New Disabilty regulations

[Belgarath]

Like many people, I'm looking for methods to have these regulations not apply to normal 401(k) plans. Amending hundreds of plans (and attempting to explain this crap to clients) isn't high on my fun list. Sure, we can do a plan sponsor level amendment - and that's probably where we'll end up...

So I toss this out there for you attorneys. Suppose a pre-approved Plan document currently says that the determination will be made by a licensed physician. Doesn't specify who chooses the licensed physician. If the Plan Administrator institutes a written policy that the determination of Total and Permanent Disability is made by a licensed physician CHOSEN BY THE PARTICIPANT, (and also accepts a SSA determination or under the employer's LTD program) is this sufficient to remove discretion, so that an amendment isn't even necessary? (I'm not saying this is necessarily a good idea - in fact, might be a very bad idea if participants get names of licensed physicians who are "easy" and will certify practically anything.) Just trying to look at any angles. It is frustrating, because the real life application of all this is so limited and a denial situation so uncommon that it is a whole lot of time for, generally, nothing. Whoops, I guess that describes my life in the TPA world.

[Peter Gulia]

In other contexts, the Internal Revenue Service and Treasury department have said that allowing a participant control over the participant's claim is inconsistent with treating a plan as providing a restriction, at least one needed to support a tax-qualified treatment.  For example, an annuity contract that allows its annuitant, rather than the insurer, to decide that the annuitant is entitled to a hardship distribution, is not a 403(b)-qualified contract.

For an IRS-preapproved document, would an indirect provision that allows a participant to decide whether she has a disability interfere with the IRS's preapproval?

 

[JRN]

Why not just provide in your administrative policy that the participant is disabled if he/she is determined by SSA to be disabled? I think that should work to avoid being subject to new regs.

[Larry Starr]

We don't see it as a big deal.  We already have the amendment from FIS (Robert Richter did it).  We will combine that with the tax reform changes regarding hardship distribution/loan provisions and sent it out toward the end of the year. The explanation is easy: "DOL made some changes that don't affect you but we need to add the language to the document; easiest to just sign and return but call if you have questions".

Larry.

 

[Belgarath]

Hi Larry - can you elaborate as to why the regulations don't affect the plans? (I understand that in "real life" a denial of disability status is uncommon, so mostly it doesn't affect anything.) However, in many of our plans, "Total and permanent disability" results in 100% vesting, as well as a waiver of normal allocation conditions - I'm focusing on the DC plans for the moment. So I don't see how we could tell our clients that the regulations don't affect them. We certainly can, and probably will, say something along similar lines, such as "These regulations don't affect you UNLESS you have a situation where you are denying "Total and Permanent disability status" for a participant, and that denial has a negative effect on any provisions in the Plan that are applicable to that Participant."

A few other items for discussion - there is no formal amendment date that I can see, but the regulations are effective after April 1. So are you going to notify your clients to follow these regs, prior to doing the amendment?

Also, I haven't really thought through the implications if the regulations aren't followed. Assume total and permanent disability status is denied. What can the participant "get" if the Participant goes to court - in other words, what damages are realistically available, beyond simply 100% vesting them?

I will say that in all my years in this business, I've never seen a problem situation arise, in a DC plan, due to this disability issue. Doesn't mean they haven't happened behind the scenes, but nothing has ever been brought to my attention.

This might be a more serious issue in DB plans. Anyone have special thoughts on that issue?

Thanks to all for the discussion.

[LANDO]

I think the FIS/Relius approach is to follow the DOL disability claims procedure if a claim is denied. 

Given what I perceive to be the rarity of disability claims denials, that approach makes more sense than trying to amend each plan individually to make a third party responsible for disability determinations, or a blanket approach using a social security determination for all plans.

One of the problems with requiring the participant to qualify for disability under social security is that those determinations can take a long time, and sponsors may want to give participants access to disability benefits long before that determination is made.

I haven't completely resolve what we are going to do with our clients, but I'm leaning heavily towards the FIS approach.

[Belgarath]

FIS will apparently be sending some clarifying information on this in the very near future.

[Larry Starr]

7 hours ago, Belgarath said:

Hi Larry - can you elaborate as to why the regulations don't affect the plans? (I understand that in "real life" a denial of disability status is uncommon, so mostly it doesn't affect anything.) However, in many of our plans, "Total and permanent disability" results in 100% vesting, as well as a waiver of normal allocation conditions - I'm focusing on the DC plans for the moment. So I don't see how we could tell our clients that the regulations don't affect them. We certainly can, and probably will, say something along similar lines, such as "These regulations don't affect you UNLESS you have a situation where you are denying "Total and Permanent disability status" for a participant, and that denial has a negative effect on any provisions in the Plan that are applicable to that Participant."

A few other items for discussion - there is no formal amendment date that I can see, but the regulations are effective after April 1. So are you going to notify your clients to follow these regs, prior to doing the amendment?

Also, I haven't really thought through the implications if the regulations aren't followed. Assume total and permanent disability status is denied. What can the participant "get" if the Participant goes to court - in other words, what damages are realistically available, beyond simply 100% vesting them?

I will say that in all my years in this business, I've never seen a problem situation arise, in a DC plan, due to this disability issue. Doesn't mean they haven't happened behind the scenes, but nothing has ever been brought to my attention.

This might be a more serious issue in DB plans. Anyone have special thoughts on that issue?

Thanks to all for the discussion.

Easy: our plans use a very generous definition of disability; the inability to do their job and determined by a physician of the plan's choosing. However, we almost always will accept the a letter from the doctor of the employee, making that doctor the plan's chosen doctor for this purpose.  You are right, almost the only thing it gives is full vesting and it's just never an issue (in 35 years).  Our clients don't fight disability determination, so the new rules are just not a big deal.  We have never had a disability claim become an issue in all these years.  Hope that helps.

How we handle the few disability situations that arise each year are, I believe, would already meet the new rules which is why it will not be an issue with any clients.  WE guide the client on disability issues and have never had a client reject our advice/determination.   I think the key here is what you note: in all your years, you have never seen a problem situation arise; that's what we expect to be the situation as well.

And, our DB plans operate in exactly the same way.