On January 5, the Department of Labor (DOL) announced that regulations it previously proposed will apply to certain retirement and medical disability claims filed after April 1. This article focuses on a few practical considerations.
Practical Comments. We recommend employers consider the following when weighing whether the new regulations will impact benefit plans:
- Normally, when we think of “disability claims,” we think of medical plans or short or long term disability policies. However, the DOL consistently expressed that the new rules apply to “employee benefit plans,” in general. For example, any plan sponsor of a retirement plan that includes disability retirement benefits should account for this new guidance.
- The DOL’s authority over employee benefit plans comes from ERISA, which does not apply to governmental plans, most church plans, and non-ERISA 403(b) plans. However, employee benefit plans that use third-parties to assist with administration may find that the third-party is unwilling to use one set of procedures for most of its clients and another for non-ERISA arrangements. In this way, these new DOL requirements may affect non-ERISA plans indirectly.
- Nonqualified plans often have disability provisions, and although they are generally not subject to the bulk of ERISA, arrangements known as “top hat plans” are subject to ERISA’s claims requirements, so these disability claims regulations will apply. Since it is more unusual for these arrangements to use a third-party administrator, record keeper, or claims adjudicator, an assessment of whether these rules apply to an arrangement and how the plan should comply with these regulations is more likely to be the sole responsibility of the employer.
Practical Advice. We recommend employers take the following measures to ensure their employee benefit plan documents and procedures are properly updated in a timely manner:
- Review health plan and retirement plan documents to assess whether a disability determination can affect vesting, eligibility for distributions, benefits or something else.
- To the extent a disability determination may be necessary under any circumstance, determine who drafted the document and who would actually make that determination.
- Contact the person or entity responsible (for the documentation and the disability determination) to confirm they are updating the documentation or procedures.
Potential Pitfalls. We expect that insurance companies that provide documentation or administration with health and disability plans will timely address these requirements, but we foresee the following errors or oversights:
- An insurance company revises the insurance policy, but not the ERISA wrap or cafeteria plan document.
- A defined contribution plan is ignored because disability does not trigger increased benefits, and this turns out to be a mistake because it contains a disability determination can trigger accelerated vesting, making it subject to these regulations.
Summary. These new procedures should not be a major stumbling block for most employers, but you should take steps to avoid becoming a cautionary tale due to a misunderstanding or miscommunication.
For questions or more information, please do not hesitate to contact Lowell Walters or the Carlton Fields attorney with whom you normally communicate.