New Disability Claims Procedures May Apply to Qualified and Nonqualified Retirement Plans, Too
As mentioned in our recent blog, the date for complying with the new disability claims procedures (April 2, 2018) is rapidly approaching. In addition to making sure disability plans comply with the new rules, employers should also be reviewing other ERISA plans, such as qualified retirement plans and nonqualified deferred compensation plans to determine if any changes are required to the plans’ claims procedures.
The need for changes in an ERISA plan, other than a disability plan, arises when, as DOL FAQs state, the plan conditions availability of a benefit on a showing of disability. However, the special claims procedures are only required if the plan administrator is required to make a determination of disability. If, instead, the plan follows a determination of disability by a long-term disability insurer or by the Social Security Administration, the special disability claims procedure is not required.
In the qualified retirement plan context, for example, disability may determine eligibility for a benefit under a 401(k) plan that requires a participant to be employed on the last day of the plan year in order to be eligible for a matching or profit sharing contribution, but has an exception for the participant’s termination due to disability. However, if the plan determined disability based on receiving payments from the long-term disability insurer under the company’s disability plan, no special claims procedure would be required.
A nonqualified retirement plan, although exempt from many ERISA requirements, must have a compliant claims procedure. If, for example, vesting of benefits and/or payment of benefits is accelerated due to disability, and the employer makes a determination of whether the participant is disabled, changes to the claims procedure will be required. Note that there may be more than one definition of disability used in the plan, due to specific definitions being required for some purposes under Code Section 409A and the employer retaining other definitions for other purposes, such as vesting.
In addition to disability plans, then, employers should review other plans that are subject to claims procedure requirements under ERISA to determine whether these plans will be subject to the special disability claims procedures. If the special claims procedures apply, claims procedures that have been provided to participants should be revised. When a claim arises, the participant should be provided with claims procedures that comply with the special rules and the employer should be prepared to follow them, in order to ensure the participant is required to fully exhaust the plan’s usual claim appeal process before bringing a lawsuit and to have the plan’s decision receive deference in a lawsuit.
Contact Audrey Fenske for more information.