29 CFR § 2560.503-1 Claims procedure.
(g)Manner and content of notification of benefit determination.
(1) Except as provided in paragraph (g)(2) of this section, the plan administrator shall provide a claimant with written or electronic notification of any adverse benefit determination. Any electronic notification shall comply with the standards imposed by 29 CFR 2520.104b-1(c)(1)(i), (iii), and (iv). The notification shall set forth, in a manner calculated to be understood by the claimant -
(vii) In the case of an adverse benefit determination with respect to disability benefits -
(A) A discussion of the decision, including an explanation of the basis for disagreeing with or not following:
(iii) A disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration…
Among the most important revisions to the ERISA Claims Procedures for Plans Providing Disability Benefits is the requirement that adverse determinations contain a discussion of the basis for disagreeing with a favorable Social Security Administration disability determination regarding the claimant presented by the claimant to the plan. The revised regulations provide that the notification shall set forth a discussion of the decision, including an explanation of the basis for disagreeing with or not following a “[a] disability determination regarding the claimant presented by the claimant to the plan made by the Social Security Administration[.]” 29 CFR 2560.503-1(g)(1)(vii)(A)(iii) and 29 CFR 2560.503-1(j)(6)(C). This rule applies to both initial adverse benefit determinations and adverse benefits determinations on review (meaning determinations made after a claimant has received and appealed an initial adverse determination).
These revisions bring a much needed change. As it stands, Plan provisions typically require claimants to apply for SSA benefits. They also provide that the insurer or self insurer can reduce its monthly payments to the insured by the amount of any Social Security benefits obtained by the claimant. But then it still can terminate the Plan benefits despite the finding of disability by the SSA.
This is difficult to imagine, unless you understand that the company that administers the plan and the company that pays the benefits are typically one and the same company. Then it makes sense that a Plan might take the money due to the claimant from the award of SSA benefits (as provided for in the plan documents) but disagree with that SSA decision and terminate Plan benefits.
Here is what happens: A Plan provides that claimants must apply for SSA benefits if they are receiving Plan benefits. It also provides that Plan benefits are reduced by the amount of any SSA benefits awards. It can take much longer to obtain SSA benefits than Plan benefits. A person may receive Plan benefits for two or three years at, for example, $3,000 a month. Then the person is awarded SSA benefits of, for example, $2,400 a month. The Plan is then only obligated to pay $600 a month ($3,000 - $2,400) going forward. The claimant will begin getting monthly checks from Social Security, but will also get a large check from them for all of the months that she should have been receiving SSA disability checks but was not because her claim had not yet been approved. That Plan is entitled to that money too, because had she been awarded SSA benefits right away, the Plan would have had a right to reduce its payments each month by same amount. The Plan will now tell the claimant that she has an ‘overpayment’ in the amount of that large Social Security check. The Plan can now pursue the claimant for the overpayment. But it can also continue administering the claim and can at any time determine that the claimant is no longer disabled and terminate Plan benefits. And plans have done just that.
The courts have recognized the inherent hypocrisy in this practice for many years. Nevertheless that practice has persisted. These new revisions will not end this practice. But what they do is require the Plan to explain why it disagreed with the Social Security Administration’s decision, while making it clear that “[i]t [will] not be sufficient for the benefit determination merely to include boilerplate text about possible differences in applicable definitions, presumptions, or evidence. A discussion of the actual differences [will] be necessary.” This will not end the practice entirely: Plans will no doubt in some instances still claim a right to retroactive SSA benefits while maintaining that a claimant is not disabled any longer under the Plan. But now they will be obligated to provide their basis for disagreeing with the SSA decision, so that claimants can challenge their reasoning.
A few final observations: Plans will still be able to require claimants to submit their SSA determinations if they want a Plan to address it in any adverse determination. But the revision is intended to require Plans working with an apparently deficient administrative record to inform the claimant of the deficiency and provide claimants an opportunity to “resolve the stated problem by furnishing missing information.” It is not clear where in the revision to the rules this requirement appears. However, claimants would be well counseled to provide Plans with any SSA award, along with the entire SSA claim file, and request that the Plan inform her of any apparent deficiency in the administrative record, citing this language in the Supplementary Information to the Rules revisions.
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