Effective January 18, 2017, the Department of Labor issued a "final rule" modifying 29 CFR § 2560.503-1, governing claims procedures for disability benefits under ERISA plans. The new regulations apply to disability claims filed on or after January 1, 2018.

Addressing conflicts of interest, the final rule requires decisions regarding hiring, compensation, termination, or promotion of persons involved in making claim decisions not be based on the likelihood the individual will support denial of benefits.

"Persons involved" in making the decision include, but are not limited to, "claims adjudicator[s]" and "medical or vocational expert[s]." The rule is not limited to persons "directly hire[d]" by the administrator or to those who were "responsible for making the decision," but also extends to employees of third party service providers. Administrators must "take steps (e.g., in the terms of its service contract and ongoing monitoring) to ensure that the service provider" does not make employment or compensation decisions based on the likelihood the person will support denial of benefits.

Addressing disclosure and communication requirements, the final rule requires both initial benefit denial letters and appeal denial letters to include:

  • Discussion of the basis for disagreement with (1) the views of treating healthcare providers and vocational experts who evaluated the claimant, (2) the views of medical or vocational experts consulted by the administrator, whether or not their advice was relied on in making the decision, and (3) disability determinations made by the Social Security Administration.
  • Identification of the specific internal rules, guidelines, protocols, standards or similar criteria relied on, or a statement that such criteria do not exist.
  • A statement of the claimant's entitlement to receive, upon request and free of charge, reasonable access to relevant documents, records, and other information.
  • Linguistically and culturally appropriate language and an offer of translation services.
  • Appeal letters must state the contractual period of limitations in the plan.

The final rule expanded the definition of "adverse benefit determination" to include "any rescission of disability coverage," including "cancellation or discontinuance of coverage that has a retroactive effect."

Finally, failure to "strictly adhere" to these new requirements will result in the claim being deemed denied, remedies exhausted, and a resultant de novo standard of review, unless the violation is de minimis. Such minor violations will "not cause, and or not likely to cause, prejudice or harm to the claimant," and the administrator must demonstrate that it "was for good cause or due to matters beyond the control of the plan," occurred "in the context of an ongoing good faith exchange of information between the plan and the claimant" and was "not part of a pattern and practice of violations..."

Click here to the section of the Federal Register discussing the final rule on pages 92316-92343.