arose as a result of an executive order issued by President Trump on February 24, 2017 that directed federal agencies to do a regulatory review, and make recommendations, regarding regulations that could be repealed, replaced, or modified in a way that would make them less burdensome. After the New Disability Claims Requirements were issued in final form by the DOL on December 19, 2016, the DOL said that it started receiving complaints from various stakeholders and members of Congress that implementation of the New Disability Claims Requirements would:

  • increase the costs of administering disability benefit plans by, among other things, imposing new requirements and evidentiary standards when adjudicating claims;
  • result in more litigation of claims for disability benefits, and in certain circumstances make it more difficult for employers to prevail in such litigation; and
  • increase the costs of premiums for disability insurance plans, which could make it harder for employees to obtain disability insurance benefits (a survey of long-term disability carriers estimated that the New Disability Claims Requirements could result in premium increases of five to eight percent in 2018, and the carriers said that such increases could result in employees dropping or forgoing long-term disability coverage).

Commentators who opposed a delay of the January 1, 2018 effective date of the New Disability Claims Requirements said that:

  • employees with disability claims need to have the increased procedural protections provided by the New Disability Claims Requirements;
  • industry assertions that the New Disability Claims Requirements would result in increased costs and reduced coverage were unsubstantiated and undocumented; and
  • serious issues exist as to whether a delay of the New Disability Claims Requirements would comply with the applicable requirements of the Administrative Procedures Act, and that litigation could occur regarding such issues.

After reviewing the comments received, the DOL decided to adopt the proposed 90 day delay to April 1, 2018 without change. The DOL said that it expects to receive data and information by December 11, 2017 regarding whether the New Disability Claims Requirements would result in increased costs and reduced coverage. After such data and information are received, the DOL said that it would give the public a reasonable opportunity to review and respond to such data and information. After that process is completed, the DOL will then consider whether any additional delay of some or all of the New Disability Claims Requirements beyond April 1, 2018 should occur. The DOL said its objectives with respect to its review of the New Disability Claims Requirements are to ensure full and fair reviews of disability claims, while not imposing unnecessary costs and adverse consequences.

What Types of Plans Are Subject To the New Disability Claims Requirements?

ERISA-covered retirement and welfare benefit plans that provide benefits if an individual becomes disabled generally will be subject to the New Disability Claims Requirements. Certain government plans, church plans, and plans maintained solely for the purpose of complying with applicable workers’ compensation law(s) and disability insurance law(s) are exempt from ERISA. Private employers and tax-exempt employers with ERISA Disability Benefit Plans generally will have to comply with the New Disability Claims Procedures. Examples of the types of non-governmental and non-church plans that could be subject to the New Disability Claims Requirements include:

  • short-term disability insurance plans that provide benefits in excess of those required by applicable laws;
  • long-term disability insurance plans;
  • other welfare benefit plans that provide certain benefits if an individual becomes disabled (e.g., continued coverage under a health plan, or a waiver of a requirement to pay premiums under a life insurance plan);
  • retirement plans that provide certain benefits if a participant becomes disabled; and
  • nonqualified deferred compensation agreements or plans that provide certain benefits if a covered employee becomes disabled.

What Are the New Disability Claims Requirements?

Among the more important New Disability Claims Requirements for the processing of claims and appeals for disability benefits under ERISA Disability Benefit Plans are the following:

  • More Disclosure Requirements For Benefit Denials – If a disability benefit denial is going to be issued, it will have to include a more detailed explanation of: (1) the reasons why the benefit is being denied, (including, if applicable, the reason for any disagreement with the viewpoint of a medical or vocation professional, or with a disability determination by the Social Security Administration); and (2) the specific internal standards, rules, guidelines, protocols, or other similar criteria of the plan (collectively, "Standards") that were used in making that denial (or an explanation that such Standards do not exist).
  • A Benefit Denial Must Describe a Right To Request a Claim File – A benefit denial must include a statement that the claimant has the right, upon request, to receive a copy of the whole claim file and certain other documents that are relevant.
  • An Appeal Denial May Not Be Based On New Information, Unless a Claimant Is First Allowed To Review and Respond To the New Information – If the denial of an appeal is going to be based on new evidence or a new rationale that was not in the initial benefit denial, the claimant must be notified about the new evidence or rationale free of charge and must be provided a fair opportunity to respond to it before the appeal is denied.
  • Conflict of Interest Requirements For Individuals Involved In Claims and Appeals Decisions – Conflict of interest procedures must be followed by ERISA Disability Benefit Plans that generally will help ensure that certain individuals involved in claims and appeals decisions (e.g., individuals deciding claims, medical experts, and vocational experts) are independent and impartial. Such individuals may not, for example, be hired, compensated, promoted, or terminated based on how claims or appeals are handled.
  • Certain Violations of the Claims Requirements Could Allow a Claimant To Immediately Go To Court – Certain violations of the benefit claims requirements could be treated as a deemed exhaustion of administrative remedies that would allow a claimant to immediately go to court to challenge a denial of disability benefits.
  • Certain Rescissions of Coverage Will Be Treated As a Benefit Denial – Certain rescissions of coverage by a plan (e.g., a retroactive termination of coverage due to a false statement made on an application for coverage) will be treated as a benefit denial that will require the claims procedure requirements to be followed.
  • Denial and Appeal Communications May, In Certain Circumstances, Have To Be Provided In Non-English Languages – If a claimant for disability benefits lives in a county where 10 percent or more of the population is only literate in a non-English language, benefit denials will have to include a statement in the applicable non-English language that certain language services will be available upon a claimant’s request to assist with the processing of the claim.

Why Is It Important For Employers To Implement the New Disability Claims Requirements If They Become Effective?

If the New Disability Claims Requirements become effective, employers with ERISA Disability Benefit Plans will want to timely amend each such plan to incorporate the New Disability Claims Requirements in order to try to obtain a favorable judicial standard of review if the disability claim is ever litigated. Certain failures to follow ERISA’s benefits claims procedure requirements could:

  • allow a claimant to start litigating a claim in court before having to exhaust the plan’s administrative remedies (i.e., before have to comply with all of the applicable requirements of the plan’s benefit claims procedures); and
  • allow a court to review the merits of the claim without having to give deference to any decision or interpretation made by the claims administrator with respect to the claim.

Timely implementation of the New Disability Claims Requirements could, therefore, increase an employer’s chances to prevail on disputed claims for disability benefits in an ERISA-covered plan.

What Documents Should Be Changed If the New Disability Claims Requirements Become Effective?

If the New Disability Claims Requirements become effective, employers with ERISA Disability Benefit Plans should make any needed changes in the benefit claims procedures for those plans. Documents where such changes may need to be made include:

  • the plan document;
  • the summary plan description for the plan; and
  • any other document that references the plan’s benefit claims procedures (e.g., some nonqualified deferred compensation agreements have benefit claims procedures in a separate document).

What Is Likely To Happen To the New Disability Claims Requirements?

The DOL has asked for a substantial amount of data that will help it assess whether the New Disability Claims Requirements will be burdensome for employers to comply with, and it would not be surprising if the 90 day extension is extended further to allow all that data to be analyzed. If an analysis of that data indicates that the New Disability Claims Requirements will be burdensome for employers, it also would not be surprising if the DOL eventually decides to modify the New Disability Claims Requirements.

In light of the uncertain status of the New Disability Claim Requirements, employers with ERISA Disability Benefit Plans should monitor future DOL guidance on the New Disability Claims Requirements to see what changes, if any, may need to be made to those plans.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bond Schoeneck & King PLLC | Attorney Advertising

Written by:

Bond Schoeneck & King PLLC
Contact
more
less

Bond Schoeneck & King PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.