Alert / Employee Benefits
DOL Delays Implementation of Disability Claim Rules

The U.S. Department of Labor (DOL) has delayed implementation of its much-criticized rules related to disability claim appeals. Under the delay the new rules will apply to disability claims filed on or after April 1, 2018, regardless of the disability plan’s ERISA plan year.

Background

Earlier this year the DOL issued final regulations that revised the ERISA claims procedures for disability plans. The new rules included additional protections designed to ensure a full and fair review of disability claims and would have applied beginning Jan. 1, 2018. See our Alert on the final regulations.

Under pressure from disability insurers, the DOL retreated from the Jan. 1 effective date and has now moved that date to April 1.

Lockton comment: Of course, the rules apply only to disability plans subject to ERISA. Many short-term disability arrangements are merely payroll practices where the employer continues the employee’s normal salary for several weeks or months while the employee is disabled. The new rules won’t apply to these arrangements but apply to arrangements where an insurer pays benefits.  If the insurer is acting as a third-party administrator (“advice to pay”) for a self-insured program, the employer will need to do two things:

  • Obtain assurances from the third-party administrator that it will handle the new requirements.
  • Update third-party administrator agreements to address these responsibilities.

Alternatively, to avoid application of these new rules, an employer may consider structuring its short-term disability program as a payroll practice exempt from ERISA. Note that nonqualified deferred-compensation plans that pay benefits when a participant becomes disabled are subject to these new regulations if the determination of disability is made by an insurer or by the employer or plan sponsor.

What’s Next

The DOL asked for public comments on the new rules and will accept comments through Dec. 11, 2017. Additionally, the DOL has asked stakeholders to provide data for the agency to quantify and evaluate costs associated with the new rules. Thereafter, the agency will determine what, if any, changes will apply to the final rules.

Lockton comment: The DOL did not heed requests to delay the comment period beyond Dec. 11 or to further delay the current April 1 effective date. Many employers and insurers would appreciate seeing the rules withdrawn. That appears unlikely based on the tenor of the DOL’s latest announcement. More likely, DOL will loosen some of the standards in the current rules.

Unless the new rules’ effective date is further delayed, employers will want to ensure that their disability plans subject to ERISA are in position to comply with the new rules by April 1. The disability plans should be amended to reflect the new rules as soon as it appears those rules will not be further modified.

Not Legal Advice: Nothing in this Alert should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Compliance Services group are not privileged under the attorney-client privilege.

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