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Home > Resources > Retirement Plans > 2018 Disability Claims Regulations Apply To More Than Just Disability Plans

2018 Disability Claims Regulations Apply To More Than Just Disability Plans

July 11, 2019 by Ken Ruthenberg

Do They Apply to Your Plans?

In April 2018, new disability benefit claims regulations from the Department of Labor (DOL) went into effect.

The regulations 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;
  • 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
  • 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. 

What To Do

This would be a good time to amend your plans to either comply with the regulations, or get out of complying with the regulations.

Filed Under: Retirement Plans Tagged With: Blog

About Ken Ruthenberg

Ken's executive compensation clients appreciate learning the latitude they may have with plans that meet their organizational goals by conditioning rewards to key employees. He helps them implement their creativity while staying within the rules. They also count on his unsurpassed knowledge of the law governing qualified and non-qualified plans, and health and welfare benefits for efficient and effective solutions.
Learn More About Ken

EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.

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