Disability Claims – New Rules
Effective April 1, 2018, new Department of Labor procedures apply to the handling of disability claims for health and welfare and retirement plans. If a retirement plan’s determination of disability is based on the findings of a third party, such as the Social Security Administration (SSA) or the employer’s long term disability plan, the new claims procedures don’t apply to the retirement plan. However, if the Plan Administrator must adjudicate the claim, then the new rules apply.
Under the new rules, disability claims will need to be handled by an impartial party. Enhanced disclosures are triggered if a claim is denied. That includes the reasons for claim denial, the standards and protocols that were applied to review the claim, and the basis for any disagreement with medical experts and other parties. Plan Administrators must provide claimants with any new evidence or reasons for denial that come about during a claims appeal. Assistance may be required for claimants who need translation of information into a non-English language. An appeals denial notice would include information about the right to sue and the period during which a suit could be filed.
We believe many Plan Administrators will opt to change their plan’s definition of disability to one that cites a determination made by the Social Security Administration. While this eliminates the application of new rules to the plan, it will often mean a delay in determining if a participant is disabled. Many plans provide that a participant is fully vested in his retirement account if termination of employment is due to disability, and the plan may also waive conditions for sharing in contributions if termination of employment for the same reason. A plan may need to make retroactive corrections, including make-up contributions, if a disability determination is made after a plan’s yearend work is completed.
For 401(k) and profit sharing plans on the Blue Ridge pre-approved plan document, please contact your administrator to discuss amending the plan’s definition of disability if needed.