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Thelen Reid Brown Raysman & Steiner LLP
For
years employers wondered when, if ever, the Labor Department
would issue final regulations describing new mandatory claims
procedures for all employee benefit plans covered by ERISA.
Although the Labor Department issued final regulations late
last year, few plan sponsors believed that they would become
effective without further change. Many expected the Labor
Department to respond to plan sponsors, administrators,
insurers and state regulators, who complained that the new
regulations were costly, confusing and in conflict with
pending legislation.
The
Labor Department responded on July 9, 2001, by indicating
that pension and welfare plans other than group health plans
must comply with the regulations by January 1, 2002, but
giving most group health plans an additional year to comply.
If a plan fails to comply with the new claims regulations,
its participants can appeal initial claim denials in court,
depriving the plan of both the opportunity to correct mistakes
and the favorable standard of review that usually would
apply.
For
all plans except group health plans, now is the time to
contact third party administrators and insurers and to review
plan documents and procedures. The regulations make significant
changes that require advance planning to ensure compliance.
The most significant changes are:
Claim
Processing Deadlines: The new regulations impose deadlines
based on the type of claim involved. Plan Administrators
should familiarize themselves with the deadlines and adjust
plan procedures to ensure that the deadlines are met for
all types of claims.
Procedural
Safeguards: Administrators and sponsors must establish
formal administrative processes and safeguards to ensure
and verify that benefit claim determinations comply with
plan documents and apply plan provisions consistently to
similarly situated claimants.
Disclosure
Requirements: Besides existing disclosure requirements,
adverse benefit determinations based on a specific rule,
guideline, protocol or similar standard (and, for disability
plans, any scientific or clinical judgment) must disclose
such reliance and offer a free copy of the materials relied
on. The fiduciary also must identify medical or vocational
experts whose advice was obtained, even if the fiduciary
did not rely upon the advice. Claims administrators should
revise standard claim denial language to accommodate these
requirements.
Limited
Levels of Appeal: Claims procedures cannot require more
than two levels of mandatory appeal, cannot require binding
arbitration and cannot make participants pay for arbitration.
Voluntary additional levels of appeal may be offered, but
must follow any mandatory appeal and must be free and adequately
explained. A plan offering a voluntary appeal must waive
statute of limitation and exhaustion defenses.
Disability
Claims Need New Fiduciary and Medical Expert on Appeal:
The fiduciary deciding an appeal of a disability claim must
not be the same fiduciary who made the initial benefit denial.
If the denial was based on medical judgment, the fiduciary
must consult with a new and independent health care professional.
Sponsors must identify the second fiduciary.
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For more information about the issues covered in this report, please contact David S. Foster in our San Francisco office at 415-369-7020 or at dsfoster@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2001 Thelen Reid Brown Raysman & Steiner LLP
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