In December 2016, the U.S. Department of Labor (DOL) finalized new disability benefit claims regulations that apply to ERISA plans. The new regulations were originally going to be effective for claims for disability benefits filed on or after January 1, 2018. However, the DOL subsequently delayed the effective date. They are now effective for claims for disability benefits filed after April 1, 2018.
The regulations will apply to more than just ERISA plans that provide disability benefits in a traditional sense (e.g., a long-term disability plan). They also apply to any plan that conditions a benefit upon a showing of disability, such as:
- A 401(k) plan that allows a distribution upon the participant's disability;
- A defined benefit pension plan that provides an immediate benefit, rather than a benefit deferred until normal retirement age, if the participant has a disability retirement; and
- A nonqualified deferred compensation plan that provides for 100% vesting and a distribution upon a participant's disability under Code section 409A.
What might make these regulations a challenge for administrators who do not regularly process disability claims? The regulations' new requirements include (i) determining claims in a manner designed to ensure independence and impartiality, (ii) making additional disclosures with a claim denial, (iii) discussing any disagreement with the views of a health care professional, vocational professional, medical expert, vocational expert, or the Social Security Administration, (iv) providing the claimant with any new evidence or rationale that was considered in denying a claim on appeal, and (v) providing notice of a claim denial in a culturally and linguistically appropriate manner.
What if you fail to follow the DOL's ERISA claims regulations in denying a claim? If you follow the regulations, a court review of the claims denial will be given deference unless the claimant can prove that the plan administrator's decision was completely unreasonable (under an "abuse of discretion" standard). If, however, the plan administrator fails to follow the claims regulations in denying a claim, a court's review is likely to be conducted without deference to the administrator (a so-called "de novo" review).
Each employer that sponsors one or more ERISA plans should determine which plans are subject to the new claims regulations and consider amending those plans to reflect the new regulations.
Why consider an amendment at this time? The DOL announced in mid-July 2017 that it might delay or amend the new regulations and that it has scheduled a notice of proposed rulemaking for some time in September 2017.
However, the DOL has also said that the special disability claims regulations do not apply if the disability determination is "made by a party other than the plan for purposes other than making a benefit determination under the plan" (e.g., the Social Security Administration). So, it may be possible to amend a plan to have the determination of disability made by a third party within the DOL's exemption under the FAQ quoted above; and get out of the regulations applying altogether – even when they become effective in 2018.