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Comp and Benefits Brief

January 17, 2017

Tougher Rules for Disability Claims Start Now

New final regulations on claims procedures for disability benefits take effect January 18, 2017.  These new procedures borrow heavily from the health claim procedures under the Affordable Care Act (ACA).  Employers should review the terms of their claims procedures in all affected plans and consider revisions to summary plan descriptions (SPDs).

Plans Affected

Plans subject to ERISA must establish claims procedures, including pension and "top hat" plans as well as health and disability plans.  The new regulations address only disability claims.  A "disability claim" exists where the claims administrator must make a determination of disability to decide the claim.  However, if the claim depends on a finding of disability that is made by a party other than the plan for non-plan purposes, it is not treated as a "disability" claim and these new claims procedures are not applicable. 

Key Changes

  • Modeled after the ACA claims procedures, the new disability claims procedures provide additional procedural requirements, including giving the claimant the right to the entire claim file, copies of internal guideline and protocols, a more robust explanation of why a claim is denied, and the standards used in making that determination.
  • Experts are to be independent and impartial, whether they make the decision or only consult and whether they are hired directly by the plan or through a plan service provider.
  • The explanation of a denial must now include a discussion of any disagreement with health care professionals or vocational professionals treating or evaluating the claimant, whether or not relied upon in making the disability benefit decision.
  • New or additional evidence developed or introduced while a claim is being reviewed must be provided to the claimant with an opportunity to respond to the new information.
  • Failure to follow all of the claims procedures means the claim is deemed to have been denied without the exercise of fiduciary discretion.  This gives the claimant the freedom to go directly to court -- with de novo review in all likelihood.
  • Also following the ACA, notices and denials must be "culturally and linguistically appropriate".  If the claimant's address is in a county where 10% or more of the population are literate in the same non-English language, the notice must offer linguistic services in that language.
  • If there is a contractual statute of limitations, such as one described in the summary plan description, the denial must describe the contractual statute of limitations, including the calendar date when the period to bring an action in court expires.

Effective Date

The regulations are effective January 18, 2017 and apply to all claims for disability benefits filed on or after January 1, 2018.[1]  There are some transitional rules for 2017 that delay some of the changes made to the content of denial notices.

Compliance Steps

Most disability claims are made under long term disability insurance policies where the insurer makes the determinations of disability.  When a claimant whose claim has been denied sues, often the employer sponsoring the plan is sued along with the insurer.  To reduce litigation risk, employers should confirm with their insurer that they are in compliance with the new disability claims procedures, request updated SPDs and benefit booklets, and monitor the claims for procedural compliance.  According to industry comments on the proposed regulations, many of the changes were already "best practice."

For employers with pension, 401(k), and other ERISA plans that have disability benefits, claims procedures should be reviewed and revised, as needed.  Also consider reviewing the definition of "disability" to determine whether incorporating a third party's determination of disability for a non-plan purpose, will allow the plan able to avoid the additional burden of the new disability claim procedures.  For example, if a pension plan provides benefits to participants who have been determined to be disabled by the Social Security Administration or the long term disability insurer, the pension plan is not subject to the new disability claim rules.

[1] This is a correction of our original alert, which mistakenly referred to a January 1, 2017 claim filing date.

Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner.  Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work.