Benefit Claims Procedures

[Guest koolkid]

Our 401(k) plan provides 100% vesting and distribution options if a plan participant is disabled. Does the plan need to be amended in any way, so it complies with DOL Reg 2560.503-1?

[pjkoehler]

Koolkid: It's axiomatic that if the plan's claims procedure doesn't comply, then it should be amended. But, perhaps you're wondering whether a streamlined plan like yours would automatically satisfy these requirements anyway. Don't count on it. Disputes regarding the plan's definition of the term "disability," and the procedural requirements for ascertaining the participant's initial and ongoing eligibility have been a regular source of ERISA litigation. Let's say you have an employee who believes he or she qualifies for a distribution due to "disability." The plan administrator, on the other hand, takes the contrary point of view and denies the claim. If the denial becomes final and the employee files a claim in federal court or in arbitration for wrongful denial, one of the first things a plaintiff's attorney will do is ascertain the plan's claims procedure (assuming there is one and not 2 or 3 or none), analyze whether or not it satisfies the ERISA requirements and whether his client's claim was processed in a manner that is consistent with the procedure. If your plan's claims procedure is vague or incomplete, the task of successfully defending the plan administrator's decision just got a lot more problematic.

[Guest Harry O]

I think that koolkid was asking whether this is a "disability" benefit subject to special claims and appeals procedures under the new DOL regulations for disability benefits (effective 1/1/2002) or the regular old rules for pension/savings claims . . .

[pjkoehler]

HarryO: Yes, you must be right. The reference should be to 29 CFR 2560.503-1(d). The way I read this, a plan whose procedures complied pre-2002 probably requires no modifications if:

- the procedures do not require the employee to file more than 2 appeals of an adverse determination prior to exhaustion,

- the plan does not provide any voluntary levels of appeal, and

- the plan's procedures don't include mandatory arbitration of claims denials.

Such provisions are unusual in a pension benefit plan merely because it treats "disability" as a distribution event. But, if it did have one or more of these provisions, it's unlikely that the procedures anticipated the requirements set forth in the reg and they should be reviewed for amendment purposes.

[Guest koolkid]

The plan document presently incorporates the DOL's general language regarding a 90-day turnaround time for a written response from the plan administrator to the claimant. I am trying to determine whether the document should be amended to specify that the response time should be 45 days in cases of disability claims.

[Guest Harry O]

I would say the answer is "yes" if the employee must be determined to be "disabled" in order to get his money. In many DC plans, a disabled employee is also considered a terminated employee and there is generally no difference if you are disabled or terminated.

The 45 day turn-around is not the only pain in the neck. You also have de novo review and a requirement to get an independent medical review.

Of course, you can avoid these hassles if you amend your plan to define "disability" as disabled for social security purposes or disabled under the employer's LTD plan.

[Guest jhinkle]

I am researching this question for a Plan that provides that "Disability shall be deemed to exist when determined by the Plan Administrator upon the basis of such evidence as the Plan Administrator deems acceptable, including, without limitation, evidence that a participant has been determined to be eligible for (i) disability benefits under the Employer's long term disability plan or (ii) Social Security benefits." Seems such discretion probably negates the objective trigger Harry O mentions as a means of avoiding separate disability claims procedure provisions in the 401(k) Plan SPD. To my mind, it seems one could argue that any accelerated vesting / distribution provisions under a 401(k) plan could be viewed as providing "disability benefits" for the new claims procedure purposes regardless of how "Disability" is defined or how much discretion the Plan Administrator has in making the determination. I was interested if Harry O or others had specific authority for excepting 401(k) plans when the Plan simply relies on the Employer's LTD Plan or the SSA's disability benefit determinations or if others had different thoughts on this topic. A quick survey suggests that national prototype plan providers are not consistent on this point with their SPDs and I have not been able to find a clear basis for the distinction. Thanks.

[RTK]

jhinkle, Q-A9 of the DOL's Frequently Asked Questions and Answers on the Claims Procedure Regulations sets forth DOL's position on what is a disability benefit, including its statement that the special disability rules do not apply when the disability determination is made by another party. The FAQs are available on the DOL's website.

[MGB]

jhinkle,

I discussed with the author of the regulation this very issue. He did not like the idea of relying on another employer plan (e.g., LTD) for the determination. He thought that the review timing, etc., must be in the plan unless you are relying on the SSA, period (which is a specific exception in the regulation). No exception for other plans' determinations.

[RTK]

I am confused. The DOL's FAQs specifically reference a determination under the employer's LTD plan as an example of an other party determination that permits a pension plan to apply pension claims rules, instead of disability rules. Also, I was not aware that the SSA period was a specific exeption in the regulation for the nonapplication of disability claims rules.

[Guest jhinkle]

MGB and RTK, Thanks to both of you for your assistance. I can understand why the author of the regulations has concerns with relying on the sponsor's LTD plan but seems those going that route will have sufficient protection given the specific examples in the DOL's FAQ. Thanks again.