As explained in our October 13, 2017, article, the Department of Labor (“DOL”) delayed by 90 days the date by which ERISA plans were required to comply with disability claims and appeals regulations that were finalized in the waning days of the Obama Administration. The applicability date was delayed from January 1, 2018, to April 1, 2018. That same announcement sought substantive comments on the regulations, leading us to predict that a further delay – or even a complete withdrawal – of the regulations could be in the works. As it turns out, we were wrong.
In early January, the DOL announced that the regulations will become fully applicable as of April 1, 2018 – and without change. According to the DOL, only a few of the 200 commenters on this question even addressed the key question of whether the regulations would drive up disability benefit costs by more than the DOL had predicted when the regulations were proposed. Ultimately, the DOL concluded that those comments “did not establish that the final rule imposes unnecessary regulatory burdens or significantly impairs workers’ access to disability insurance benefits.”
As explained in our February 3, 2017, article, these regulations modify the procedures that must be followed by ERISA plans when ruling on disability-related claims and appeals. Discretionary disability determinations (i.e., where a plan does not simply rely on a determination made by a third party, such as the Social Security Administration or a long-term disability insurer) will now be subject to many of the same rules that already apply to health claims. Any plan that fails to follow these procedures could find it harder to defend against litigation filed by a plan participant or beneficiary.
Presumably, disability insurers will be ready to comply with these regulations by the April 1st date. But sponsors and administrators of self-funded plans that require discretionary disability determinations – including retirement plans under which a finding of disability leads to either immediate vesting or entitlement to share in an annual employer contribution – should consider taking the following steps:
- Come into substantive compliance with the regulations by April 1st. This may require coordination with a third-party administrator.
- If possible, adopt any necessary plan amendment by that same date. Although IRS guidance would allow a retirement plan amendment to be adopted by the end of the plan year in which this change takes effect, it is less clear that such a retroactive amendment is permissible in the welfare plan context.
- If appropriate, issue a Summary of Material Modifications (or revised Summary Plan Description). Although ERISA allows ample time for doing so, a more prompt SMM may put the plan sponsor in a better position in the event of litigation.
- Update any internal policies or procedures for resolving disability-related claims. For the most part, this will require conforming those policies to ones already in place for health claims.
The Spencer Fane Employee Benefits Practice Team can assist with any or all of these steps.