On April 1, 2018, new Department of Labor regulations regarding short-term and long-term disability plans covered by the Employee Retirement Income Security Act (ERISA) go into effect. Employers must make sure that they and their plan administrators and third party administrators are ready to comply with the new regulations.
Affected Benefit Plans
ERISA generally covers all STD and LTD plans established and insured or funded by an employer. Regular payroll practices (such as continuing to keep an employee on the books and pay his or her salary while he or she is absent due to a disability) are not covered by ERISA.
The new regulations affect the administration of STD and LTD insurance plans, as well as 401Ks and pension plans, where receiving the benefit is conditioned on disability, and where the particular 401K or pension plan (not the Social Security Administration or a long-term disability plan) determines whether the employee is disabled.
On December 19, 2016, the DOL issued regulations, known as the Final Rule, regarding ERISA-covered STD and LTD plans. The Final Rule was effective January 18, 2017, but its applicability was delayed until January 1, 2018 to allow employers, insurers, and third party administrators to come into compliance.
President Trump issued an executive order on February 24, 2017, creating a Regulatory Reform Task Force that would examine existing regulations. In the summer of 2017, the DOL began revisiting the Final Rule and on October 12, 2017, the DOL issued a Notice of Proposed Rulemaking, delaying the applicability of the Final Rule by 90 days. By giving notice and delaying the applicability date, the DOL allowed affected parties and the public to submit comments, opinions, and research regarding the potential impact of the Final Rule.
The DOL’s intention behind the Final Rule was to give employees more protection in the claims process of their STD and LTD plans. But employers and members of Congress opposed the Final Rule, argued that the regulations would backfire by raising costs and increasing litigation, thereby reducing employees’ access to benefits.
The DOL has now confirmed that no further delay to applicability of the Final Rule will occur, and employers, plan administrators, and third party administrators are expected to comply with the new regulatory changes as of April 1, 2018.
The new regulations bring about three major changes in the administration of disability plans.
1. Establish criteria for conflict of interest.
2. Expand benefit denial notice
3. Change procedures for responding to the denial of an appeal
Conflict of Interest
Employers, plan administrators, and third party administrators should take steps to ensure that their vendor contracts and employment relationships do not connect financial incentives to claim outcomes. Claims adjudicators, service providers, and vendors must be impartial. The employment status and compensation of a claims adjudicator or a medical or vocational expert cannot be tied to the number or rate of denied claims, for example.
Benefit Denial Notice
· Plan administrators must now include the following in all benefit denial notices:
· A description of the limitation period for bringing a lawsuit and the calendar expiration date
· An explanation as to why the plan disagreed with the physician/vocational specialist/Social Security Administration
· A notice of the claimant’s right to access the file
· The internal rules or guidelines used to make the denial
· Notice that oral or written translation will be provided to non-English speakers upon request
Appeal Denial Procedures
Claimants must have notice of any new evidence or reasoning is used to deny the appeal of a denial of benefits, as well as an opportunity to respond to the new information. If the plan does not follow its own claims procedure, the claimant is not barred from filing a lawsuit before exhausting all levels of the claims procedure. A retroactive rescission of coverage is considered a denial that triggers the appeals process. The plan should always follow its own claims procedures and avoid retroactively rescinding coverage.
What You Should Do
Employers should communicate with plan administrators and third party administrators to make sure their plans are in compliance with the new regulations. Most importantly, having legal counsel is critical. Employers always should consult with legal counsel for essential assistance in reviewing plan documents, revising notices, and understanding and successfully implementing up to date laws and regulations.