[Federal Register Volume 81, Number 243 (Monday, December 19, 2016)]
[Rules and Regulations]
[Pages 92316-92343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30070]



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Vol. 81

Monday,

No. 243

December 19, 2016

Part VI





Department of Labor





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 Employee Benefits Security Administration





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29 CFR Part 2560





Claims Procedure for Plans Providing Disability Benefits; Final Rule

  Federal Register / Vol. 81 , No. 243 / Monday, December 19, 2016 / 
Rules and Regulations  

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2560

RIN 1210-AB39


Claims Procedure for Plans Providing Disability Benefits

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Final rule.

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SUMMARY: This document contains a final regulation revising the claims 
procedure regulations under the Employee Retirement Income Security Act 
of 1974 (ERISA) for employee benefit plans providing disability 
benefits. The final rule revises and strengthens the current rules 
primarily by adopting certain procedural protections and safeguards for 
disability benefit claims that are currently applicable to claims for 
group health benefits pursuant to the Affordable Care Act. This rule 
affects plan administrators and participants and beneficiaries of plans 
providing disability benefits, and others who assist in the provision 
of these benefits, such as third-party benefits administrators and 
other service providers.

DATES: Effective Date: This rule is effective January 18, 2017.
    Applicability Date: This regulation applies to all claims for 
disability benefits filed on or after January 1, 2018.

FOR FURTHER INFORMATION CONTACT: Frances P. Steen, Office of 
Regulations and Interpretations, Employee Benefits Security 
Administration, (202) 693-8500. This is not a toll free number.

SUPPLEMENTARY INFORMATION: 

I. Background

    Section 503 of ERISA requires every employee benefit plan, in 
accordance with regulations of the Department, to ``provide adequate 
notice in writing to any participant or beneficiary whose claim for 
benefits under the plan has been denied, setting forth the specific 
reasons for such denial, written in a manner calculated to be 
understood by the participant'' and ``afford a reasonable opportunity 
to any participant whose claim for benefits has been denied for a full 
and fair review by the appropriate named fiduciary of the decision 
denying the claim.''
    In 1977, the Department published a regulation pursuant to section 
503, at 29 CFR 2560.503-1, establishing minimum requirements for 
benefit claims procedures for employee benefit plans covered by title I 
of ERISA (hereinafter ``Section 503 Regulation'').\1\ The Department 
revised and updated the Section 503 Regulation in 2000 by improving and 
strengthening the minimum requirements for employee benefit plan claims 
procedures.\2\ As revised in 2000, the Section 503 Regulation provided 
new time frames and enhanced requirements for notices and disclosure 
with respect to decisions at both the initial claims decision stage and 
on review for group health and disability benefits. The regulations 
were designed to help reduce lawsuits over benefit disputes, promote 
consistency in handling benefit claims, and provide participants and 
beneficiaries a non-adversarial method of having a plan fiduciary 
review and settle claims disputes. Although the Section 503 Regulation 
applies to all covered employee benefit plans, including pension plans, 
group health plans, and plans that provide disability benefits, the 
more stringent procedural protections under the Section 503 Regulation 
apply to claims for group health benefits and disability benefits.\3\
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    \1\ 42 FR 27426 (May 27, 1977).
    \2\ 65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35887 (July 9, 
2001).
    \3\ A benefit is a disability benefit, subject to the special 
rules for disability claims under the Section 503 Regulation, if the 
plan conditions its availability to the claimant upon a showing of 
disability. If the claims adjudicator must make a determination of 
disability in order to decide a claim, the claim must be treated as 
a disability claim for purposes of the Section 503 Regulation, and 
it does not matter how the benefit is characterized by the plan or 
whether the plan as a whole is a pension plan or a welfare plan. On 
the other hand, when a plan, including a pension plan, provides a 
benefit the availability of which is conditioned on a finding of 
disability made by a party other than the plan, (e.g., the Social 
Security Administration or the employer's long-term disability 
plan), then a claim for such benefits is not treated as a disability 
claim for purposes of the Section 503 Regulation. See FAQs About The 
Benefit Claims Procedure Regulation, A-9 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
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    The Department's experience since 2000 with the Section 503 
Regulation and related changes in the governing law for group health 
benefits led the Department to conclude that it was appropriate to re-
examine the rules governing disability benefit claims. Even though 
fewer private-sector employees participate in disability plans than in 
group health and other types of plans,\4\ disability cases dominate the 
ERISA litigation landscape today. An empirical study of ERISA employee 
benefits litigation from 2006 to 2010 concluded that cases involving 
long-term disability claims accounted for 64.5% of benefits litigation 
whereas lawsuits involving health care plans and pension plans 
accounted for only 14.4% and 9.3%, respectively. \5\ Insurers and plans 
looking to contain disability benefit costs may be motivated to 
aggressively dispute disability claims.\6\ Concerns exist regarding 
conflicts of interest impairing the objectivity and fairness of the 
process for deciding claims for group health benefits. Those concerns 
resulted in the Affordable Care Act recognizing the need to enhance the 
Section 503 Regulation with added procedural protections and consumer 
safeguards for claims for group health benefits.\7\ The Departments of 
Health and Human Services, Labor, and the Department of the Treasury 
issued regulations improving the internal claims and appeals process 
and establishing rules for the external review processes required under 
the Affordable Care Act (``ACA'').\8\ These additional protections for 
a fair process include the right of claimants to respond to new and 
additional evidence and rationales and the requirement for independence 
and impartiality of the persons involved in making benefit 
determinations.
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    \4\ BLS National Compensation Survey, March 2014, at 
www.bls.gov/ncs/ebs/benefits/2014/ebbl0055.pdf.
    \5\ See Sean M. Anderson, ERISA Benefits Litigation: An 
Empirical Picture, 28 ABA J. Lab. & Emp. L. 1 (2012).
    \6\ See, e.g., Salomaa v. Honda Long Term Disability Plan, 642 
F.3d 666, 678 (9th Cir. 2011) (``The plan's reasons for denial were 
shifting and inconsistent as well as illogical. . . . Failing to pay 
out money owed based on a false statement of reasons for denying is 
cheating, every bit as much as making a false claim.''); Lauder v. 
First Unum Life Ins. Co., 76 F. App'x 348, 350 (2d Cir. 2003) 
(reversing district court's denial of attorneys' fees to plaintiff-
insured and describing ``ample demonstration of bad faith on First 
Unum's part, including . . . the frivolous nature of virtually every 
position it has advocated in the litigation.''); Schully v. 
Continental Cas. Co., 634 F. Supp. 2d 663, 687 (E.D. La. 2009) (``In 
concluding that plaintiff was not disabled, the Hartford not only 
disregarded considerable objective medical evidence, but it also 
relied heavily on inconclusive and irrelevant evidence . . . 
Hartford's denial of coverage results from its preferential and 
predetermined conclusions.''); Rabuck v. Hartford Life and Accident 
Ins. Co., 522 F. Supp. 2d 844, 882 (W.D. Mich. 2007) (insurer 
``obviously motivated by its own self-interest, engaged in an 
unprincipled and overly aggressive campaign to cut off benefits for 
a gravely ill insured who could not possibly have endured the rigors 
of his former occupation on a full-time basis.''); Curtin v. Unum 
Life Ins. Co. of America, 298 F. Supp. 2d 149, 159 (D. Me. 2004) 
(``[T]his Court finds that Defendants exhibited a low level of care 
to avoid improper denial of claims at great human expense.'').
    \7\ The Patient Protection and Affordable Care Act, Public Law 
111-148, was enacted on March 23, 2010, and the Health Care and 
Education Reconciliation Act, Public Law 111-152, was enacted on 
March 30, 2010. (These statutes are collectively known as the 
``Affordable Care Act.'')
    \8\ 80 FR 72192 (Nov. 18, 2015).
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    The Department's independent ERISA advisory group also urged the

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Department to re-examine the disability claims process. Specifically, 
in 2012, the ERISA Advisory Council undertook a study on issues 
relating to managing disability in an environment of individual 
responsibility. The Council concluded based on the public input it 
received that ``[n]ot all results have been positive for the 
participant under ERISA-covered plans and the implementing claim 
procedures regulations, even though these rules were intended to 
protect participants'' and noted that ``[t]he Council was made aware of 
reoccurring issues and administrative practices that participants and 
beneficiaries face when appealing a claim that may be inconsistent with 
the existing regulations.'' The Advisory Council's report included the 
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following recommendation for the Department:

    Review current claims regulations to determine updates and 
modifications, drawing upon analogous processes described in health 
care regulations where appropriate, for disability benefit claims 
including: (a) Content for denials of such claims; (b) rule 
regarding full and fair review, addressing what is an adequate 
opportunity to develop the record and address retroactive rescission 
of an approved benefit; (c) alternatives that would resolve any 
conflict between the administrative claims and appeals process and 
the participants' ability to timely bring suit; (d) the 
applicability of the ERISA claim procedures to offsets and 
eligibility determinations.

2012 ERISA Advisory Council Report, Managing Disability Risks in an 
Environment of Individual Responsibility, available at www.dol.gov/sites/default/files/ebsa/about-ebsa/about-us/erisa-advisory-council/2012ACreport2.pdf.

    The Department agreed that the amendments to the claims regulation 
for group health plans could serve as an appropriate model for 
improvements to the claims process for disability claims. Those 
amendments aimed to ensure full and fair consideration of health 
benefit claims by giving claimants ready access to the relevant 
evidence and standards; ensuring the impartiality of persons involved 
in benefit determinations; giving claimants notice and a fair 
opportunity to respond to the evidence, rationales, and guidelines for 
decision; and making sure that the bases for decisions are fully and 
fairly communicated to the claimant. In the Department's view, these 
basic safeguards are just as necessary for a full and fair process in 
the disability context as in the health context. Moreover, as in the 
group health plan context, disability claims are often reviewed by a 
court under an abuse of discretion standard based on the administrative 
record. Because the claimant may have limited opportunities to 
supplement the record, the Department concluded that it is particularly 
important that the claimant be given a full opportunity to develop the 
record that will serve as the basis for review and to respond to the 
evidence, rationales, and guidelines relevant to the decision.
    The Department's determination to revise the claims procedures was 
additionally affected by the aggressive posture insurers and plans can 
take to disability claims as described above coupled with the 
judicially recognized conflicts of interest insurers and plans often 
have in deciding benefit claims.\9\ In light of these concerns, the 
Department concluded that enhancements in procedural safeguards and 
protections similar to those required for group health plans under the 
Affordable Care Act were as important, if not more important, in the 
case of claims for disability benefits.
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    \9\ Metropolitan Life Ins. Co. v. Glenn, 554 U.S. 105 (2008) 
(insurance company plan administrator of an ERISA long-term 
disability plan that both evaluates and pays claims for the employer 
has a conflict of interest that courts must consider in reviewing 
denials of benefit claims).
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    The Department decided to start by proposing to amend the current 
standards applicable to the processing of claims and appeals for 
disability benefits so that they included improvements to certain basic 
procedural protections in the current Section 503 Regulation, many of 
which already apply to ERISA-covered group health plans pursuant to the 
Department's regulations implementing the requirements of the 
Affordable Care Act.
    On November 18, 2015, the Department published in the Federal 
Register a proposed rule revising the claims procedure regulations for 
plans providing disability benefits under ERISA.\10\ The Department 
received 145 public comments in response to the proposed rule from plan 
participants, consumer groups representing disability benefit 
claimants, employer groups, individual insurers and trade groups 
representing disability insurance providers. The comments were posted 
on the Department's Web site at www.dol.gov/agencies/ebsa/laws-and-regulations/rules-and-regulations/public-comments/1210-AB39. After 
careful consideration of the issues raised by the written public 
comments, the Department decided to adopt the improvements in 
procedural protections and other safeguards largely as set forth in the 
November 2015 proposal. The Department revised some of the requirements 
in response to public comments as part of its overall effort to strike 
a balance between improving a claimant's reasonable opportunity to 
pursue a full and fair review and the attendant costs and 
administrative burdens on plans providing disability benefits.
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    \10\ 80 FR 72014.
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    The Department believes that this action is necessary to ensure 
that disability claimants receive a full and fair review of their 
claims, as required by ERISA section 503, under the more stringent 
procedural protections that Congress established for group health care 
claimants under the ACA and the Department's implementing regulation at 
29 CFR 2590.715-2719 (``ACA Claims and Appeals Final Rule'').\11\ This 
final rule will promote fairness and accuracy in the claims review 
process and protect participants and beneficiaries in ERISA-covered 
disability plans by ensuring they receive benefits that otherwise might 
have been denied by plan administrators in the absence of the fuller 
protections provided by this final regulation. The final rule also will 
help alleviate the financial and emotional hardship suffered by many 
individuals when they are unable to work after becoming disabled and 
their claims are denied.
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    \11\ 80 FR 72192 (Nov. 18, 2015).
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II. Overview of Final Rule

A. Comments on Overall Need To Improve Claims Procedure Rules for 
Disability Benefits

    Numerous disabled claimants and their representatives submitted 
comments stating general support for the proposed rule. For example, 
some commenters described the proposal as reinforcing the integrity of 
disability benefit plan administration and markedly improving the 
claims process by strengthening notice and disclosure protections, 
prescribing more exacting standards of conduct for review of denied 
claims, ensuring claimants' more effective access to the claims 
process, and providing safeguards to ensure full court review of 
adverse benefit determinations. Some commenters supported the proposed 
amendments as ``good first steps'' towards providing more transparency 
and accountability, but advocated additional steps to strengthen, 
improve, and update the current rules. Some commenters emphasized that 
disability and lost earnings impose severe hardship on many 
individuals, arguing that disability claimants have a ``poor'' prospect 
of fair review under the current

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regulation primarily because of the economic incentive for insurance 
companies to deny otherwise valid claims and because plans are often 
able to secure a deferential standard of review in court.
    Commenters, primarily disability insurers and benefit providers, 
commented that the disability claims regulation should not mirror 
Affordable Care Act requirements because unlike disability claims: (i) 
The vast majority of medical claims are determined electronically with 
little or no human involvement, i.e., no reviewers studying materials 
and consulting with varied professionals; (ii) medical claims typically 
involve only a limited treatment over a relatively short period of 
time, whereas disability claims require a series of determinations over 
a period of several years; (iii) medical claims rarely involve a need 
to consult with outside professionals; (iv) medical claims involve an 
isolated issue, whereas disability claims involve a more complex, 
multi-layered analysis; and (v) medical claim files may consist of only 
a few pages of materials, whereas disability claim files can consist of 
hundreds, sometimes thousands of pages of information. As a result of 
these factors, the commenters stressed that it can take significant 
time to review and render a decision. Some of those commenters argued 
that applying ACA protections to disability benefit claims was contrary 
to Congressional intent because disability plans were not subject to 
the ACA's group health plan provisions. Some claimed that the proposed 
rules in their current form will have unintended consequences (undue 
delay and increased costs and litigation), and will result in expenses 
and burdens that will increase the cost of coverage and discourage 
employers from sponsoring disability benefit plans. Finally, some 
claimed that the increased protections and transparency that would be 
required under the proposal would weaken protection against disability 
fraud and were unnecessary because the current regulations provide 
ample protections for claimants, are written to benefit the insured, 
and have worked well for more than a decade as evidenced by the 
asserted fact that the vast majority of disability claims incurred by 
insurers are paid, and, of the claims denied, only a very small 
percentage are ultimately litigated. Some argued that technological 
advances that have expedited processing of health care claims do not 
apply to disability claims adjudication, contended that the Department 
had not properly quantified or qualified the benefits associated with 
the proposed regulations or provided a sufficient cost analysis 
associated with the proposed regulations, and commented that the 
Department should withdraw the proposal until better data is collected.
    After careful consideration of the issues raised by the written 
comments, the Department does not agree with the commenters' assertion 
that the ACA changes for group health plans are not an appropriate 
model for improving claims procedures for disability benefits. The 
enactment of the ACA, and the issuance of the implementing regulations, 
has resulted in disability benefit claimants receiving fewer procedural 
protections than group health plan participants even though litigation 
regarding disability benefit claims is prevalent today. As noted above, 
the Department's Section 503 Regulation imposes more stringent 
procedural protections on claims for group health and disability 
benefits than on claims for other types of benefits. The Department 
believes that disability benefit claimants should continue to receive 
procedural protections similar to those that apply to group health 
plans, and that it makes sense to model the final rule on the 
procedural protections and consumer safeguards that Congress and the 
President established for group health care claimants under the ACA. 
These protections and safeguards will allow some participants to 
receive benefits that might have been incorrectly denied in the absence 
of the fuller protections provided by the regulation. It will also help 
alleviate the financial and emotional hardship suffered by many 
individuals when they lose earnings due to their becoming disabled.
    Moreover, the Department carefully selected among the ACA 
amendments to the claims procedures for group health plans, and 
incorporated into the proposal only certain of the basic improvements 
in procedural protections and consumer safeguards. The proposal, and 
final rule, also include several adjustments to the ACA requirements to 
account for the different features and characteristics of disability 
benefit claims.
    The Department agrees with the commenters who supported the 
proposed changes who emphasized that disability and lost earnings 
impose severe hardship on many individuals. Under those circumstances, 
and considering the judicially recognized economic incentive for 
insurance companies to deny otherwise valid claims, the Department 
views enhancements in procedural safeguards and protections similar to 
those required for group health plans under the Affordable Care Act as 
being just as important, if not more important, in the case of claims 
for disability benefits. This view was supported by the assertions by 
some plans and disability insurance providers that disability claims 
processing involves more human involvement, with reviewers studying 
pages of materials and consulting with varied professionals on claims 
that involve a more complex, multi-layered analysis. Even assuming the 
characteristics cited by the commenter fairly describe a percentage of 
processed disability claims, the Department does not believe those 
characteristics support a decision to treat the processing of 
disability benefits more leniently than group health benefits. The 
Department believes there is potential for error and opportunity for 
the insurer's conflict of interest to inappropriately influence a 
benefit determination under highly automated claims processing, as well 
as claims processing with more human involvement.\12\ Increased 
transparency and accountability in all claims processes is important if 
claimants of disability benefits are to have a reasonable opportunity 
to pursue a full and fair review of a benefit denial, as required by 
ERISA section 503. Also, and as more fully discussed in the Regulatory 
Impact Analysis section of this document, the Department does not agree 
that the adoption of these basic procedural protections will cause 
excessive increases in costs and litigation, or result in expenses and 
burdens that will discourage employers from sponsoring plans providing 
disability benefits. In fact, comments from some industry groups 
support the conclusion that the protections adopted in the final rule 
reflect best practices that many insurers and benefit providers already 
follow on a voluntary basis.
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    \12\ While commenters contended that disability claim files are 
larger than health benefit claim files, in the Department's view, 
this is not a reason for denying claimants the same procedural 
protections and safeguards that the ACA provided for group health 
benefit claims. Furthermore, in the 2000 claims regulation, the 
Department already accommodated differences between health and 
disability claims by allowing more time for decisions on disability 
claims. See 29 CFR 2560.503-1(f)(2)(iii)(B) (up to 30 days after 
receipt of claim with up to 15 days for an extension for post-
service health claims); id. Sec.  2560.503-1(f)(3) (up to 45 days 
after receipt of claim with two possible 30-day extensions for 
disability claims).
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    Thus, while the Department has made some changes and clarifications 
in response to comments, the final rule, described below, is 
substantially the same as the proposal. Specifically, the major 
provisions in the final rule

[[Page 92319]]

require that: (1) Claims and appeals must be adjudicated in a manner 
designed to ensure independence and impartiality of the persons 
involved in making the benefit determination; (2) benefit denial 
notices must contain a complete discussion of why the plan denied the 
claim and the standards applied in reaching the decision, including the 
basis for disagreeing with the views of health care professionals, 
vocational professionals, or with disability benefit determinations by 
the Social Security Administration (SSA); (3) claimants must be given 
timely notice of their right to access to their entire claim file and 
other relevant documents and be guaranteed the right to present 
evidence and testimony in support of their claim during the review 
process; (4) claimants must be given notice and a fair opportunity to 
respond before denials at the appeals stage are based on new or 
additional evidence or rationales; (5) plans cannot prohibit a claimant 
from seeking court review of a claim denial based on a failure to 
exhaust administrative remedies under the plan if the plan failed to 
comply with the claims procedure requirements unless the violation was 
the result of a minor error; (6) certain rescissions of coverage are to 
be treated as adverse benefit determinations triggering the plan's 
appeals procedures; and (7) required notices and disclosures issued 
under the claims procedure regulation must be written in a culturally 
and linguistically appropriate manner.

B. Comments on Major Provisions of Final Rule

1. Independence and Impartiality--Avoiding Conflicts of Interest
    Consistent with the ACA Claims and Appeals Final Rule governing 
group health plans, paragraph (b)(7) of this final rule explicitly 
provides that plans providing disability benefits ``must ensure that 
all claims and appeals for disability benefits are adjudicated in a 
manner designed to ensure the independence and impartiality of the 
persons involved in making the decision.'' Therefore, this final rule 
requires that decisions regarding hiring, compensation, termination, 
promotion, or similar matters with respect to any individual must not 
be made based upon the likelihood that the individual will support the 
denial of disability benefits. For example, a plan cannot provide 
bonuses based on the number of denials made by a claims adjudicator. 
Similarly, a plan cannot contract with a medical expert based on the 
expert's reputation for outcomes in contested cases, rather than based 
on the expert's professional qualifications. These added criteria for 
disability benefit claims address practices and behavior which cannot 
be reconciled with the ``full and fair review'' guarantee in section 
503 of ERISA, and with the basic fiduciary standards that must be 
followed in implementing the plan's claims procedures. For the reasons 
described below, paragraph (b)(7) of the final rule therefore remains 
largely unchanged from the proposal.
    The Department received numerous comments either generally 
supporting or not objecting to the idea that the independence and 
impartiality requirements for claims procedures for disability claims 
should be consistent with the ACA's claims procedures requirements for 
group health plans. Several commenters pointed out that even prior to 
the proposal, many disability plans had already taken affirmative steps 
to ensure the independence and impartiality of the persons involved in 
the decision-making process. Other commenters who opposed the provision 
as unnecessary similarly cited the fact that the proposed amendments 
reflect current industry practice and argued that issues regarding the 
independence and impartiality of the appeal process is already the 
subject of the well-developed body of case law. Although the Department 
agrees that the proposal was intended to be consistent with industry 
best practice trends and developing case law in the area, the 
Department does not believe that industry trends or court decisions are 
an acceptable substitute for including these provisions in a generally 
applicable regulation.
    Several commenters suggested that the examples of individuals 
covered by this provision should include vocational experts. The 
commenters pointed out that vocational experts are often actively 
involved in the decision-making process for disability claims and play 
a role in the claims process similar to the role of a medical or health 
care professional. They noted that opinions of vocational experts are 
often relied on in making determinations on eligibility for and the 
amount of disability benefits. Although the list in the proposed 
provision was intended to merely reflect examples, not be an exhaustive 
list, the Department nonetheless agrees that it would be appropriate to 
add vocational experts to avoid disputes regarding their status under 
this provision of the final rule. This clarification of the provision 
from its proposed form is also consistent with the current regulation's 
express acknowledgement of the important role of vocational experts in 
the disability claims process. Specifically, paragraph (h)(3)(iv) of 
the current regulation already requires that the claims procedure for 
disability benefit claims must provide for the identification of 
medical or vocational experts whose advice was obtained on behalf of 
the plan in connection with a claimant's adverse benefit determination, 
without regard to whether the advice was relied upon in making the 
benefit determination. Accordingly, the final rule adds ``vocational 
expert'' to the examples of persons involved in the decision-making 
process who must be insulated from the plan's or issuer's conflicts of 
interest. Decisions regarding hiring, compensation, termination, 
promotion, or other similar matters must not be based upon the 
likelihood that the individual will support the denial of benefits.
    Commenters also asked the Department to clarify whether 
``consulting experts'' are ``involved in making the decision'' for 
purposes of the independence and impartiality requirements. Some 
commenters were concerned that consulting experts would fall outside of 
these requirements because plans or claims administrators might assert 
that consulting experts merely supply information and do not decide 
claims. In the Department's view, the text of paragraph (b)(7) is clear 
that the independence and impartiality requirements are not limited to 
persons responsible for making the decision. For example, paragraph 
(b)(7) of the final rule, as in the proposal, refers to a ``medical 
expert'' as an example of a person covered by the provision. The text 
also refers to individuals who may ``support the denial of benefits.'' 
Thus, in the Department's view, the independence and impartiality 
requirements apply to plans' decisions regarding hiring, compensation, 
termination, promotion, or other similar matters with respect to 
consulting experts. Although some commenters suggested that the 
Department expand the regulatory text to expressly include ``consulting 
experts,'' in the Department's view, the regulatory text is 
sufficiently clear to address commenters' concerns especially with the 
inclusion of ``vocational experts'' in this provision of the final rule 
as described above. The Department also believes that it should avoid 
creating differences in the text of parallel provisions in the rules 
for group health benefits under the ACA Claims and Appeals Final Rule 
and disability benefits absent a reason that addresses a specific issue 
for disability claims

[[Page 92320]]

(like the vocational expert issue discussed above).
    Several commenters asked the Department to clarify that the 
independence and impartiality requirements apply even where the plan 
does not directly hire or compensate the individuals ``involved in 
making the decision'' on a claim. The text of the rule does not limit 
its scope to individuals that the plan directly hires. Rather, the 
rule's coverage extends to individuals hired or compensated by third 
parties engaged by the plan with respect to claims. Thus, for example, 
if a plan's service provider is responsible for hiring, compensating, 
terminating, or promoting an individual involved in making a decision, 
this final rule requires the plan to take steps (e.g., in the terms of 
its service contract and ongoing monitoring) to ensure that the service 
provider's policies, practices, and decisions regarding hiring, 
compensating, terminating, or promoting covered individuals are not 
based upon the likelihood that the individual will support the denial 
of benefits.
    One commenter, who supported applying independence and impartiality 
requirements, expressed concern about a statement in the preamble to 
the proposed rule that a plan cannot contract with a medical expert 
based on the expert's reputation for outcomes in contested cases rather 
than based on the expert's professional qualifications. The commenter 
did not object to the prohibition on hiring a medical expert based on a 
reputation for denying claims, but expressed concern that the statement 
in the preamble might result in claimants requesting statistics and 
other information on cases in which the medical expert expressed 
opinions in support of denying rather than granting a disability 
benefit claims. Another commenter who opposed the provision also 
expressed concern about court litigation and discovery regarding 
``reputation'' issues arising from the text in the preamble. In the 
Department's view, the preamble statement accurately describes one way 
that the independence and impartiality standard could be violated. That 
said, the independence and impartiality requirements in the rule do not 
modify the scope of ``relevant documents'' subject to the disclosure 
requirements in paragraphs (g)(1(vii)(C) and (h)(2)(iii) of the Section 
503 Regulation, as amended by this rule. Nor do the independence and 
impartiality requirements in the rule prescribe limits on the extent to 
which information about consulting experts would be discoverable in a 
court proceeding as part of an evaluation of the extent to which the 
claims administrator or insurer was acting under a conflict of interest 
that should be considered in evaluating an adverse benefit 
determination.
    Several commenters urged the Department to implement the 
independence and impartiality requirements with specific quantifiable 
limitations on the relationship between plans and consultants. For 
example, one commenter suggested a medical consultant be required to 
certify that no more than 20% of the consultant's income is derived 
from reviewing files for insurance companies and/or self-funded 
disability benefit plans. Several commenters recommended that plans be 
required to disclose to claimants a range of quantifiable information 
regarding its relationship with certain consultants (e.g., number of 
times a plan has relied upon the third-party vendor who hired the 
expert in the past year). A few commenters suggested that the 
Department establish rules on the qualifications, credentials, or 
licensing of an expert and the nature and type of such expert's 
professional practice. For example, one commenter suggested that the 
rule provide that when a fiduciary relies on a physician or 
psychologist or other professional, such as a vocational specialist, 
the person must be licensed in the same jurisdiction where the plan 
beneficiary resides. Although the Department agrees that more specific 
quantifiable or other standards relating to the nature and type of an 
expert's professional practice might provide additional protections 
against conflicts of interest, the parallel provisions in the claims 
procedure rule for group health plans under the ACA Claims and Appeals 
Final Rule do not contain such provisions. Moreover, an attempt to 
establish specific measures or other standards would benefit from a 
further proposal and public input. Accordingly, the final rule does not 
adopt the commenters' suggestions.
2. Improvements to Disclosure Requirements
    The Department proposed to improve the disclosure requirements for 
disability benefit claims in three respects. First, the proposal 
included a provision that expressly required adverse benefit 
determinations on disability benefit claims to contain a ``discussion 
of the decision,'' including the basis for disagreeing with any 
disability determination by the SSA or other third party disability 
payer, or any views of health care professionals treating a claimant to 
the extent the determination or views were presented by the claimant to 
the plan. Second, notices of adverse benefit determinations must 
contain the internal rules, guidelines, protocols, standards or other 
similar criteria of the plan that were relied upon in denying the claim 
(or a statement that such criteria do not exist). Third, consistent 
with the current rule applicable to notices of adverse benefit 
determinations at the review stage, a notice of adverse benefit 
determination at the initial claims stage must contain a statement that 
the claimant is entitled to receive, upon request, relevant documents.
    In the Department's view, the existing claims procedure regulation 
for disability claims already imposes a requirement that denial notices 
include a reasoned explanation for the denial.\13\ For example, the 
rule requires that the notice must be written in a manner calculated to 
be understood by the claimant, must include any specific reasons for 
the adverse determination, must reference the specific provision in 
governing plan documents on which the determination is based, must 
include a description of any additional information required to perfect 
the claim, must include a description of the internal appeal process, 
and must include the plan's rules, if any, that were used in denying 
the claim (or a statement that such rules are available upon request).
---------------------------------------------------------------------------

    \13\ For example, the Department noted in the preamble to the 
proposed rule the fact that several federal courts concluded that a 
failure to provide a discussion of the decision or the specific 
criteria relied upon in making the adverse benefit determination 
could make a claim denial arbitrary and capricious.
---------------------------------------------------------------------------

    The Department's experience in enforcing the claims procedure 
requirements and its review of litigation activity, however, leads it 
to conclude that some plans are providing disability claim notices that 
are not consistent with the letter or spirit of the Section 503 
Regulation. Accordingly, the Department believes that expressly setting 
forth additional requirements in the regulation, even if some may 
already apply under the current rule, is an appropriate way of 
reinforcing the need for plan fiduciaries to administer the plan's 
claims procedure in a way that is transparent and that encourages an 
appropriate dialogue between a claimant and the plan regarding adverse 
benefit determinations that ERISA and the current claims procedure 
regulation contemplate.
    Commenters generally either supported or did not object to the 
requirement to explain a disagreement with a treating health care 
professional in adverse benefit determinations. The

[[Page 92321]]

Department, accordingly, is adopting this provision from the proposal. 
This provision in the final rule would not be satisfied merely by 
stating that the plan or a reviewing physician disagrees with the 
treating physician or health care professional. Rather, the rule 
requires that the adverse benefit determination must include a 
discussion of the basis for disagreeing with the health care 
professional's views. Several commenters suggested, similar to their 
comments described above on the need to subject vocational experts to 
the independence and impartiality requirements, that this disclosure 
provision should also apply to vocational professionals. As noted 
above, the commenters pointed out that vocational experts have a role 
somewhat similar to the role of a medical or health care professional 
in the claims determination process. The Department agrees, and, 
accordingly, added ``vocational professional'' to this provision.
    An issue raised in the comments related to whether the plan is 
required to address only third party views presented to the plan by the 
claimant. The concern was that plans may not know whether other third 
party views even exist so that any requirement to address third party 
views should be limited to third party findings where they are 
presented by the claimant. Although the Department does not believe it 
would be appropriate to require plans to address views that they were 
not aware of and had no obligation to discover, the Department's 
consideration of this comment led it to conclude that the provision 
needed to be revised to include medical or vocational experts whose 
advice was obtained on behalf of the plan in connection with a 
claimant's adverse benefit determination. The Department's experience 
enforcing the current regulation has revealed circumstances where 
claims adjudicators may consult several experts and deny a claim based 
on the view of one expert when advice from other experts who were 
consulted supported a decision to grant the claim. Some of these cases 
may have involved intentional ``expert shopping.'' Requiring plans to 
explain the basis for disagreeing with experts whose advice the plan 
sought would not present the problem raised in the comments of 
addressing third party views the plan does not know even exist, but it 
would be consistent with and enhance the requirement in paragraph 
(h)(3)(iv) of the current regulation which already requires that the 
claims procedure for disability benefit claims must provide for the 
identification of medical or vocational experts whose advice was 
obtained on behalf of the plan in connection with a claimant's adverse 
benefit determination, without regard to whether the advice was relied 
upon in making the benefit determination. In fact, the Department 
believes that a request for relevant documents under the current 
regulation would require the plan to disclose materials related to such 
a consultation. The plan would also be required under the current 
regulation to explain its basis for not adopting views of an expert the 
plan consulted who supported granting the claim if the claimant raised 
the expert's views as part of an appeal of an adverse benefit 
determination. In the Department's view, this is not a new substantive 
element of the requirement that plans explain the reasons for a denial, 
but rather is a process enhancement that removes unnecessary procedural 
steps for claimants to get an explanation of the reasons the plan 
disagrees with the views of its own consulting experts.
    Accordingly, the final rule revises paragraphs (g)(1)(vii)(A) and 
(j)(6)(i) to require that adverse benefit determinations on disability 
benefit claims contain a discussion of the basis for disagreeing with 
the views of health care professionals who treated the claimant or 
vocational professionals who evaluated the claimant, when the claimant 
presents those views to the plan. The final rule also revises 
paragraphs (g)(1)(vii)(A) and (j)(6)(i) to clarify that adverse benefit 
determinations on disability benefit claims must contain a discussion 
of the basis for disagreeing with the views of medical or vocational 
experts whose advice was obtained on behalf of the plan in connection 
with a claimant's adverse benefit determination, without regard to 
whether the advice was relied upon in making the benefit determination.
    One commenter suggested that references to the ``views'' of 
treating health care professionals is very broad and that it is not 
clear what is intended to be covered by this reference. The commenter 
argued that ``views'' is not synonymous with an opinion or conclusion 
about whether a claimant is disabled, and that, in many cases, health 
care professionals do not provide an opinion on the claimant's 
disability at all, and if they do, they are not providing an opinion on 
disability as defined by the plan. Another commenter asserted that a 
health care professional's focus is on the patient's diagnosis and 
treatment and that the claims adjudicator considers the long-term 
effect of the individual's condition on their ability to work. These 
commenters argued that claims adjudicators are not necessarily agreeing 
or disagreeing with medical findings by a treating health care 
provider, rather they are considering if the claimant's disease or 
illness significantly impairs their work skills. The commenters said 
that to require a plan to discuss why it did not agree with the views 
expressed by a myriad of health care professionals does nothing to help 
explain why a claims administrator found that the claimant was not 
disabled under the terms of the plan.
    The Department does not believe it is appropriate to limit the 
scope of the final rule to opinions or conclusions about whether a 
claimant is disabled. Medical and vocational professionals provide 
views that may be important to the ultimate determination of whether a 
person is disabled. In the Department's view, to the extent the claims 
adjudicator disagrees with foundational information in denying a claim, 
the claimant has a right to know that fact to the same extent the 
claimant should be made aware that the claims adjudicator disagrees 
with an opinion from a medical or vocational expert that the claimant 
is disabled. Further, it is part of the fiduciary role of the ERISA 
claims adjudicator to weigh input from medical and vocational experts 
in reaching a conclusion on a benefit claim. When the claims 
adjudicator acting in a fiduciary capacity disagrees with the judgments 
of medical and vocational professionals in denying a claim, the claims 
adjudicator as a matter of basic fiduciary accountability should be 
able to identify those circumstances and explain the basis for that 
decision. The Department also notes that the final rule requires this 
explanation in cases where the plan or claims adjudicator disagrees 
with the views of the medical or vocational expert. There is no 
disagreement to explain if, as the commenter posed, a treating health 
care consultant expresses a view only on a diagnosis or treatment which 
the plan fully accepts in evaluating the question of whether the 
claimant meets the definition of a disability under the plan. Rather, 
in such a case, the plan would be under the same obligation that exists 
under the current regulation to explain why it reached the conclusion 
that the diagnosed illness or treatment did not impair the claimant's 
work skills or ability to work or otherwise failed to satisfy the 
plan's definition of disability. In summary, the Department believes 
that an explanation of the basis for disagreement with the judgments of

[[Page 92322]]

health care and vocational professionals is required in order to be 
responsive to the information submitted by the claimant or developed 
during evaluation of the claim, and is also necessary for a reasoned 
explanation of a denial.
    With respect to the requirement to explain the basis for 
disagreeing with or not following disability determinations by the SSA 
and other payers of disability benefits, several commenters who 
supported the requirement pointed out that reviewing courts in 
evaluating whether a plan's adverse benefit determination was arbitrary 
and capricious have found an SSA determination to award benefits to be 
a factor that the plan fiduciary deciding a benefit should consider. 
Courts have criticized the failure to consider the SSA determination, 
especially if a plan's administrator operates under a conflict of 
interest and if the plan requires or encourages claimants to pursue SSA 
decisions in order to offset any SSA award against the amount they pay 
in disability benefits. See, e.g., Montour v. Hartford Life and 
Accident Ins. Co., 588 F.3d 623, 637 (9th Cir. 2009) (``failure to 
explain why it reached a different conclusion than the SSA is yet 
another factor to consider in reviewing the administrator's decision 
for abuse of discretion, particularly where, as here, a plan 
administrator operating with a conflict of interest requires a claimant 
to apply and then benefits financially from the SSA's disability 
finding.''); Brown v. Hartford Life Ins. Co., 301 F. App'x 772, 776 
(10th Cir. 2008) (insurer's discussion was ``conclusory'' and 
``provided no specific discussion of how the rationale for the SSA's 
decision, or the evidence the SSA considered, differed from its own 
policy criteria or the medical documentation it considered''). Other 
commenters, however, urged the Department to remove the requirement to 
discuss the basis for disagreeing with the disability determinations of 
the SSA or other payers of benefits. Those commenters argued that it 
would not be reasonable to require an ERISA plan fiduciary to go 
outside the plan's governing document and make a judgment about a 
disability determination made by some other party that is based upon 
another plan or program's definition of disability, which may have 
entirely different or inconsistent definitions of disability or 
conditions. The commenters further argued that the plan fiduciary might 
not be able to get from the SSA or other payer of benefits the 
documents, case file or other information necessary even to try to 
conduct such an evaluation. Those commenters also requested that, if 
such a requirement was to be included in the final rule, then the rule 
should allow plans to take into account in the discussion of its 
decision the extent to which the claimant provided the plan, or gave 
the plan a way to obtain, sufficient documentation from the SSA or 
other third party to allow a meaningful review of such third-party 
findings.
    The Department is persuaded that the final rule should limit the 
category of ``other payers of benefits'' to disability benefit 
determinations by the SSA. The Department accepts for purposes of this 
final rule that claims adjudicators generally are trained to understand 
their own plan or insurance policy requirements and apply those 
standards to claims in accordance with the internal rules, guidelines, 
policies, and procedures governing the plan. The Department also agrees 
that a determination that an individual is entitled to benefits under 
another employee benefit plan or other insurance coverage may not be 
governed by the same definitions or criteria, and that it may be 
difficult for the adjudicator to obtain a comprehensive explanation of 
the determination or relevant underlying information that was relied on 
by the other payer in making its determination.
    The Department does not believe, however, that those same 
difficulties are involved in the case of SSA determinations. SSA 
determinations may include a written decision from an ALJ, and the 
definitions and presumptions are set forth in publicly available 
regulations and SSA guidance. Accordingly, the final rule revises 
paragraphs (g)(1)(vii)(A) and (j)(6)(i) to require that adverse benefit 
determinations on disability benefit claims contain a discussion of the 
basis for disagreeing with an SSA disability determination regarding 
the claimant presented by the claimant to the plan. Although the plan's 
claims procedures may place the burden on the claimant to submit any 
SSA determination that the claimant wants the plan to consider, claims 
administrators working with an apparently deficient administrative 
record must inform claimants of the alleged deficiency and provide them 
with an opportunity to resolve the stated problem by furnishing missing 
information. It also would 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 would be necessary. Further, 
although the final rule does not, as some commenters requested, require 
that plans defer to a favorable SSA determination, a more detailed 
justification would be required in a case where the SSA definitions 
were functionally equivalent to those under the plan.
    Several commenters requested that the Department adopt a rule 
requiring deference to a treating physician's opinion for disability 
determinations, with some commenters suggesting a rule identical to the 
one applied under the SSA disability program. Nothing in ERISA or the 
Department's regulations mandates that a plan administrator give 
special weight to the opinions of a claimant's treating physician when 
rendering a benefit determination. The Department also does not believe 
the public record on this rulemaking supports the Department imposing 
such a rule. In the Department's view, a treating physician rule is not 
necessary to guard against arbitrary decision-making by plan 
administrators. In addition to the various improvements in safeguards 
and procedural protections being adopted as part of this final rule, 
courts can review adverse benefit determinations to determine whether 
the claims adjudicator acted unreasonably in disregarding evidence of a 
claimant's disability, including the opinions of treating physicians. 
Nor does the Department believe it would be appropriate to adopt the 
treating physician rule applicable under the Social Security disability 
program. That rule was adopted by the Commissioner of Social Security 
in regulations issued in 1991, to bring nationwide uniformity to a vast 
statutory benefits program and to address varying decisions by courts 
of appeals addressing the question. ERISA, by contrast, governs a broad 
range of private benefit plans to which both the statute and 
implementing regulations issued by the Secretary of Labor permit 
significant flexibility in the processing of claims. Moreover, the 
SSA's treating physician rule has not been uniformly or generally 
applied even under statutory disability programs other than Social 
Security. See Brief for the United States as amicus curiae supporting 
petitioner, Black & Decker Disability Plan v. Nord, 538 U.S. 822 
(2003).
    Under the current Section 503 Regulation, if a claim is denied 
based on a medical necessity, experimental treatment, or similar 
exclusion or limit, the adverse benefit determination must include 
either an explanation of the scientific or clinical judgment for the 
determination, applying the terms of the plan to the claimant's medical 
circumstances, or a statement that such

[[Page 92323]]

explanation will be provided free of charge upon request. These 
requirements in paragraphs (g)(1)(v)(B) and (j)(5)(ii) apply to notices 
of adverse benefit determinations for both group health and disability 
claims. In proposing new paragraphs (g)(1)(vii) and (j)(6) applicable 
to disability claims, these requirements were intended to be subsumed 
in the general requirement in the proposal that adverse benefit 
determinations include a ``discussion of the decision.'' The Department 
is concerned, however, that removing the explicit requirement in the 
disability claims procedure to explain a denial based on medical 
necessity, experimental treatment, or similar exclusion may be 
misinterpreted by some as eliminating that requirement (especially with 
the group health plan claims procedures continuing to have that 
explicit requirement). That clearly was not the Department's intention, 
and, accordingly, the final rule expressly sets forth in paragraphs 
(g)(1)(vii)(B) and (j)(6)(ii) the requirement of an explanation of the 
scientific or clinical judgment for such denials.\14\
---------------------------------------------------------------------------

    \14\ The current Section 503 Regulation in paragraph (j)(5)(iii) 
requires a statement concerning voluntary dispute resolution options 
in notices of adverse benefit determinations on review for both 
group health and disability claims. The Department previously issued 
an FAQ on that provision noting that information on the specific 
voluntary appeal procedures offered under the plan must be provided 
under paragraph (j)(4) of the regulation in the notice of adverse 
benefit determination, along with a statement of the claimant's 
right to bring a civil action under section 502(a) of ERISA. The 
Department, therefore, stated in the FAQ that, pending further 
review, it will not seek to enforce compliance with the requirements 
of paragraph (j)(5)(iii). See FAQs About The Benefit Claims 
Procedure Regulation, D-13 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf). In light of the fact that this proposal 
was limited to disability benefit claims, the Department does not 
believe it would be appropriate to modify the requirement in 
paragraph (j)(5)(iii) as part of this final rule. Accordingly, the 
Department will continue the enforcement position articulated in FAQ 
D-13.
---------------------------------------------------------------------------

    The Department received numerous comments in favor of the 
disclosure requirement in paragraphs (g)(1)(vii)(B) and (j)(6)(ii) of 
the proposal that notices of adverse benefit determinations include the 
internal rules, guidelines, protocols, standards or other similar 
criteria of the plan that were relied upon in denying the claim (or a 
statement that such criteria do not exist). Commenters who supported 
the proposal noted that the proposed requirement should not be onerous 
given that adverse benefit determinations are already required to 
include the reasons for the denial and the applicable plan terms, and 
also argued that this further level of transparency would promote the 
dialogue between claimant and plan regarding adverse benefit 
determinations that ERISA contemplates. These commenters also pointed 
out that this requirement would address a problem confronted by some 
claimants where a plan or claims adjudicator says it is relying on an 
internal rule in denying a claim, and then refuses to disclose it to 
the claimant based on an assertion that the internal rule is 
confidential or proprietary. Commenters who opposed the provision 
argued that the proposal would be overly burdensome for plans and 
insurers. They read the provision as requiring disclosure of ``details 
of internal processes that are irrelevant to the claim decision and 
that would provide little in the way of useful information to 
claimants.'' The comments included concerns about the time and cost to 
review claims manuals and other internal documents that may include 
rules, guidelines, protocols, standards or other similar criteria to 
determine that no provision has any application to a claim in order to 
make the statement that such internal rules, etc. do not exist.
    The final rule, like the proposal, provides that internal rules, 
guidelines, protocols, standards or other similar criteria of the plan 
relied upon in making an adverse benefit determination must be provided 
with the adverse benefit determination. The Department does not agree 
with commenters who asserted that the requirement will be overly 
burdensome to plans. Even under the existing claims procedure 
regulation, internal rules, guidelines, protocols, standards or similar 
criteria relied upon in denying the claim already must be provided to 
the claimant upon request. Although the additional requirement to 
affirmatively include them in the adverse benefit determination adds an 
incremental paperwork burden, where a plan utilizes a specific internal 
rule or protocol, understanding the terms of the specific protocol may 
be crucial to a claimant's ability to successfully contest the denial 
on review. With respect to the comments about disclosing an internal 
process that is irrelevant to the claim decision, it is hard to see how 
something that is in fact ``irrelevant'' can be something that was 
``relied upon'' in denying the claim. Furthermore, the Department does 
not agree that it should change the proposed text based on expressed 
concerns about the time and cost to review claims manuals and other 
internal documents to determine that nothing in those materials have 
application to a claim. Aside from the fact that this provision of the 
final rule requires the plan to affirmatively include only rules, 
guidelines, protocols, standards or other similar criteria that were 
relied on in denying the claim, in the Department's view, it would 
present substantial questions about whether the plan or claims 
adjudicator complied with ERISA's fiduciary standards if a claim was 
denied without the claims adjudicator having considered a rule, 
guideline, protocol or standard that was intended to govern the 
determination of the claim. Moreover, the current Section 503 
regulation for disability plans gives claimants the right to reasonable 
access to and copies of documents, records, and other information 
``relevant'' to the claimant's claim for benefits. In addition to 
capturing documents, records, and other information ``relied upon'' in 
making the benefit determination, the definition of ``relevant'' also 
captures information submitted, considered or generated in the course 
of making the benefit determination or that demonstrates compliance 
with the administrative processes and safeguards designed to ensure and 
verify that benefit claim determinations have been made in accordance 
with governing plan documents and that those provisions have been 
applied consistently with respect to similarly situated claimants. In 
the case of plans providing group health or disability benefits, 
``relevant'' also includes documents, records, or other information 
that constitutes a statement of policy or guidance with respect to the 
plan concerning the denied treatment option or benefit, without regard 
to whether such advice or statement was relied upon in making the 
benefit determination. Such a statement of policy or guidance would 
include any policy or guidance generated or commissioned by the plan or 
issuer concerning the denied benefit that would or should contribute to 
deciding generally whether to pay the claim (e.g., studies, surveys or 
assessments generated or commissioned by the plan or issuer that 
implicate a denied treatment option or benefit but do not relate 
specifically to the plan itself). Thus, in the Department's view, even 
under the current rule, plans would be required, on request, to verify 
that the plan has produced all the internal rules, guidelines, 
protocols, standards or other similar criteria concerning the denied 
claim that were or should have been considered in deciding the claim.
    Another commenter argued that it did not make sense to require 
plans to

[[Page 92324]]

affirmatively state in an adverse benefit determination that plans did 
not rely on any rule or guideline. They argued that, if the adverse 
benefit determination failed to cite reliance on such a rule or 
guideline, the claimant could ask and the plan would respond with a 
statement that none were relied on. They argued that such a process 
gives the claimant the ability to obtain that information in cases 
where the claimant believes that information is important to 
understanding or contesting the basis for the denial. It is the 
Department's view, however, that an affirmative statement would be 
helpful to the claimant by providing certainty about the existence of 
any applicable rule or guideline. The Department also does not believe 
the absence of a statement of reliance in an adverse benefit statement 
fairly puts a claimant on notice to request confirmation that no rule 
or guideline was relied upon. Further, the Department does not believe 
merely requiring such an affirmative statement is burdensome on plans 
because the plan should know whether it relied on a rule or guideline 
in denying a claim.
    Finally, the existing Section 503 regulation already requires that 
rules, guidelines, protocols, standards or other similar criteria that 
were relied on in denying the claim must be disclosed to claimants on 
request. Nothing in the current regulation allows a plan fiduciary to 
decline to comply with that requirement based on an assertion that the 
information is proprietary or confidential. Indeed, the Department has 
taken the position that internal rules, guidelines, protocols, or 
similar criteria would constitute instruments under which a plan is 
established or operated within the meaning of section 104(b)(4) of 
ERISA and, as such, must be disclosed to participants and 
beneficiaries. See FAQs About The Benefit Claims Procedure Regulation, 
C-17 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).\15\ 
Similarly, this final rule does not permit a plan to conceal such 
information from the claimant under an assertion that the information 
is proprietary or constitutes confidential business information.
---------------------------------------------------------------------------

    \15\ FAQ C-17 states: ``It is the view of the department that 
where a rule, guideline, protocol, or similar criterion serves as a 
basis for making a benefit determination, either at the initial 
level or upon review, the rule, guideline, protocol, or criterion 
must be set forth in the notice of adverse benefit determination or, 
following disclosure of reliance and availability, provided to the 
claimant upon request. However, the underlying data or information 
used to develop any such rule, guideline, protocol, or similar 
criterion would not be required to be provided in order to satisfy 
this requirement. The department also has taken the position that 
internal rules, guidelines, protocols, or similar criteria would 
constitute instruments under which a plan is established or operated 
within the meaning of section 104(b)(4) of ERISA and, as such, must 
be disclosed to participants and beneficiaries. See Sec.  Sec.  
2560.503-1(g)(v) (A) and (j)(5)(i); 65 FR at 70251. Also see Sec.  
Sec.  2560.503-1(h)(2)(iii) and 2560.503-1(m)(8)(i); Advisory 
Opinion 96-14A (July 31, 1996).
---------------------------------------------------------------------------

    The third new disclosure requirement, set forth in paragraph 
(g)(1)(vii)(C) of the proposal, adds a requirement that an adverse 
benefit determination at the initial claims stage must include a 
statement that the claimant is entitled to receive, upon request, 
documents relevant to the claim for benefits. Although the current 
Section 503 Regulation provides that claimants challenging an initial 
denial of a claim have a right to request relevant documents, a 
statement advising claimants of their right to relevant documents 
currently is required only in notices of an adverse benefit 
determination on appeal. No commenters objected to the addition of this 
statement to the adverse benefit determination at the initial claims 
stage. The Department believes such a statement in the initial denial 
notice simply confirms rights claimants already have under the current 
claims regulation and will help ensure claimants understand their right 
of access to the information needed to understand the reasons for the 
denial and decide whether and how they may challenge the denial on 
appeal. Accordingly, this provision was adopted without change in the 
final rule.
3. Right To Review and Respond to New Information Before Final Decision
    The Department continues to believe that a full and fair review 
requires that claimants have a right to review and respond to new 
evidence or rationales developed by the plan during the pendency of the 
appeal and have the opportunity to fully and fairly present his or her 
case at the administrative appeal level, as opposed merely to having a 
right to review such information on request only after the claim has 
already been denied on appeal. Accordingly, the final rule adopts those 
provisions of the proposal with certain modifications described below.
    Paragraph (h)(4) of the final rule, consistent with the proposal, 
requires that plans provide claimants, free of charge, with new or 
additional evidence considered, relied upon, or generated by the plan, 
insurer, or other person making the benefit determination (or at the 
direction of the plan, insurer or such other person) during the 
pendency of the appeal in connection with the claim. Consistent with 
the proposal, paragraph (h)(4) also provides a similar disclosure 
requirement for an adverse benefit determination based on a new or 
additional rationale. The evidence or rationale must be provided as 
soon as possible and sufficiently in advance of the date on which the 
notice of adverse benefit determination on review is required to be 
provided to give the claimant a reasonable opportunity to address the 
evidence or rationale prior to that date. These requirements already 
apply to claims involving group health benefits under the ACA Claims 
and Appeals Final Rule. Further, the Department has interpreted ERISA 
section 503 and the current Section 503 Regulation as already requiring 
that plans provide claimants with new or additional evidence or 
rationales upon request and provide them an opportunity to respond in 
at least certain circumstances.\16\
---------------------------------------------------------------------------

    \16\ As a practical matter, these requirements to provide 
claimants with evidence or rationales that were relied on or used as 
a basis for an adverse benefit determination largely conforms the 
rule to the existing process by which benefits claims should be 
handled in such cases. E.g., Saffon v. Wells Fargo & Co. Long Term 
Disability Plan, 511 F.3d 1206, 1215 (9th Cir. 2008) (finding that a 
full and fair review requires a plan administrator to disclose the 
reasons for denial in the administrative process); 75 FR at 43333 
n.7 (noting the DOL's position that the existing claims procedure 
regulation already requires plans to provide claimants with new or 
additional evidence or rationale upon request and an opportunity to 
respond in certain circumstances).
---------------------------------------------------------------------------

    The objective of these provisions is to ensure the claimant's 
ability to obtain a full and fair review of denied disability claims by 
explicitly providing that claimants have a right to review and respond 
to new or additional evidence or rationales developed by the plan 
during the pendency of the appeal, as opposed merely to having a right 
to such information on request only after the claim has already been 
denied on appeal, as some courts have held under the Section 503 
Regulation. These protections are direct imports from the ACA Claims 
and Appeals Final Rule, and they would correct procedural problems 
evidenced in litigation even predating the ACA.\17\ It was and 
continues to be the view of the Department that claimants are deprived 
of a full and fair review, as required by

[[Page 92325]]

section 503 of ERISA, when they are prevented from responding, at the 
administrative stage level, to all evidence and rationales.\18\
---------------------------------------------------------------------------

    \17\ See, e.g., Metzger v. Unum Life Ins. Co. of America, 476 
F.3d 1161, 1165-67 (10th Cir. 2007) (holding that ``subsection 
(h)(2)(iii) does not require a plan administrator to provide a 
claimant with access to the medical opinion reports of appeal-level 
reviewers prior to a final decision on appeal.''). Accord Glazer v. 
Reliance Standard Life Ins. Co., 524 F.3d 1241 (11th Cir. 2008); 
Midgett v. Washington Group Int'l Long Term Disability Plan, 561 
F.3d 887 (8th Cir. 2009).
    \18\ Brief of the Secretary of Labor, Hilda L. Solis, as Amicus 
Curiae in Support of Plaintiff-Appellant's Petition for Rehearing, 
Midgett v. Washington Group Int'l Long Term Disability Plan, 561 
F.3d 887 (8th Cir. 2009) (No. 08-2523).
---------------------------------------------------------------------------

    As an example of how these new provisions would work, assume the 
plan denies a claim at the initial stage based on a medical report 
generated by the plan administrator. Also assume the claimant appeals 
the adverse benefit determination and, during the 45-day period the 
plan has to make its decision on appeal, the plan administrator causes 
a new medical report to be generated. The proposal and the final rule 
would require the plan to automatically furnish to the claimant any new 
or additional evidence in the second report. The obligation applies to 
any new or additional evidence, including, in particular, evidence that 
may support granting the claim. The plan would have to furnish the new 
or additional evidence to the claimant before the expiration of the 45-
day period. The evidence would have to be furnished as soon as possible 
and sufficiently in advance of the applicable deadline (including an 
extension if available) in order to give the claimant a reasonable 
opportunity to address the new or additional evidence. The plan would 
be required to consider any response from the claimant. If the 
claimant's response happened to cause the plan to generate a third 
medical report containing new or additional evidence, the plan would 
have to automatically furnish to the claimant any new or additional 
evidence in the third report. The new or additional evidence would have 
to be furnished as soon as possible and sufficiently in advance of the 
applicable deadline to allow the claimant a reasonable opportunity to 
respond to the new or additional evidence in the third report.
    Several commenters asked for clarification regarding the 
application of the rights in paragraph (h)(4)(i) of the proposal which 
would have required that the plan's claims procedures must allow a 
claimant to review the claim file and to present evidence and testimony 
as part of the ``disability benefit claims and appeals process.'' The 
commenters noted that, although subsection (h) deals with the appeals 
portion of the claim process, use of the phrase ``claims and appeals 
process'' could cause confusion as to whether the requirements of that 
subsection are intended to apply only to the appeals portion of the 
process or also to the initial stage of the claim process. Those 
commenters also suggested that this provision be deleted in its 
entirety because it was redundant and unnecessary. They pointed out 
that paragraph (g)(1)(vii)(C) of the proposal already added a 
requirement that claimants be notified as part of a denial at the 
initial claims stage of their right to review copies of documents and 
other information relevant to the claim for benefits. They pointed to 
the definition of ``relevant'' in the current regulation at paragraph 
(m)(8), which includes documents, records or other information that 
were relied upon in making the benefit determination, submitted, 
considered or generated in the course of making the benefit 
determination, demonstrates compliance with the certain administrative 
safeguards and requirements required under the regulation, or 
constitutes a statement of policy or guidance with respect to the plan 
concerning a denied treatment option or benefit or the claimant's 
diagnosis. The commenters also noted that paragraph (h)(2)(ii) of the 
regulation currently gives claimants the right to ``submit written 
comments, documents, records, and other information'' as part of an 
initial claim. Consequently, they asserted that a provision stating 
that they can also submit ``evidence'' and ``testimony'' does not 
appear to add to the current requirements.
    The text in paragraph (h)(4)(i) was intended to parallel text in 
the regulation for group health plans under the ACA Claims and Appeals 
Final Rule. The ACA Claims and Appeals Final Rule specifically 
addressed rights to review and respond to new or additional evidence or 
rationales during the appeal stage. The Department agrees with the 
commenters that the provision is intended to be limited to the appeal 
stage. The Department also agrees that the new text in proposed 
paragraph (h)(4)(i) on rights to review the claims file and to present 
evidence is unnecessary in the disability claims procedure regulation 
because those rights already exist under the current Section 503 
regulation. Accordingly, because that provision in the proposal would 
not have added new substantive requirements, the Department has deleted 
the provision from the final rule. In light of the deletion of proposed 
paragraph (h)(4)(i) from the final rule, the definition in the proposal 
of ``claim file'' is also unnecessary, and, accordingly, the Department 
is not including that definitional provision in the final rule. The 
changes from the proposal should not be viewed, however, as in any way 
restricting claimant's rights to documents, records, or other 
information under the regulation, or to restrict claimant's rights to 
present evidence. For example, in the Department's view, if the plan or 
claims adjudicator maintains a claims file or other similar compilation 
of documents, records, and other information, such a file by definition 
would constitute relevant materials and be subject to mandatory 
disclosure under the final rule.
    In response to the paragraph (h)(4)(i) as drafted in the proposal, 
several commenters expressed concern that some plans would have read 
the language as imposing courtroom evidentiary standards for claimants 
submitting proof of their claim. Others expressed concern about a 
statement in the proposal's preamble that referenced ``written'' 
testimony because they thought some plans might rely on that reference 
to prohibit claimants from submitting audio or video evidence. The 
Department did not intend that the provision be read to limit the types 
of evidence that claimants can submit or otherwise put claimants in a 
worse position than they face under the current regulation. For 
example, the Department does not believe that plans could refuse to 
accept evidence submitted in the form of video, audio or other 
electronic media. Further, in the Department's view, even under the 
current regulation, it would not be permissible for a plan to impose 
courtroom evidentiary standards in determining whether the plan will 
accept or consider information or materials submitted by a claimant.
    Several commenters argued that giving claimants new or additional 
evidence or rationales developed during the pendency of the appeal and 
requiring plans to consider and address claimant submissions regarding 
the new or additional evidence or rationale would set up an unnecessary 
cycle of review and re-review leading to delay and increased costs. The 
Department is not persuaded by this argument. The requirement conforms 
the disability claims regulation to the group health plan claims 
process requirements under the ACA Claims and Appeals Final Rule. 
Granting both parties (the claimant and the plan) the opportunity to 
address the other side's evidence has not resulted in an endless loop 
of submissions in group health claims under the ACA Claims and Appeals 
Final Rule, and there is no reason to believe that this would occur in 
the disability claims administrative process. The Department also has 
previously stated its view that the supposed ``endless loop'' is 
necessarily limited by claimants' ability to generate new or

[[Page 92326]]

additional evidence requiring further review by the plan. Such 
submissions ordinarily become repetitive in short order, and are 
further circumscribed by the limited financial resources of most 
claimants. If a claimant's assertions do not include new factual 
information or medical diagnoses, a plan need not generate report after 
report rather than relying on the reports it already has in hand merely 
because a claimant objects to or disagrees with the evidence or 
rationale. The process also necessarily resolves itself when the plan 
decides it has enough evidence to properly decide the claim and does 
not generate new or additional evidence or rationales to support its 
decision.\19\ The fiduciary obligation to pay benefits in accordance 
with the terms of the plan does not require a fiduciary to endlessly 
rebut credible evidence supplied by a claimant that, if accepted, would 
be sufficient to justify granting the claim. In fact, an aggressive 
claims processing practice of routinely rejecting or seeking to 
undermine credible evidence supplied by a claimant raises questions 
about whether a fiduciary, especially one operating under a conflict of 
interest, is violating the fiduciary's loyalty obligation under ERISA 
to act solely in the interest of the plan's participants and 
beneficiaries.
---------------------------------------------------------------------------

    \19\ Brief of the Secretary of Labor, Hilda L. Solis, as Amicus 
Curiae in Support of Plaintiff-Appellant's Petition for Rehearing, 
Midgett v. Washington Group Int'l Long Term Disability Plan, 561 
F.3d 887 (8th Cir. 2009) (No. 08-2523), p. 13.
---------------------------------------------------------------------------

    Several commenters complained about the possibility of claimants 
arguing that plans failed to comply with the claims procedure whenever 
any additional evidence was relied on to support a rationale that was 
already used as a basis for denying a claim. They expressed similar 
concerns about determining whether a rationale relied on in denying a 
claim on review was a ``new'' or ``additional'' rationale. They asked 
the Department to include in the final rule a definition of what 
constitutes ``new or additional'' evidence or a ``new or additional'' 
rationale. They asserted that the rule might be read to permit a 
claimant to receive and rebut medical opinion reports generated in the 
course of an administrative appeal, even when those reports contain no 
new factual information and deny benefits on the same basis as the 
initial decision.
    The Department does not believe it is necessary or appropriate to 
include definitions of the terms ``new evidence'' or ``new rationale'' 
in the final rule. Those same terms exist in the parallel claims 
procedure requirement applicable to group health plans under the ACA 
Claims and Appeals Final Rule, and have been part of the claims 
procedure requirements for those plans for several years. The 
Department does, however, intend that the terms be applied broadly so 
that claimants have the opportunity to respond at the administrative 
stage level to all evidence and rationales. Many federal courts have 
held that in reviewing a plan administrator's decision for abuse of 
discretion, the courts are limited to the ``administrative record''--
the materials compiled by the administrator in the course of making his 
or her decision. See Miller v. United Welfare Fund, 72 F.3d 1066, 1071 
(2d Cir.1995) (compiling cases and stating that ``[m]ost circuits have 
declared that, in reviewing decisions of plan fiduciaries under the 
arbitrary and capricious standard, district courts may consider only 
the evidence that the fiduciaries themselves considered''). While some 
courts have held that when conducting a de novo review, any party may 
be free to submit additional evidence outside the administrative 
record,\20\ most circuits have adopted rules allowing the admission of 
additional evidence in de novo cases only in limited circumstances. In 
addition to requiring the deciding fiduciary to consider the claimant's 
response to new or additional evidence or rationales, the Department 
believes it is important that the claimant have the right and 
opportunity to ensure that a full administrative record is before a 
reviewing court when new or additional evidence or rationales are 
introduced into the record by the plan or deciding fiduciary.\21\
---------------------------------------------------------------------------

    \20\ See Moon v. Am. Home Assurance Co., 888 F.2d 86, 89 (11th 
Cir.1989).
    \21\ Some commenters suggested that the Department define ``new 
or additional evidence'' to be ``new and additional medical reviews, 
including independent medical reports.'' As noted above, these 
requirements already apply to claims involving group health benefits 
under the ACA Claims and Appeals Final Rule and we do not think that 
it is appropriate to restrict this rule to medical reviews since 
other types of evidence, if new, would clearly need to be provided 
to claimants to ensure the full and fair review as described above. 
For example, if a plan were to obtain video evidence of a disability 
benefit claimant during the pendency of the appeal, but only provide 
the claimant with a portion of that video evidence, e.g., the 
portion that supports the denial of benefits, while withholding the 
portions that favor the claimant, that would be a failure by the 
plan to provide new evidence developed to the claimant.
---------------------------------------------------------------------------

    The Department requested comments on whether, and to what extent, 
modifications to the existing timing rules are needed to ensure that 
disability benefit claimants and plans will have ample time to engage 
in the back-and-forth dialogue that is contemplated by these new review 
and response rights. The current Section 503 Regulation requires that 
the plan must decide claims and appeals within a reasonable period, 
taking into account all circumstances. The following timeframes reflect 
the maximum period by which a plan must make a determination: (1) 
Initial claim: 45 days after submission; additional 30 days with prior 
notice for circumstances beyond control of the plan; and (2) Appeal: 45 
days after receipt of appeal; additional 45 days with prior notice for 
``special circumstances.'' A special deadline for deciding appeals 
applies when the named fiduciary is a board or committee of a 
multiemployer plan that meets at least quarterly. The Department 
received several comments with suggestions on possible new timing 
requirements for the claimant to respond to the new evidence and a time 
deadline for the claims administrator to make its final decision. Other 
commenters asserted that the current regulations are sufficient for the 
needs of consumers covered under this final regulation and provide 
``ample'' time for plans and claimants to engage in the necessary 
dialogue. One commenter raised an issue concerning this rule and its 
impact on the prompt administration of disability claims. The commenter 
described, by way of example, that the plan would have to send 
claimants new or additional evidence before the plan may have 
determined whether and how the evidence may contribute to an adverse 
appeal decision, claimants would receive new or additional evidence 
piecemeal as the appeals process continues and claimants could be 
required to provide comments back without necessarily knowing how that 
information may, if at all, affect the decision. The Department does 
not believe that the rule envisions this kind of process. This 
provision by its terms does not apply if a plan grants the claim on 
appeal. Instead, when the plan has decided that it is going to deny the 
claim on appeal, that is the point at which the rule requires new or 
additional evidence must be provided to the claimant, sufficiently in 
advance of final decision so that the claimant can address such 
evidence. The provision does not require that the plan provide the 
claimant with information in a piecemeal fashion without knowing 
whether, and if so how, that information may affect the decision.
    The Department noted in the preamble to the proposal that the group 
health plan claims regulation provides that if the new or additional 
evidence or rationale is received by a plan so late that it would be 
impossible to provide it to the claimant in time for the

[[Page 92327]]

claimant to have a reasonable opportunity to respond, the period for 
providing a notice of final internal adverse benefit determination is 
tolled until such time as the claimant has a reasonable opportunity to 
respond. The Department did not include this special tolling provision 
in the proposed amendments because the current disability claims 
regulation, as described above, already permits plans to take 
extensions at the appeals stage. In the Department's view, the current 
disability claims regulation ``special circumstances'' provision 
permits the extension and tolling expressly added to the group health 
plan rule under the ACA Claims and Appeals Final Rule.\22\ Although the 
Department is not including special timing provisions in the final 
rule, the Department is open to considering comments on whether sub-
regulatory guidance regarding the current provisions on extensions and 
tolling would be helpful in the context of the new review and response 
rights.
---------------------------------------------------------------------------

    \22\ In connection with the ACA Claims and Appeals Final Rule, 
the Department explained the process as follows: ``To address the 
narrow circumstance raised by some comments that the new or 
additional information could be first received so late that it would 
be impossible to provide it, these final regulations provide that if 
the new or additional evidence is received so late that it would be 
impossible to provide it to the claimant in time for the claimant to 
have a reasonable opportunity to respond, the period for providing a 
notice of final internal adverse benefit determination is tolled 
until such time as the claimant has a reasonable opportunity to 
respond. After the claimant responds, or has a reasonable 
opportunity to respond but fails to do so, the plan or issuer must 
notify the claimant of the benefit determination as soon as a plan 
or issuer acting in a reasonable and prompt fashion can provide the 
notice, taking into account the medical exigencies.''
---------------------------------------------------------------------------

    Commenters asked the Department to confirm that a plan could 
satisfy the new review and response requirements through a current 
procedure, which was described as ``universal and a result of 
established case law.'' Specifically the commenters stated that some 
plans currently provide claimants with a voluntary opportunity to 
appeal any rationale raised for the first time in an appeal denial 
letter. They contended that this process works well because it gives 
the claimant a choice of whether to appeal and supplement the 
administrative record based on a challenge to the new evidence or 
rationale. They also asserted that the procedure would address 
commenters' concern that this requirement may conflict with claims 
administrator's obligation to meet the requisite time requirements for 
deciding claims and appeals. In fact, a few other commenters 
specifically asked that the new requirement not apply to plans that 
currently offer a voluntary additional level of appeal. The Department 
does not agree that a voluntary additional level of appeal provides the 
same rights to claimants because the additional level of appeal is not 
subject to the rule's provisions on timing of notification of benefit 
determinations on appeal. In the Department's view, it would not be 
appropriate to condition a claimant's right to review and respond to 
new evidence on the claimant effectively being required to give up 
rights to a timely review and decision at the appeal stage.
    Finally, the Department's experience enforcing the current 
regulation for group health plans has revealed circumstances where 
claims adjudicators assert that they are satisfying this requirement by 
providing claimants with a notice informing them that the plan relied 
on new or additional evidence or a new or additional rationale in 
denying the claim, and offering to provide the new evidence or 
rationale on request. As the Department explained in the preamble to 
the ACA Claims and Appeals Final Rule for group health plans,\23\ in 
order to comply with this requirement, a plan or issuer must send the 
new or additional evidence or rationale automatically to the claimant 
as soon as it becomes available to the plan. Merely sending a notice 
informing claimants of the availability of such information fails to 
satisfy the requirement, and if a plan's claims procedure says the plan 
will send a notice of the availability of such information, the 
responsible plan fiduciary similarly would fail to have met the 
requirement under ERISA section 503 for the plan to establish and 
maintain a reasonable procedure governing the filing of benefit claims, 
notification of benefit determinations, and appeal of adverse benefit 
determinations.
---------------------------------------------------------------------------

    \23\ That rulemaking notice (at 80 FR 72207) included the 
following explanation in responding to public comments on that rule: 
``Commenters requested additional guidance related to the timing and 
amount of information required to be provided in order to satisfy 
this requirement. Specifically, individuals asked whether such 
information actually must be provided automatically to participants 
and whether or not it would be sufficient to send participants a 
notice informing them of the availability of new or additional 
evidence or rationale. The Departments retain the requirement that 
plans and issuers provide the new or additional evidence or 
rationale automatically. In the Departments' view, fundamental 
fairness requires that participants and beneficiaries have an 
opportunity to rebut or respond to any new or additional evidence 
upon which a plan or issuer may rely. Therefore, plans and issuers 
that wish to rely on any new or additional evidence or rationale in 
making a benefit determination must send such new or additional 
evidence or rationale to participants as soon as it becomes 
available to the plan or issuer. In order to comply with this 
requirement, a plan or issuer must send the new or additional 
evidence or rationale to the participant. Merely sending a notice 
informing participants of the availability of such information fails 
to satisfy this requirement.'' This same explanation applies with 
equal force to the identical requirement in this final rule 
applicable to disability benefit claims.
---------------------------------------------------------------------------

4. Deemed Exhaustion of Claims and Appeals Processes
    The final rule tracks the proposal and provides that if a plan 
fails to adhere to all the requirements in the claims procedure 
regulation, the claimant would be deemed to have exhausted 
administrative remedies, with a limited exception where the violation 
was (i) de minimis; (ii) non-prejudicial; (iii) attributable to good 
cause or matters beyond the plan's control; (iv) in the context of an 
ongoing good-faith exchange of information; and (v) not reflective of a 
pattern or practice of non-compliance. The rule thus mirrors the 
existing standard applicable to group health plans under the ACA Claims 
and Appeals Final Rule and is stricter than a mere ``substantial 
compliance'' requirement.
    The Department received a number of generally favorable comments 
regarding the deemed exhaustion provisions in paragraphs (l)(1) and (2) 
of the proposal. Those commenters argued that claimants should not have 
to follow a claims and appeals process that is less than full, fair, 
and timely. Some of those commenters expressed concern that the 
language in proposed paragraph (l)(2)(i) was potentially inconsistent 
with language in the preamble. The commenters noted that the preamble 
stated that ``in those situations when the minor errors exception does 
not apply, the proposal clarifies that the reviewing tribunal should 
not give special deference to the plan's decision, but rather should 
review the dispute de novo.'' By contrast, they point out that proposed 
paragraph (l)(2)(i) provides that ``[i]f a claimant chooses to pursue 
remedies under section 502(a) of ERISA under such circumstances, the 
claim or appeal is deemed denied on review without the exercise of 
discretion by an appropriate fiduciary.'' According to the commenters, 
plans could argue that the language in proposed paragraph (l)(2)(i) 
does not go far enough and suggested that the regulation should 
expressly require de novo review.
    The Department does not intend to establish a general rule 
regarding the level of deference that a reviewing court may choose to 
give a fiduciary's decision interpreting benefit provisions in the 
plan's governing documents. However, the cases reviewing a plan 
fiduciary's decision under a deferential arbitrary or capricious 
standard are based on the idea that the plan

[[Page 92328]]

documents give the fiduciary discretionary authority to interpret the 
plan documents. By providing that the claim is deemed denied without 
the exercise of fiduciary discretion, the regulation relies on the 
regulatory authority granted the Department in ERISA sections 503 and 
505 and is intended to define what constitutes a denial of a claim. The 
legal effect of the definition may be that a court would conclude that 
de novo review is appropriate because of the regulation that determines 
as a matter of law that no fiduciary discretion was exercised in 
denying the claim.
    A number of commenters expressed concern with proposed paragraph 
(l)(2)(i), arguing that the proposal encourages claimants to circumvent 
a plan's claims and appeals process, to seek remedies in court in the 
case of insignificant missteps in claims management practices that have 
no impact on claim outcomes, and, therefore, will result in increased 
litigation. One commenter asked that the proposal be deleted. A few 
commenters suggested alternative approaches to the proposal. For 
example, they suggested that the Department consider a rule which first 
requires claimants to notify the plan that they intend to pursue 
judicial review based upon the plan's procedural error, and provide 
plans with a reasonable period of time to cure the error before the 
claimant can dispense with further administrative review. The 
Department does not believe that the typical participant pursuing a 
disability benefit claim in the context of a fair and timely review 
process will, as the commenters claimed, seek remedies in court in the 
case of insignificant missteps in claims management processes that have 
no impact on the ultimate decision on the claim. Further, the 
Department does not believe it would be appropriate to create a rule 
that could create incentives for plans and insurers to violate 
procedural requirements designed to protect claimants and ensure 
transparency in the decision-making process knowing that before the 
claimant could seek redress that the claimant would have to identify 
the violation, notify the plan of the violation, and give the plan time 
to cure the error. Rather, after careful consideration of these 
comments, the Department continues to believe that claimants should not 
have to follow a claims and appeals process that is less than full, 
fair, and timely. Accordingly, the Department decided to retain the 
deemed exhaustion provisions as proposed, including the exception to 
the strict compliance standard for errors that are minor and that meet 
certain other specified conditions.\24\
---------------------------------------------------------------------------

    \24\ The provisions in this final rule supersede any and all 
prior Departmental guidance with respect to disability benefit 
claims to the extent such guidance is contrary to this final rule, 
including but not limited to the deemed exhaustion discussion in FAQ 
F-2 in FAQs About The Benefit Claims Procedure Regulation. 
(www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
---------------------------------------------------------------------------

5. Coverage Rescissions--Adverse Benefit Determinations
    Paragraph (m)(4) of the final rule amends the definition of an 
adverse benefit determination to include, for plans providing 
disability benefits, a rescission of disability benefit coverage that 
has a retroactive effect, except to the extent it is attributable to a 
failure to timely pay required premiums or contributions towards the 
cost of coverage. The Department did not receive any comments objecting 
to this provision in the proposed rule, and, accordingly, the provision 
is adopted without change in the final rule.
    Several commenters suggested that the provision be expanded to 
expressly include situations, particularly in cases involving mental 
health and substance use disorder claims, where a plan approves 
treatment for a period less than that requested, but defers the right 
to appeal until the date the approved benefits end. The Department did 
not make such a modification to paragraph (m)(4) in the final rule 
because the Department does not agree that such cases should be 
addressed as rescissions.
    Rather, it appears that the commenters were making a more general 
point that the claims procedure regulation should expressly define an 
adverse benefit determination to include instances in which such a 
limitation is invoked. In that regard, the current regulation provides 
that the term ``adverse benefit determination'' includes any denial, 
reduction, or termination of, or a failure to provide or make payment 
(in whole or in part) for, a benefit. The Department issued a set of 
FAQs under the current regulation explaining the application of that 
definition to various situations. One FAQ stated that if a plan 
provides for the payment of disability benefits for a pre-determined, 
fixed period (e.g., a specified number of weeks or months or until a 
specified date), the termination of benefits at the end of the 
specified period would not constitute an adverse benefit determination 
under the regulation. Rather, the Department concluded that any request 
by a claimant for payment of disability benefits beyond the specified 
period would constitute a new claim.\25\ Another FAQ, however, 
addressed the different situation where the plan pays less than the 
total amount of expenses submitted with regard to a post-service claim. 
We explained that, while the plan is paying out the benefits to which 
the claimant is entitled under its terms, the claimant is nonetheless 
receiving less than full reimbursement of the submitted expenses. 
Therefore, in order to permit the claimant to challenge the plan's 
calculation of how much it is required to pay, that decision is 
required to be treated as an adverse benefit determination under the 
regulation.\26\ Whether the situation presented by the commenters 
should be treated more like the former or latter FAQ will depend on the 
terms of the plan and the particular facts and circumstances.
---------------------------------------------------------------------------

    \25\ See FAQs About The Benefit Claims Procedure Regulation, C-
18 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
    \26\ See FAQs About The Benefit Claims Procedure Regulation, C-
12 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf).
---------------------------------------------------------------------------

    One commenter asked whether the proposed rule regarding rescissions 
of coverage applies to adjustments or suspensions of benefits that 
reduce or eliminate a disability pension benefit under section 305 of 
ERISA, which corresponds to section 432 of the Internal Revenue Code of 
1986 (Code). It is the Department's view that a retroactive reduction 
or elimination of disability pension benefits pursuant to section 305 
of ERISA is not a rescission of coverage under paragraph (m)(4)(ii) of 
the final rule. However, a retroactive reduction or elimination of 
disability pension benefits, that results from a finding by the plan 
that the claimant was not disabled within the meaning of the plan when 
the disability pension benefits were reduced or eliminated under ERISA 
section 305, would be an adverse benefit determination under the claims 
procedure regulation. If the claims adjudicator must make a 
determination of disability in order to decide a claim, the claim must 
be treated as a disability claim for purposes of the Section 503 
Regulation.\27\
---------------------------------------------------------------------------

    \27\ See footnote 3, supra, and FAQs About The Benefit Claims 
Procedure Regulation, A-9 (www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/programs-and-initiatives/outreach-and-education/hbec/CAGHDP.pdf) discussing when a benefit is a disability 
benefit, subject to the special rules for disability claims under 
the Section 503 Regulation.

---------------------------------------------------------------------------

[[Page 92329]]

6. Culturally & Linguistically Appropriate Notices
    Paragraphs (g)(1)(vii)(C), (j)(7) and (o) of the final rule require 
plans to provide notice to claimants in a culturally and linguistically 
appropriate manner. The final rule adopts the standards already 
applicable to group health plans under the ACA Claims and Appeals Final 
Rule. Specifically, if a claimant's address is in a county where ten 
percent or more of the population residing in that county are literate 
only in the same non-English language as determined in guidance based 
on American Community Survey data published by the United States Census 
Bureau, notices of adverse benefit determinations to the claimant would 
have to include a statement prominently displayed in the applicable 
non-English language clearly indicating how to access language services 
provided by the plan. In addition, plans must provide a customer 
assistance process (such as a telephone hotline) with oral language 
services in the non-English language and provide written notices in the 
non-English language upon request.\28\
---------------------------------------------------------------------------

    \28\ Each year the U.S. Census Bureau publishes a list of 
counties that meet the 10% threshold. For 2016, the applicable 
languages are Chinese, Tagalog, Navajo and Spanish. A complete list 
of counties is available at www.dol.gov/agencies/ebsa/laws-and-regulations/laws/affordable-care-act/for-employers-and-advisers/internal-claims-and-appeals.
---------------------------------------------------------------------------

    A few commenters requested clarification that the culturally and 
linguistically appropriate standards (CLAS) requirements in the 
regulation apply only to notices of adverse benefit determinations and 
not to other communications regarding disability claims. In the 
Department's view, the text of paragraphs (g)(1)(vii)(C) and (j)(7) is 
clear that the CLAS requirements are applicable to notices of adverse 
benefit determinations. The final rule does not address whether, and 
under what circumstances, the fiduciary duty or other provisions in 
ERISA would require plans to provide plan participants and 
beneficiaries with access to language services (see, for example, the 
discussion below regarding summary plan description (SPD) 
requirements).
    A few commenters requested that the Department remove the CLAS 
standards. Other commenters supported the CLAS requirements but 
requested that the Department provide a reasonable time for compliance 
with this provision, citing operational changes and costs associated 
with the CLAS requirements. Other commenters requested that the 
threshold percentage that triggers the CLAS requirements be reduced to 
a lower percentage to capture a greater number of counties or to 
reflect a percentage of plan participants as opposed to the population 
of a relevant county. One commenter suggested that the Department may 
have unintentionally reduced protections for non-English speaking 
participants. The commenter pointed out that although a particular 
county may not meet the threshold under this rule, particular 
workforces may meet the Department's thresholds under section Sec.  
2520.102-2(c).
    In light of all the comments received, this final rule retains the 
CLAS requirements as set forth in the proposal. The Department believes 
that the CLAS requirements impose reasonable language access 
requirements on plans and appropriately balance the objective of 
protecting claimants by providing reasonable language assistance to 
individuals who communicate in languages other than English with the 
goal of mitigating administrative burdens on plans. The Department 
continues to believe that it is important to provide claims denial 
notices in a culturally and linguistically appropriate manner to ensure 
that individuals get the important information needed to properly 
evaluate the decision denying a claim and to allow for an informed 
decision on options for seeking review of a denial. Therefore, the 
final rule adopts the requirements in the proposal without change.
    The Department does not agree that the final rule supersedes the 
summary plan description foreign language rules in Sec.  2520.102-2(c) 
which include a requirement to offer assistance (which could include 
language services) calculated to provide participants with a reasonable 
opportunity to become informed as to their rights and obligations under 
the plan. Non-English speaking participants could be eligible for 
language services under either this final rule or Sec.  2520.102-2(c), 
depending on the circumstances.
    Finally, one commenter asked that the Department clarify that the 
English version of the notices takes precedence in the event of any 
conflict with the translated documents. Another commenter asked for 
clarification that the requirement to provide ``assistance with filing 
claims and appeals in any applicable non-English language'' is limited 
to procedural, not substantive, assistance. The Department was not 
persuaded that including such provisions in the final rule is necessary 
or appropriate. Notices provided to participants or beneficiaries 
should be complete and accurate notwithstanding the language used. 
Further, a ``substantive versus procedural'' distinction between the 
type of assistance required is not, in the Department's view, 
particularly meaningful or helpful. Rather, the final rule requires 
plan fiduciaries to provide disability benefit claimants with the 
requisite level and amount of assistance necessary to assist the 
claimants in understanding their rights and obligations so that they 
can effectively file claims and appeals in pursuing a claim for 
disability benefits.
7. Miscellaneous
a. Technical Correction
    The Department determined that a minor technical fix to the Section 
503 Regulation is required with respect to disability claims. The 
Department proposed to clarify that the extended time frames for 
deciding disability claims, provided by the quarterly meeting rule 
found in the current regulation at 29 CFR 2560.503-1(i)(1)(ii), are 
applicable only to multiemployer plans. The Department did not receive 
any adverse comments on the proposed technical fix, and, accordingly, 
the final rule amends paragraph (i)(3) to correctly refer to the 
appropriate subparagraph in (i)(1) of the Section 503 Regulation.
b. Contractual Limitations Periods for Challenging Benefit Denials
    In the proposal, the Department asked for comments on whether the 
claims procedure rule should address limitations periods in plans that 
govern the period after a final adverse benefit determination within 
which a civil action may be filed under section 502(a)(1)(B) of ERISA. 
We pointed out that ERISA does not specify that period and noted that 
the federal courts have generally looked to analogous state laws to 
determine an appropriate limitations period. Analogous state law 
limitations periods vary, but they generally start with the same event, 
the plan's final benefit determination. We acknowledged that the 
Supreme Court recently upheld the use of contractual limitations 
periods in plan documents and insurance contracts which may override 
analogous state laws so long as they are reasonable. See Heimeshoff v. 
Hartford Life & Accident Ins. Co., 134 S.Ct. 604, 611 (2013). We 
pointed out that contractual limitations periods are not uniform, the 
events that trigger the clock vary, and the documents in which the 
limitations periods are embedded may be difficult for claimants to 
obtain and understand. We also highlighted a

[[Page 92330]]

separate issue, not before the Supreme Court in Heimeshoff, of whether 
plans must provide participants notice with respect to contractual 
limitations periods in adverse benefit determinations on review. 
Although many federal courts have held that plans should provide such 
notice under the Section 503 Regulation, the court decisions are not 
uniform.\29\ Accordingly, the Department solicited comments on whether 
the final regulation should require plans to provide claimants with a 
clear and prominent statement of any applicable contractual limitations 
period and its expiration date for the claim at issue in the final 
notice of adverse benefit determination on appeal and with an updated 
notice of that expiration date if tolling or some other event causes 
that date to change.
---------------------------------------------------------------------------

    \29\ See Moyer v. Metropolitan Life Ins. Co., 762 F.3d 503, 505 
(6th Cir. 2014) (``The claimant's right to bring a civil action is 
expressly included as a part of those procedures for which 
applicable time limits must be provided'' in the notice of adverse 
benefit determination on review) and Kienstra v. Carpenters' Health 
& Welfare Trust Fund of St. Louis, 2014 WL 562557, at *4 (E.D. Mo. 
Feb. 13, 2014), aff'd sub nom. Munro-Kienstra v. Carpenters' Health 
& Welfare Trust Fund of St. Louis, 790 F.3d 799 (8th Cir. 2015) 
(``an adverse benefit determination must include [a] description of 
the plan's review procedures and the time limits applicable to such 
procedures, including a statement of the claimant's right to bring a 
civil action under section 502(a) of [ERISA] following an adverse 
benefit determination on review.''); Ortega Candelaria v. 
Orthobiologics LLC, 661 F.3d 675, 680 (1st Cir.2011) (``[The 
employer] was required by [29 CFR 2560.503-1(g)(1)(iv) ] to provide 
[the employee] with notice of his right to bring suit under ERISA, 
and the time frame for doing so, when it denied his request for 
benefits.''); McGowan v. New Orleans Empl'rs Int'l Longshoremen's 
Ass'n, 538 F. App'x 495, 498 (5th Cir.2013) (finding that a benefit 
termination letter substantially complied with 29 CFR 2560.503-
1(g)(1)(iv) because, in addition to enclosing the benefit booklet 
and specifying the pages containing the review procedures and time 
limits, the letter ``mentioned McGowan's right to file suit under 
Sec.  502(a) of ERISA, as well as the one-year time limit''); White 
v. Sun Life Assurance Co. of Canada, 488 F.3d 240, 247 n. 2 (4th 
Cir.2007) (emphasizing that the right to bring a civil action is an 
integral part of a full and fair benefit review and that the adverse 
benefit determination letter must include the relevant information 
related to that right) (abrogated on other grounds by Heimeshoff v. 
Hartford Life & Acc. Ins. Co., 134 S.Ct. 604, 612 (2013)); Novick v. 
Metropolitan Life Ins. Co., 764 F.Supp.2d 653, 660-64 (S.D.N.Y.2011) 
(concluding that 29 CFR 2560.503-1(g) requires that the adverse 
benefit determination letter include the time limits for judicial 
review); Solien v. Raytheon Long Term Disability Plan # 590, 2008 WL 
2323915, at 8 (D.Ariz. June 2, 2008) (holding that ``[j]udicial 
review is an appeal procedure for an adverse benefit determination 
and is therefore a part of the claim procedures covered by these 
regulations, especially when the time limit for filing a judicial 
action is established contractually by the Plan''). But see Wilson 
v. Standard Ins. Co., 613 F. App'x 841, 844 n.3 (11th Cir. 2015) 
(unpublished) (finding that 29 CFR 2560.503-1(g)(1)(iv) ``can also 
be reasonably read to mean that notice must be given of the time 
limits applicable to the `plan's review procedures,' and the letter 
must also inform the claimant of her right to bring a civil action 
without requiring notice of the time period for doing so''); Scharff 
v. Raytheon Co. Short Term Disability Plan, 581 F.3d 899, 907-08 
(9th Cir. 2009) (declining to supplement ERISA's comprehensive 
scheme for regulating disclosures to participants with a California 
law requiring the express disclosure of a statute of limitations). 
In an unpublished decision, the Tenth Circuit similarly interpreted 
language in a plan that was virtually identical to section 2560.503-
1(g)(1)(iv) as only requiring denial letters to include time limits 
applicable to internal review procedures. See Young v. United Parcel 
Services, 416 F. App'x 734, 740 (10th Cir. 2011) (unpublished) 
(concluding that requiring a notification of the time limit for 
filing suit ``conflates the internal appeals process, and its 
associated deadlines, with the filing of a legal action after that 
process has been fully exhausted'').
---------------------------------------------------------------------------

    In response, the Department received many comments from claimants 
and participant advocates supporting a contractual limitations period 
notice requirement. Numerous commenters further requested that any 
required notice include the date on which the relevant contractual 
limitations period expires. They also asked the Department to include a 
definition of a ``reasonable limitations period.'' One commenter argued 
to the contrary that a rule requiring inclusion of a specific date 
would create confusion for claimants and carries a risk that the 
insurer or other administrative entity is seen as providing legal 
advice. Another commenter urged that such a rule should not be adopted 
because the date by which suit must be filed may be subject to dispute 
in litigation. A commenter expressed concern that such a notice 
requirement is largely unnecessary as the information is generally 
already included in plan documents, (e.g., the summary plan 
description), and that it could impose significant administrative 
burden. The commenter suggested that a more appropriate rule would be 
to require that the notice of adverse benefit determination on review 
include a statement alerting participants that they should review the 
terms of the applicable plan documents to determine any deadline by 
which they must file a civil action. Finally, a number of commenters 
asked the Department to specifically address whether it is allowable 
for a contractual limitations period to be structured so that it could 
actually expire before the plan's appeals process is completed.
    In light of the issues identified regarding contractual limitations 
periods, the Department concluded that it was appropriate in this final 
rule to address certain basic points.
    First, section 503 of ERISA requires that a plan afford a 
reasonable opportunity to any participant whose claim for benefits has 
been denied for a full and fair review of that decision by an 
appropriate named fiduciary. The Department does not believe that a 
claims procedure would satisfy the statutory requirement if the plan 
included a contractual limitations period that expired before the 
review was concluded. In the Department's view, this is clear from the 
Supreme Court's holding in Heimeshoff. In that case, the Supreme Court 
held that an ERISA disability plan's three-year limitations period, 
running from the date of proof of loss, was enforceable even though the 
statute of limitations began to run before the participant's cause of 
action accrued. The Court pointed out that there was nothing to suggest 
the 3-year contractual limitations period was not ``reasonable'' in 
light of the Department's regulation that would require the internal 
claims and appeals process to be completed well inside a three-year 
period. Heimeshoff, 134 S.Ct. at 612 (citing Order of United Commercial 
Travelers of America v. Wolfe, 67 S.Ct. 1355 (1947)). A limitations 
period that expires before the conclusion of the plan's internal 
appeals process on its face violates ERISA section 503's requirement of 
a full and fair review process. A process that effectively requires the 
claimant to forego the right to judicial review and thereby insulates 
the administrator from impartial judicial review falls far short of the 
statutory fairness standard and undermines the claims administrator's 
incentives to decide claims correctly.
    Further, in rejecting the challenge to the contractual limitations 
period at issue in Heimeshoff, the Court emphasized that the claimant 
was allowed a year or more to bring suit after the close of the 
internal claims review process.\30\ A contractual limitations period 
that does not allow such a reasonable period after the conclusion of 
the appeal in which to bring a lawsuit is unenforceable.\31\ Moreover, 
as the

[[Page 92331]]

Supreme Court also recognized in Heimeshoff, even in cases with an 
otherwise enforceable contractual limitations period, traditional 
doctrines, such as waiver and estoppel, may apply if a plan's internal 
review prevents a claimant from bringing section 502(a)(1)(B) actions 
within the contractual period. Heimeshoff, 134 S.Ct. at 615. In 
addition to such traditional remedies, plans that offer appeals or 
dispute resolution beyond what is contemplated in the claims procedure 
regulations must agree to toll the limitations provision during that 
time. See 29 CFR 2560.503-1(c)(3)(ii).
---------------------------------------------------------------------------

    \30\ Heimeshoff, 134 S.Ct. at 612 (``Neither Heimeshoff nor the 
United States claims that the Plan's 3-year limitations provision is 
unreasonably short on its face. And with good reason: the United 
States acknowledges that the regulations governing internal review 
mean for `mainstream' claims to be resolved in about one year, Tr. 
of Oral Arg. 22, leaving the participant with two years to file 
suit. Even in this case, where the administrative review process 
required more time than usual, Heimeshoff was left with 
approximately one year in which to file suit. Heimeshoff does not 
dispute that a hypothetical 1-year limitations period commencing at 
the conclusion of internal review would be reasonable. Id., at 4'') 
(footnote omitted).
    \31\ The Department also believes that additional public input 
beyond the public record for this rulemaking would be needed for the 
Department to define a minimum period of time necessary for such a 
period to constitute a reasonable period in which to bring an action 
under ERISA section 502(a).
---------------------------------------------------------------------------

    Second, the Department agrees with the conclusion of those federal 
courts that have found that the current regulation fairly read requires 
some basic disclosure of contractual limitations periods in adverse 
benefit determinations. In fact, in the Department's view, the 
statement of the claimant's right to bring a civil action under section 
502(a) of ERISA following an adverse benefit determination on review 
would be incomplete and potentially misleading if it failed to include 
limitations or restrictions in the documents governing the plan on the 
right to bring such a civil action. Accordingly, this final rule 
includes in new paragraph (j)(4)(ii) a requirement that the notice of 
an adverse benefit determination on review must include a description 
of any applicable contractual limitations period and its expiration 
date.
    The Department is not persuaded that inclusion in the notice of 
adverse benefit determination on review of any applicable contractual 
limitations period and its expiration date will result in confusion. 
The Department also does not agree that a statement of the plan's view 
as to the exact date the limitations period expires will somehow 
inappropriately foreclose or otherwise prejudice legitimate arguments 
about application of the limitations period in individual cases. Nor 
does the Department believe that disclosure of a contractual 
limitations period requires the plan to provide legal advice. 
Additionally, as described below, the Department does not believe that 
including a description of any contractual limitations period, 
including the date by which the claimant must bring a lawsuit, would 
impose more than a minimal additional burden. Although the final rule 
provision is technically applicable only to disability benefit claims, 
as explained above, the Department believes that notices of adverse 
benefit determinations on review for other benefit types would be 
required to include some disclosure about any applicable contractual 
limitations period. What would be sufficient will depend on the 
controlling judicial precedent and the individual facts and 
circumstances, but the Department would consider the inclusion of the 
information in paragraph (j)(4)(ii) to be an appropriate disclosure for 
all plan types.
    Several comments raised other issues pertaining to the disclosure 
of contractual and statutory limitations on a claimant's right to bring 
a civil action under section 502(a) of ERISA. Issues beyond this final 
rule may be addressed in a future regulatory action or other guidance 
by the Department.
c. Comments Beyond the Scope of the Rulemaking
    Some commenters raised disability claims procedure issues 
pertaining to matters that the Department considers to be beyond the 
scope of this rulemaking. For example, one commenter suggested that the 
Department amend its Model Statement of ERISA Rights for SPDs for 
disability plans to include notification of eligibility for language 
services. Other commenters requested that the Department propose a rule 
requiring that adverse benefit determinations on review notify 
disability benefit claimants of the ERISA venue provisions. Other 
issues raised by some commenters relate to substantive limitations on 
recoupment of benefit overpayments, rights to supplement the 
administrative record for court review, and the validity of 
discretionary clauses in plans that are used as a basis for seeking a 
deferential ``arbitrary or capricious'' standard for court review of 
benefit denials. Although the Department agrees that the issues raised 
by the commenters may merit an evaluation of additional regulatory 
actions on procedural safeguards and protections, those subjects are 
beyond the scope of this rulemaking. As the Department noted in the 
preamble to the proposal, this rulemaking was a start to improving the 
current standards applicable to the processing of claims and appeals 
for disability benefits so that they include improvements to certain 
basic procedural protections in the current Section 503 Regulation. 
Issues beyond this final rule may be addressed in a future regulatory 
action or other guidance by the Department.

III. Economic Impact and Paperwork Burden

A. Background and Need for Regulatory Action

    As discussed in Section I of this preamble, the final amendments 
would revise and strengthen the current rules regarding claims and 
appeals applicable to ERISA-covered plans providing disability benefits 
primarily by adopting several of the new procedural protections and 
safeguards made applicable to ERISA-covered group health plans by the 
Affordable Care Act. Before the enactment of the ACA, group health plan 
sponsors and sponsors of ERISA-covered plans providing disability 
benefits were required to implement claims and appeal processes that 
complied with the Department's regulation establishing minimum 
requirements for benefit claims procedures for employee benefit plans 
covered by Title I of ERISA.\32\ The enactment of the ACA and the 
issuance of the implementing interim final regulations in 2010 resulted 
in disability benefit claimants receiving fewer procedural protections 
than group health plan participants even though disputes and litigation 
regarding disability benefit claims are more prevalent than health care 
benefit claims.\33\ In order to ensure fundamental fairness in the 
claim and appeals procedure process, health and disability plan 
claimants are entitled to receive the same procedural protections as 
they did when the 2000 regulation was issued.
---------------------------------------------------------------------------

    \32\ 65 FR 70246 (Nov. 21, 2000), amended at 66 FR 35877 (July 
9, 2001).
    \33\ See Sean M. Anderson, ERISA Benefits Litigation: An 
Empirical Picture, 28 ABA J. Lab. & Emp. L. 1(2012).
---------------------------------------------------------------------------

    The Department believes this action is necessary to ensure that 
disability claimants receive a full and fair review of their claims 
under the more stringent procedural protections that Congress 
established for group health care claimants under the ACA. The final 
rule will promote fairness and accuracy in the claims review process 
and protect participants and beneficiaries in ERISA-covered disability 
plans by ensuring they receive benefits that otherwise might have been 
denied by plan administrators in the absence of the fuller protections 
provided by this final regulation. The final rule also will help 
alleviate the financial and emotional hardship suffered by many 
individuals when they are unable to work after becoming disabled and 
their claims are denied.
    As stated earlier in this preamble, this action also is necessary 
to correct

[[Page 92332]]

procedural problems evidenced in litigation under the 2000 regulation 
predating the ACA, which in the Department's view, resulted in 
claimants not receiving a full and fair review as required by ERISA 
section 503. Specifically, some courts held that under the 2000 
regulation, claimants only have the right to review and respond to new 
evidence or rationales developed during the pendency of an appeal after 
the claim has been denied on appeal. The final rule levels the playing 
field by explicitly requiring plan administrators to provide claimants, 
free of charge, with any new evidence or rationale relied upon, 
considered, or generated by the plan in connection with the claim and a 
reasonable opportunity for the claimant to respond.
    The Department disagrees with commenters' assertion that disability 
plan claim procedures should not mirror the ACA group health plan 
amendments because of the difference between health and disability 
claims. For reasons discussed earlier in this preamble, after careful 
consideration, the Department incorporated into the final rule only 
certain of the ACA group health plan claims procedure amendments to 
ensure that disability plan claimants receive the same opportunity to 
pursue a full and fair review of their claims as required by ERISA 
section 503 with the procedural safeguards and consumer protections 
that are aligned with those required by group health plans under the 
ACA and the Department's implementing regulation at 29 CFR 2590.715-
2719. This final rule aligns the disability claims procedures with the 
ACA procedural safeguards and consumer protections for group health 
plans. The Department did not amend other provisions of the 2000 
regulation that affect how disability plan claims are processed or the 
timing requirements. Therefore, as discussed more fully below, the 
Department does not expect that the final rule will lead to delays and 
significant increased cost for disability claims and appeals processes. 
The Department considered comments asserting that some of its cost 
estimates in the proposed Regulatory Impact Analysis (``RIA'') were 
underestimated and made adjustments where appropriate.
    The Department has crafted these final regulations to secure the 
protections of those submitting disability benefit claims. In 
accordance with OMB Circular A-4, the Department has quantified the 
costs where possible and provided a qualitative discussion of the 
benefits that are associated with these final regulations.

B. Executive Order 12866 and 13563

    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility.
    Under Executive Order 12866 (58 FR 51735), ``significant'' 
regulatory actions are subject to review by the Office of Management 
and Budget (OMB). Section 3(f) of the Executive Order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more in any one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. It has 
been determined that this rule is significant within the meaning of 
section 3(f) (4) of the Executive Order. Therefore, OMB has reviewed 
the final rule pursuant to the Executive Order. The Department provides 
an assessment of the potential costs and benefits of the final rule 
below, as summarized in Table 1, below. The Department concludes that 
the economic benefits of these final regulations justify their costs.

                                            Table 1--Accounting Table
----------------------------------------------------------------------------------------------------------------
                    Category                         Estimate       Year dollar    Discount rate  Period covered
----------------------------------------------------------------------------------------------------------------
Benefits--Qualitative...........................     The Department expects that these final regulations will
                                                     improve the procedural protections for workers who become
                                                   disabled and make claims for disability benefits from ERISA-
                                                     covered employee benefit plans. This would result in some
                                                  participants receiving benefits they might otherwise have been
                                                    denied absent the fuller protections provided by the final
                                                   regulation. Greater certainty and consistency in the handling
                                                   of disability benefit claims and appeals and improved access
                                                    to information about the manner in which claims and appeals
                                                   are adjudicated will be achieved. Fairness and accuracy will
                                                     increase as fuller and fairer disability claims processes
                                                   provide claimants with sufficient information to evaluate the
                                                     claims process and defend their rights under their plan.
----------------------------------------------------------------------------------------------------------------
Costs:
    Annualized..................................     $15,806,000            2016              7%       2018-2027
    Monetized...................................      15,806,000            2016              3%       2018-2027

[[Page 92333]]

 
        Qualitative.............................    The Department believes that these requirements have modest
                                                      costs associated with them, since many chiefly clarify
                                                   provisions of the current DOL claims procedure regulation. As
                                                   discussed in detail in the cost section below, the Department
                                                    quantified the costs associated with two provisions of the
                                                      final regulations for which it had sufficient data: The
                                                       requirements to provide (1) additional information to
                                                     claimants in the appeals process and (2) information in a
                                                         culturally and linguistically appropriate manner.
----------------------------------------------------------------------------------------------------------------

1. Estimated Number of Affected Entities
    The Department does not have complete data on the number of plans 
providing disability benefits or the total number of participants 
covered by such plans. ERISA-covered welfare benefit plans with more 
than 100 participants generally are required to file the Form 5500 
Annual Return/Report. Currently, only a small number of ERISA-covered 
welfare benefit plans with less than 100 participants are required to 
file the form. Based on current trends in the establishment of pension 
and health plans, there are many more small plans than large plans, but 
the majority of participants are covered by the large plans.
    Data from the 2014 Form 5500 Schedule A indicates that there are 
39,135 plans reporting a code indicating they provide temporary 
disability benefits covering 40.1 million participants, and 26,171 
plans reporting a code indicating they provide long-term disability 
benefits covering 22.4 million participants.\34\ To put the number of 
large and small plans in perspective, the Department estimates that 
there are 150,000 large group health plans and 2.1 million small group 
health plans using 2016 Medical Expenditure Panel Survey-Insurance 
Component. While most plans are small plans most participants are in 
large plans.
---------------------------------------------------------------------------

    \34\ Almost all plans reporting this code are welfare plans.
---------------------------------------------------------------------------

2. Benefits
    In developing these final regulations, the Department closely 
considered their potential economic effects, including both benefits 
and costs. The Department does not have sufficient data to quantify the 
benefits associated with these final regulations due to data 
limitations and a lack of effective measures. Therefore, the Department 
provides a qualitative discussion of the benefits below.
    These final regulations implement a more uniform, rigorous, and 
fair disability claims and appeals process as required by ERISA section 
503 that conforms to a carefully selected set of the requirements 
applicable to group health plans under the ACA Claims and Appeals Final 
Rule. In general, the Department expects that these final regulations 
will improve the procedural protections for disabled workers who make 
claims for disability benefits from ERISA-covered employee benefit 
plans. This will cause some participants to receive benefits that, 
absent the fuller protections of the regulation, they might otherwise 
have been incorrectly denied. In other circumstances, expenditures in 
the claims process incurred by plans may be reduced as a fuller and 
fairer system of claims and appeals processing helps facilitate 
participant acceptance of cost management efforts. The Department 
expects that greater certainty and consistency in the handling of 
disability benefit claims and appeals and improved access to 
information about the manner in which claims and appeals are 
adjudicated will lead to efficiency gains in the system, both in terms 
of the allocation of spending at a macro-economic level as well as 
operational efficiencies among individual plans. This certainty and 
consistency also are expected to benefit, to varying degrees, all 
parties within the system and lead to broader social welfare gains, 
particularly for disability benefit plan claimants.
    The Department expects that these final regulations also will 
improve the efficiency of disability benefit plans by improving their 
transparency and fostering participants' confidence in their fairness. 
The enhanced disclosure and notice requirements contained in these 
final regulations will help ensure that benefit participants and 
beneficiaries have a clear understanding of the reasons underlying 
adverse benefit determinations and their appeal rights.
    For example, the final regulations require all adverse benefit 
determinations to contain a discussion of the decision, including an 
explanation of the basis for disagreeing with the views of a treating 
health care professional or vocational professional who evaluated the 
claimant or any disability determination regarding the claimant made by 
the Social Security Administration and presented to the plan by the 
claimant. This provision would address the confusion often experienced 
by claimants when there is little or no explanation provided for their 
plan's determination and/or their plan's determination is contrary to 
their treating professional's opinion or their SSA award of disability 
benefits.
    The final rule also requires adverse benefit determinations to 
contain the internal rules, guidelines, protocols, standards or other 
similar criteria of the plan that were relied upon in denying the claim 
(or a statement that these do not exist), and a notice of adverse 
benefit determination at the claims stage must contain a statement that 
the claimant is entitled to receive, upon request and free of charge, 
reasonable access to, and copies of, all documents, records, and other 
information relevant to the claimant's benefit claim. These provisions 
will benefit claimants by ensuring that they fully understand the 
reasons why their claim was denied so they are able to meaningfully 
evaluate the merits of pursuing an appeal or litigation.
    The requirement to include a discussion of the decision, as well as 
the requirement to include specific internal rules, guideline, 
protocols, standards, or similar criteria relied upon by the plan will 
improve the accuracy of claims determinations. The process of 
documenting and explaining the reasoning of the decision will help 
ensure that plans' terms are followed and accurate information is used, 
and will enable plan participants to challenge inadequate or faulty 
evidence or reasoning.
    Under the final rule, adverse benefit determinations must be 
provided in a culturally and linguistically appropriate manner for 
certain participants and beneficiaries that are not fluent in

[[Page 92334]]

English. Specifically, if a claimant's address is in a county where 10 
percent or more of the population residing in that county, as 
determined based on American Community Survey (ACS) data published by 
the United States Census Bureau, are literate only in the same non-
English language, notices of adverse benefit determinations to the 
claimant would have to include a prominent one-sentence statement in 
the relevant non-English language about the availability of language 
services. This provision will ensure that certain disability claimants 
that are not fluent in English understand the notices received from the 
plan regarding their disability claims and their right to appeal denied 
claims.
    These important protections would benefit participants and 
beneficiaries by correcting procedural wrongs evidenced in the 
litigation even predating the ACA.
    The voluntary nature of the employment-based benefit system in 
conjunction with the open and dynamic character of labor markets make 
explicit as well as implicit negotiations on compensation a key 
determinant of the prevalence of employee benefits coverage. The 
prevalence of benefits is therefore largely dependent on the efficacy 
of this exchange. If workers perceive that there is the potential for 
inappropriate denial of benefits or handling of appeals, they will 
discount the value of such benefits to adjust for this risk. This 
discount drives a wedge in compensation negotiation, limiting its 
efficiency. If workers undervalue the full benefit of disability 
coverage, fewer employers will provide such coverage or fewer 
participants will enroll. To the extent that workers perceive that the 
final rule, supported by the Department's enforcement authority, will 
reduce the risk of inappropriate denials of disability benefits, the 
differential between the employers' costs and workers' willingness to 
accept wage offsets is minimized.
    These final regulations would reduce the likelihood of 
inappropriate benefit denials by requiring all disability claims and 
appeals to be adjudicated by persons that are independent and 
impartial. Specifically, the final rule would prohibit hiring, 
compensation, termination, promotion, or other similar decisions with 
respect to any individual (such as a claims adjudicator or a medical or 
vocational expert) to be made based upon the likelihood that the 
individual will support the plan's benefits denial. This will ensure 
that all disability benefit plan claims and appeals processes are 
adjudicated in a manner designed to ensure the independence and 
impartiality of persons involved in making the decisions and enhance 
participants' perception that their disability plan's claims and 
appeals processes are operated in a fair manner.
    As stated above, the final rule requires claimants to have the 
right to review and respond to new evidence or rationales developed by 
the plan during the pendency of an appeal, as opposed merely to having 
a right to such information upon request only after the claim has 
already been denied on appeal, as some courts have held under the 
Section 503 Regulation. These provisions will benefit claimants by 
correcting certain procedural flaws that currently occur when 
disability benefit claims are litigated and ensuring that they have a 
right to review and respond to new evidence or rationales developed by 
the plan during the pendency of the appeal.
    In summary, the final rules provide more uniform standards for 
handling disability benefit claims and appeals that are comparable to 
the rules applicable to group health plans under the ACA Claims and 
Appeals Final Rule. These rules will reduce the incidence of 
inappropriate denials, averting serious financial hardship and 
emotional distress for participants and beneficiaries that are impacted 
by a disability. They also would enhance participants' confidence in 
the fairness of their plans' claims and appeals processes. Finally, by 
improving the transparency and flow of information between plans and 
claimants, the final regulations will enhance the efficiency of labor 
and insurance markets.
3. Costs and Transfers
    The Department has quantified the costs related to the final 
regulations' requirements to (1) provide the claimant free of charge 
with any new or additional evidence considered, and (2) to providing 
notices of adverse benefit determinations in a culturally and 
linguistically appropriate manner. These requirements and their 
associated costs are discussed below
    Provision of new or additional evidence or rationale: As stated 
earlier in this preamble, before a plan providing disability benefits 
can issue an adverse benefit determination on review on a disability 
benefit claim, these final regulations require such plans to provide 
the claimant, free of charge, with any new or additional evidence 
considered, relied upon, or generated by (or at the direction of) the 
plan or any new or additional rationale upon which the adverse 
determination is based as soon as possible and sufficiently in advance 
of the date the notice of adverse benefit determination on review is 
required to be provided. This requirement may increase the 
administrative burden on plans to prepare and deliver the enhanced 
information to claimants. The Department is not aware of a data source 
substantiating how often plans rely on new or additional evidence or 
rationale during the appeals process or the volume of materials that 
comprise the new evidence or rationale. Based on comments and 
discussions with the regulated community, the Department understands 
that few plans base adverse benefit determinations on appeal on new 
evidence or rationales. The Department also understands that the most 
critical new information relied on by plans when issuing adverse 
benefit determinations on review are new independent medical reports, 
and that at least some plans and insurers have a practice of providing 
claimants with rights to a voluntary additional level of appeal to 
respond to the new independent medical report if they disagree with its 
findings.
    These final rules further require adverse benefit determinations on 
review for disability benefit plans to include a description of any 
contractual limitations period, including the date by which the 
claimant must bring a lawsuit. In the regulatory impact analysis for 
the proposal, the Department estimated these costs by assuming that 
compliance will require medical office staff, or other similar staff 
for another service provider with a labor rate of $30, five minutes 
\35\ to collect and distribute the additional evidence or rationale 
considered, relied upon, or generated by (or at the direction of) the 
plan during the appeals process. Additionally, including a description 
of any contractual limitations period, including the date by which the 
claimant must bring a lawsuit would have minimal additional burden as 
plans already maintain such information in the ordinary course of their 
claims administration process and would just need to add it to the 
notice.
---------------------------------------------------------------------------

    \35\ For a description of the Department's methodology for 
calculating wage rates, see https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
---------------------------------------------------------------------------

    One commenter questioned the Department's assumption asserting that 
it does not account for time to identify the additional or new 
information or rationale and for staff to respond. Commenters also 
asserted that providing the information will trigger a response by the 
claimant to which they

[[Page 92335]]

will have to respond. The commenter provided no alternative estimates 
or data supporting their assertions that the Department could use to 
revise its cost estimate.
    In the absence of such data, the Department disagrees with the 
comments. While some effort is required to provide claimants with the 
new information or rationale, the Department does not find the 
commenters' assertion of significant burden to be credible. As part of 
its customary and usual business practices, the insurer or TPA should 
have an existing system in place to track any new information or 
rationale it relies on in making an adverse benefit determination in 
order to identify, document, and evaluate the information during its 
claim adjudication process. The Department acknowledges, however, that 
an average of five minutes may be inadequate time to collect the 
information and provide it to the claimants; therefore, it has 
increased the estimate to an average of 30 minutes, which should 
provide a reasonable amount of time to perform this task.
    The Department also agrees that making the new or additional 
information or rationale available to the claimant may trigger a 
response from the claimant. However, the Department does not have 
sufficient data to estimate the number of claimants that will respond 
with information that the insurer or TPA will need to evaluate or how 
much time will be required to evaluate the information. Moreover, the 
Department's consultations with EBSA field investigators that 
investigate disability plan issues indicate that many disability plans 
already allow claimants to respond to the new information or rationale 
in a back-and-forth process. The requirement imposes no new costs on 
these plans, insurers, and TPAs. The requirement does impose an 
additional burden on plans that do not allow claimants to respond to 
the new information or rationale, but the Department does not have 
sufficient data to estimate the increased costs. One industry commenter 
agreed that that it would be difficult to estimate the burden 
associated with responding to claimants.
    Commenters also raised concern regarding a potentially endless 
cycle of appeals, responses, and reconsiderations that would extend the 
claim determination process and substantially increase costs. As 
discussed elsewhere in the preamble, the Department also does not find 
this claim to be credible. The requirement only requires action if the 
insurer or TPA produces new or additional information or rationale 
after reviewing the new information submitted by the claimant, not if 
it just evaluates the information submitted by the claimant, and the 
Department's consultations with its investigators indicated that this 
occurs infrequently.
    Additionally, while a plan fiduciary has a responsibility to ensure 
the accurate evaluation of all claims, that responsibility does not 
require the fiduciary to rebut every piece of evidence submitted or 
seek to deny every claim. Indeed, an endless effort to rebut every 
piece of evidence submitted by the claimant would call into question 
whether the fiduciary was impartially resolving claims as required by 
the duties of prudence and loyalty.
    Furthermore, the Department has interpreted ERISA section 503 and 
the current Section 503 Regulation as already requiring that plans 
provide claimants with new or additional evidence or rationales upon 
request and an opportunity to respond in certain circumstances. See 
Brief of the Secretary of Labor, Hilda L. Solis, as Amicus Curiae in 
Support of Plaintiff-Appellant's Petition for Rehearing, Midgett v. 
Washington Group Int'l Long Term Disability Plan, 561 F.3d 887 (8th 
Cir. 2009) (No. 08-2523), (expressing disagreement with cases holding 
that there is no such requirement). The supposed ``endless loop'' is 
necessarily limited by claimants' ability to generate new evidence 
requiring further review by the plan. Such submissions ordinarily 
become repetitive in short order, and are further circumscribed by the 
limited financial resources of most claimants.
    For purposes of this regulatory impact analysis, the Department 
assumes, as an upper bound, that all appealed claims will involve a 
reliance on additional evidence or rationale. Based on that assumption, 
the Department assumes that this requirement will impose an annual 
aggregate cost of $14.5 million. The Department estimates this cost by 
assuming that compliance will require medical office staff, or another 
service providers' similar staff with a labor rate of $42.08, thirty 
minutes \36\ to collect and distribute the additional evidence 
considered, relied upon, or generated by (or at the direction of) the 
plan during the appeals process. The Department estimates that on 
average, material, printing and postage costs will total $2.15 per 
mailing (20 pages * 0.05 cents per copy + $1.15 postage). The 
Department further assumes that 30 percent of all mailings will be 
distributed electronically with no associated material, printing or 
postage costs.\37\
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    \36\ For a description of the Department's methodology for 
calculating wage rates, see https://www.dol.gov/sites/default/files/ebsa/laws-and-regulations/rules-and-regulations/technical-appendices/labor-cost-inputs-used-in-ebsa-opr-ria-and-pra-burden-calculations-august-2016.pdf.
    \37\ Commenters disagreed in general with the estimates of the 
burden for providing the notice in a culturally and linguistically 
appropriate manner. Their concern was that most notices would be 
delivered on paper and not electronically. While one commenter did 
not provide any supporting evidence for this assertion, another 
commenter reported that a large company's past experience was that 
30 percent of the claims filed under its disability plan were 
electronic. For purposes of this regulatory impact analysis, the 
Department accepted the suggestion posited in the comment that a 
significant percentage of disability benefit claimants are at home 
without access to an electronic means of communication at work that 
is required by the Department's electronic disclosure rule. 
Therefore, the Department assumes that a higher percentage of 
notices will be transmitted via mail even though data was provided 
only for a single company.
---------------------------------------------------------------------------

    The Department does not have sufficient data on the number of 
disability claims that are filed or denied. Therefore, the Department 
estimates the number of short- and long-term disability claims based on 
the percentage of private sector employees (122 million) \38\ that 
participate in short- and long-term disability programs (approximately 
39 and 33 percent respectively).\39\ The Department estimates the 
number of claims per covered life for long-term disability benefits 
based on the percentage of covered individuals that file claims under 
the Social Security Disability Insurance Program (SSDI) (two percent of 
covered individuals). The Department notes that SSDI uses a standard 
for disability determinations that is stricter than the standard used 
in many long-term disability plans offered by private employers. 
However, the number of claims filed with the SSDI is an acceptable 
proxy as most employer plans require claimants to file with the SSDI as 
a condition of receiving benefits from the plan as they offset the 
benefits paid by plan with the amount received from SSDI.
---------------------------------------------------------------------------

    \38\ BLS Employment, Hours, and Earnings from the Current 
Employment Statistics survey (National) Table B-1, May 2016. It 
should be noted that this estimate differs from the estimates from 
the Form 5500 reported in the affected entities section. The Form 
55000 numbers only include large plans, and some filings could 
combine estimates for both short and long term disability.
    \39\ ``Beyond the Numbers: Disability Insurance Plans Trends in 
Employee Access and Employer Cost,'' February 2015 Vol. 4 No. 4. 
http://www.bls.gov/opub/btn/volume-4/disability-insurance-plans.htm.
---------------------------------------------------------------------------

    The Department does not have sufficient data to estimate the 
percentage of covered individuals that file short-term disability 
claims. Therefore, for purposes of this analysis, the Department 
estimates, as it did in

[[Page 92336]]

the proposal, that six percent of covered lives file such claims, 
because it believes that short-term disability claims rates are higher 
than long-term disability claim rates. The Department received no 
comments regarding this assumption.
    The Department estimates the number of denied claims that would be 
covered by the rule in the following manner: For long-term disability, 
the percent of claims denied is estimated using the percent of denied 
claims for the SSDI Program (75 percent). This estimate may overstate 
the denial rates for ERISA-covered long-term disability plans, because 
as discussed above, many plans require claimants to file for SSDI 
benefits as a requirement to receive benefits from their plan. Plans 
often have a lower benefit determination standard, at least initially, 
than the SSDI Program resulting in less denied claims. Therefore, using 
the SSDI denied claims rate as a proxy for the ERISA-covered plan 
claims denial rate may overstate the number of private long-term 
disability plan denied claims. For short-term disability, the estimate 
of denied claims (three percent) is an assumption based on previous 
regulations and feedback. The estimates are provided in the table 
below.

                                                          Table 2--Fair and Full Review Burden
                                                                     [In thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Short-term                 Long-term                         Total
                                                              ------------------------------------------------------------------------------------------
                                                                Electronic     Paper      Electronic     Paper      Electronic     Paper         All
--------------------------------------------------------------------------------------------------------------------------------------------------------
Denied Claims and lost Appeals with Additional Information...           26           60          168          391          193          451          644
Mailing cost per event.......................................        $0.00        $2.15        $0.00        $2.15        $0.00        $2.15  ...........
                                                              ------------------------------------------------------------------------------------------
    Total Mailing Cost.......................................        $0.00         $129        $0.00         $841        $0.00         $969         $969
Preparation Cost per event...................................       $21.04       $21.04       $21.04       $21.04       $21.04       $21.04       $21.04
Total Preparation cost.......................................         $540       $1,260       $3,526       $8,227       $4,066       $9,487      $13,553
                                                              ------------------------------------------------------------------------------------------
    Total....................................................         $540       $1,388       $3,526       $9,068       $4,066      $10,456      $14,522
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Adverse benefit determinations on disability benefit claims would 
have to contain a discussion of the decision, including the basis for 
disagreeing with SSA Disability Determination and Views of Treating 
Physician: Commenters on the proposal noted that costs were not 
quantified for the added burden of including in the benefit 
determination a discussion of why the plan did not follow the 
determination of the SSA or views of health care professionals that 
treated the claimant. Commenters did not provide data or information 
that would provide the Department with sufficient data to quantify such 
costs. Thus, while the Department agrees that there could be added 
burden imposed on plans to provide this discussion in adverse benefit 
determinations, the Department is unable to estimate the burden because 
it does not have sufficient data on the number or percent of claims 
that would need to contain this discussion.
    Departmental investigators reviewing disability claims report that 
if the plan deviates from an attending physician's recommendation, a 
review is conducted by a supervisor, nurse, medical director or a 
consultant. This additional review usually generates documentation in 
the claim file. While this documentation may not be adequate in its 
current form to satisfy the requirement, the incremental costs to 
comply could be small, because it appears that deviations from 
physician's recommendations are documented currently. Plans or insurers 
may still need to prepare a response using the already available 
information. The Department does not know how many claim determinations 
would require this discussion. The average hourly labor rate of a nurse 
is $46.02 and that of a physician is $157.80, and the Department 
estimates that preparing a report with information already available 
should not take more than one hour.
    Adverse benefit determination would have to contain the internal 
rules, guidelines, protocols, standards, or other similar criteria of 
the plan used in denying the claim. The Department believes that this 
requirement will have minimal costs. In the process of determining a 
claim, plans will know, or should know, the internal rules, guidelines 
or protocols that were used to make a benefit determination. A 
commenter was concerned about the time and costs that would be required 
to comb through hundreds of pages of a claim manual to determine that 
no provision has any conceivable application to a particular claim in 
order to substantiate this requirement. The Department believes that 
neither the proposal nor the final rule requires this type of costly 
and time consuming process. The rule requires only the inclusion of 
those items that were relied upon and that should already be documented 
in the claim file at the time it was used to make a determination.
    A notice of adverse benefit determination at the claims stage would 
have to contain a statement that the claimant is entitled to receive 
relevant documents upon request. The Department believes that this 
requirement will have a negligible cost impact, because an 
insignificant amount of time will be required to add the statement to 
the notice. Although the current claims procedure regulation provides 
claimants with the right to request relevant documents when challenging 
an initial claims denial, a statement was required to be included only 
in notices of adverse benefit determinations on appeal. Including the 
statement in the initial denial notice as required by the final rule, 
in the Department's view, merely confirms claimants' rights under the 
current claims procedure regulation and will help ensure that they 
understand their right to receive such information to help them 
understand the reasons for the denial and to make informed decisions 
regarding whether and how they challenge a denial on appeal. The 
Department acknowledges that it is likely that more claimants will 
request this information when they are informed of their right to 
receive it; however, the Department does not have sufficient data to 
estimate the number of requests that will be made.
    Culturally and Linguistically Appropriate Notices: The final 
regulations require notices of adverse benefit determinations with 
respect to disability benefits to be provided in a culturally and 
linguistically appropriate manner in certain situations. This 
requirement is satisfied if plans provide oral language services 
including

[[Page 92337]]

answering questions and providing assistance with filing claims and 
appeals in any applicable non-English language. The final regulations 
also require each notice sent by a plan to which the requirement 
applies to include a one-sentence statement in the relevant non-English 
language that translation services are available. The Department 
believes that this requirement will have a negligible cost impact. 
Plans also must provide, upon request, a notice in any applicable non-
English language.
    Although, one commenter reported that oral translation services are 
not provided by plans, the Department's conversations with the 
regulated community indicate that oral translation services generally 
are offered as a standard service. Based on this information, the 
Department assumes that only a small number of plans will need to begin 
offering oral translation services for the first time upon the issuance 
of the final rule. Therefore, the Department assumes that this 
requirement will impose minimal additional costs.
    The Department expects that the largest cost associated with the 
requirement is for plans to provide notices in the applicable non-
English language upon request. Based on 2014 ACS data, the Department 
estimates that there are about 22.7 million individuals living in 
covered counties that are literate only in a covered non-English 
Language.\40\ To estimate the number of these individuals that might 
request a notice in a non-English language, the Department estimated 
the number of workers in each county (total population in county * 
state labor force participation rate * (1--state unemployment rate)) 
41 42 and calculated the number with access to short-term 
and long-term disability insurance by multiplying those estimates by 
the estimates of the share of workers participating in disability 
benefit programs (39 percent for short-term and 33 percent for long 
term disability.) \43\ It should be noted that the sums in the right 
two columns are all workers in the county with disability insurance, 
not just workers with disability insurance that are eligible to receive 
notices in the applicable non-English language, because the calculation 
for the number of requests for translation is based on workers with 
insurance.
---------------------------------------------------------------------------

    \40\ http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/2009-13-CLAS-County-Data.pdf.
    \41\ Labor force Participation rate: http://www.bls.gov/lau/staadata.txt. Unemployment rate: http://www.bls.gov/lau/lastrk14.htm.
    \42\ Please note that using state estimates of labor 
participation rates and unemployment rates could lead to an over 
estimate as those reporting in the ACS survey that they speak 
English less than ``very well'' are less likely to be employed. 
Also, this estimate includes both private and public workers, 
instead of just private workers leading to an overestimate of the 
costs.
    \43\ ``Beyond the Numbers: Disability Insurance Plans Trends in 
Employee Access and Employer Cost,'' February 2015 Vol. 4 No. 4. 
http://www.bls.gov/opub/btn/volume-4/disability-insurance-plans.htm.

                                                     Table 3--Workers in Affected Counties by State
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            State labor
                                                                          Total effected       force           State       Workers with    Workers with
                                                            Pop in the        foreign      participation   unemployment     short-term       long-term
                                                              county       language pop     rate (2015)     rate (2015)     disability      disability
                                                                             in county          (%)             (%)          coverage        coverage
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.................................................          29,519           3,979              56               6           6,097           5,159
Alaska..................................................           8,634           2,677            67.1             6.5           2,113           1,788
Arizona.................................................         296,362         160,492            59.8             6.1          64,901          54,917
Arkansas................................................          15,864           4,598            57.9             5.2           3,396           2,874
California..............................................      26,248,619       8,845,211            62.2             6.2       5,972,612       5,053,748
Colorado................................................         513,177         122,183            66.7             3.9         128,287         108,550
Florida.................................................       3,166,261       1,785,759            59.3             5.4         692,719         586,147
Georgia.................................................         284,282          72,578            61.3             5.9          63,953          54,114
Idaho...................................................          87,012          21,145            63.9             4.1          20,795          17,596
Illinois................................................         484,509         126,443            64.7             5.9         115,043          97,344
Iowa....................................................          35,029           7,861            69.9             3.7           9,196           7,781
Kansas..................................................         254,997          72,446            67.9             4.2          64,690          54,737
Missouri................................................           6,170             919            65.6             5.0           1,500           1,269
Nebraska................................................         106,532          26,134            70.1             3.0          28,251          23,905
Nevada..................................................       1,869,086         431,029            63.2             6.7         429,826         363,699
New Jersey..............................................       1,736,310         563,516            64.1             5.6         409,753         346,714
New Mexico..............................................         512,864         218,554            57.2             6.6         106,859          90,419
New York................................................       4,983,647       1,472,029            61.1             5.3       1,124,613         951,596
North Carolina..........................................          55,317          10,260            61.2             5.7          12,450          10,535
Oklahoma................................................          23,150           7,325            61.9             4.2           5,354           4,530
Oregon..................................................          31,532           8,897            61.1             5.7           7,085           5,995
Texas...................................................      12,541,167       5,304,121            63.7             4.5       2,975,400       2,517,646
Virginia................................................          50,989          15,060            65.2             4.4          12,395          10,488
Washington..............................................         437,583         164,140            63.0             5.7         101,386          85,788
Puerto Rico.............................................       3,433,930       3,252,314            39.8            11.2         473,317         400,499
                                                         -----------------------------------------------------------------------------------------------
    Total...............................................      57,212,542      22,699,670  ..............  ..............      12,825,893      10,852,679
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Department's discussions with the regulated community indicate 
that in California, which has a State law requirement for providing 
translation services for health benefit claims, requests for 
translations of written documents averages 0.098 requests per 1,000 
members (note that requirement applies to all members not just foreign 
language speaking) for health claims. While the requirements of 
California differ from those contained in these final regulations and 
the demographics for California do not match those of covered counties, 
for purposes of this

[[Page 92338]]

analysis, the Department used this percentage to estimate the number of 
translation service requests that plans could expect to receive. The 
Department believes that this estimate significantly overstates the 
number of translation requests that will be received, because there are 
fewer disability claims than health claims. Industry experts also told 
the Department that while the cost of translation services varies, $500 
per document is a reasonable approximation of translation cost, and the 
Department used this amount in its cost estimate for the final rule. 
This number was provided to the Department in 2010; therefore, for 
purposes of this analysis, the Department has adjusted this amount to 
$553 to account for inflation.\44\
---------------------------------------------------------------------------

    \44\ The 2010 and 2016 GDP Deflator was 100.056 in 2010 and 
110.714 in 2016. The adjustment is $500 * (110.714/100.056) = $553. 
https://fred.stlouisfed.org/series/GNPDEF.
---------------------------------------------------------------------------

    Based on the foregoing, the Department estimates that the cost to 
provide translation services pursuant to the final rule will be 
approximately $1,283,840 annually (23,678,572 lives * 0.098/1000 * 
$553).
    Commenters questioned the data the Department used in the 
regulatory impact analysis for the proposed rule to estimate the costs 
incurred by TPAs and insurers to provide culturally and linguistically 
appropriate notices. One commenter questioned whether the $500 per 
document translation cost accurately reflects the costs to comply with 
this provision. The commenter, however, failed to explain its rationale 
or provide any alternative information the Department could use to 
refine its estimate.
    Another commenter questioned whether it was valid to rely on cost 
estimates to translate a notice into a non-English language based on 
data used by the Department to quantify the costs of complying with the 
a similar ACA requirement for group health plans. The Department 
believes that its experience with ACA group health plan claims and 
appeals regulations is directly applicable to this final regulation 
regarding disability claims and appeals. Contrary to the commenter's 
assertion that disability claims are so different from health claims 
that information about one cannot inform the other, the Department 
believes that translation of a notice into a different language is very 
similar for health and disability benefits, particularly as the same 
translation companies offer services for both types of notices. Also, 
while commenters argue that disability claims files are much larger 
than medical claim files, the distinction is not relevant here, because 
the claim file is not required to be translated; only the notice is.
    Another comment received was that there would be additional costs 
due to privacy issues arising from sharing personal information with a 
third-party. The same privacy issues arise in the health claims 
context. Pricing for translation services used in the analysis, 
therefore already have the costs for privacy issues built into the 
estimates.
    The Department did not have sufficient data to quantify other costs 
associated with the final rule; and therefore, has provided a 
qualitative discussion of these costs below and a response to cost-
related comments received in response to the regulatory impact analysis 
for the proposed regulation.
    Independence and Impartiality-Avoiding Conflicts of Interest: The 
Department's claims and appeals regulation required certain standards 
of independence for persons making claims decisions before the final 
rules were issued. These final rules add new criteria for avoiding 
conflicts that require plans providing disability benefits to ensure 
``that all claims and appeals for disability benefits are adjudicated 
in a manner designed to ensure the independence and impartiality of the 
persons involved in making the decisions.'' Also decisions regarding 
hiring, compensation, termination, promotion, or other similar matters 
must not be made based on the likelihood that the individual will 
support the denial of benefits.
    These requirements provide protections to claimants by ensuring 
that their claims are processed impartially and already are considered 
best practice by many plan administrators who comply with this 
standard. Some plans and insurers may need to evaluate their policies 
and procedures to ensure they are compliant with this this requirement. 
The Department did not have sufficient data to quantify the costs of 
these requirements.
    One commenter, who supported applying independence and impartiality 
requirements, expressed concern about a statement in the preamble to 
the proposed rule where the Department explained, as an example, that a 
plan cannot contract with a medical expert based on the expert's 
reputation for outcomes in contested cases rather than based on the 
expert's professional qualifications. The commenter expressed concern 
that the statement in the preamble might result in claimants requesting 
statistics and other information on cases in which the medical expert 
expressed opinions in support of denying versus granting a disability 
benefit claims.
    In the Department's view, the preamble statement is an accurate 
example of one way that the independence and impartiality standard 
would be violated, and, accordingly, does not believe it would be 
appropriate to disclaim or caveat the statement in the final rule. That 
said, the independence and impartiality requirements in the rule do not 
modify the scope of what would be ``relevant documents'' subject to the 
disclosure requirements in paragraphs (g)(1)(vii)(C) and (h)(2)(iii) of 
the Section 503 Regulation, as amended by this rule. Nor does the rule 
prescribe limits on the extent to which information about consulting 
experts would be discoverable in a court proceeding as part of an 
evaluation of the extent to which the claims administrator or insurer 
was acting under a conflict of interest that should be considered in 
evaluating an adverse benefit determination. Thus, the Department 
acknowledges that plans may incur costs to respond to claimants' 
requests for statistics and other information described by the 
commenter. However, the commenter provided no evidence or data to 
support their assertion and did not quantify the additional cost, thus 
the Department does not have sufficient data to quantify such costs.
    Deemed Exhaustion of Claims and Appeals Process: The final rule 
tracks the proposal and provides that if a plan fails to adhere to all 
the requirements in the claims procedure regulation, the claimant would 
be deemed to have exhausted administrative remedies, with a limited 
exception where the violation was (i) de minimis; (ii) non-prejudicial; 
(iii) attributable to good cause or matters beyond the plan's control; 
(iv) in the context of an ongoing good-faith exchange of information; 
and (v) not reflective of a pattern or practice of non-compliance. 
Litigation costs are the primary cost related to this requirement, 
because claimants may proceed directly to court after a deemed 
exhaustion. Pursing litigation is more expensive than the plan appeals 
process, however, it may be the only option claimants have available to 
obtain denied benefits. Deemed exhaustion is available for the 
situations when plans are not following the procedural rules of the 
regulation. At times it may still be in a claimant's best interest to 
pursue an appeal inside the plan due to cost and time to resolve issues 
instead of using the court system. Commenters raised a concern the

[[Page 92339]]

claimants would be hurt by the higher costs and delay in obtaining a 
resolution if they sought resolution through litigation. However, this 
provision allows claimants to decide if the added costs and time of 
litigation are offset by the cost to them of remaining in an appeals 
process that is in violation of the procedural rules.
    Some commenters maintained that their liability exposure increases 
when claimants' ability to go to court is enhanced. These commenters 
expressed concern about the expense of discovery to even determine if 
the procedural requirements have not been followed and asserted that 
claimants will allege that plans have violated their procedures and go 
to court to force a settlement.
    While all of these scenarios are possible, the Department does not 
know of, nor did commenters provide, any data or information that would 
even be suggestive of, the frequency of these events, or the added 
expense resulting from their occurrence. The Department is not aware of 
systematic abuses or complaints of abuse with respect to a similar 
deemed exhaustion requirement contained in the ACA and the Departments' 
implementing regulation at 29 CFR 2590.715.2719. Thus, the Department 
believes these occurrences will be infrequent.
    Covered Rescissions-Adverse Benefit Determinations: The final rule 
adds a new provision to address coverage rescissions. Specifically, the 
2000 regulation already covered a rescission if it is the basis, in 
whole or in part, of an adverse benefit determination. The final 
regulation amends the definition of adverse benefit determination to 
include a rescission of disability benefit coverage that has a 
retroactive effect, whether or not there is an adverse effect on a 
benefit at that time.
    The Department understands that this situation occurs infrequently. 
When it does occur, plans will incur the cost of providing an appeal of 
the rescission. The Department does not have sufficient data to 
estimate the cost to review and appeal a rescission of coverage. 
However, the Department expects that it would be less than the cost to 
appeal other disability benefit denials because medical or vocation 
professionals are not needed to review the claim. Instead, the facts of 
the coverage situation are required. When a rescission is reversed, the 
provision of future benefits would be considered a transfer from the 
plan to the claimant whose rescission was reversed.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) and which are 
likely to have a significant economic impact on a substantial number of 
small entities. Unless an agency determines that a final rule is not 
likely to have a significant economic impact on a substantial number of 
small entities, section 604 of the RFA requires the agency to present a 
final regulatory flexibility analysis (FRFA) of the final rule 
describing the rule's impact on small entities and explaining how the 
agency made its decisions with respect to the application of the rule 
to small entities. Pursuant to section 605(b) of the RFA, the Assistant 
Secretary of the Employee Benefits Security Administration hereby 
certifies that the final rule will not have a significant economic 
impact on a substantial number of small entities. The Department 
discusses the impacts of the final rule and the basis for its 
certification below.
    Need for and Objectives of the Rule: As discussed in section II 
above, the final rule will revise and strengthen the current rules 
regarding claims and appeals applicable to ERISA-covered plans 
providing disability benefits primarily by adopting several of the new 
procedural protections and safeguards made applicable to ERISA-covered 
group health plans by the Affordable Care Act. Before the enactment of 
the Affordable Care Act, group health plan sponsors and sponsors of 
ERISA-covered plans providing disability benefits were required to 
implement internal claims and appeal processes that complied with the 
Section 503 Regulation. The enactment of the Affordable Care Act and 
the issuance of the implementing interim final regulations resulted in 
disability plan claimants receiving fewer procedural protections than 
group health plan participants even though litigation regarding 
disability benefit claims is prevalent today.
    The Department believes this action is necessary to ensure that 
disability claimants receive the same protections that Congress and the 
President established for group health care claimants under the 
Affordable Care Act. This will result in some participants receiving 
benefits they might otherwise have been incorrectly denied in the 
absence of the fuller protections provided by the final regulation. 
This will help alleviate the financial and emotional hardship suffered 
by many individuals when they lose earnings due to their becoming 
disabled.
    Affected Small Entities: The Department does not have complete data 
on the number of plans providing disability benefits or the total 
number of participants covered by such plans. ERISA-covered welfare 
benefit plans with more than 100 participants generally are required to 
file a Form 5500. Only some ERISA-covered welfare benefit plans with 
less than 100 participants are required to file for various reasons, 
but this number is very small. Based on current trends in the 
establishment of pension and health plans, there are many more small 
plans than large plans, but the majority of participants are covered by 
the large plans.
    Data from the 2014 Form 5500 Schedule A indicates that there are 
39,135 plans reporting a code indicating they provide temporary 
disability benefits covering 40.1 million participants, and 26,171 
plans reporting a code indicating they provide long-term disability 
benefits covering 22.4 million participants. To put the number of large 
and small plans in perspective, the Department estimates that there are 
150,000 large group health plans and 2.1 million small group health 
plans using 2016 Medical Expenditure Panel Survey-Insurance Component.
    Impact of the Rule: The Department has quantified some of the costs 
associated with these final regulations' requirements to (1) provide 
the claimant free of charge with any new or additional evidence 
considered, and (2) to providing notices of adverse benefit 
determinations in a culturally and linguistically appropriate manner. 
These requirements and their associated costs are discussed in the 
Costs and Transfers section above. Additionally other costs are 
qualitatively discussed in the Costs section. Comments addressing the 
burden of the regulations were received and are discussed above as 
well.
    Provision of new or additional evidence or rationale: As stated 
earlier in this preamble, before a plan can issue a notice of adverse 
benefit determination on review, the final rule requires plans to 
provide disability benefit claimants, free of charge, with any new or 
additional evidence considered, relied upon, or generated by (or at the 
direction of) the plan as soon as possible and sufficiently in advance 
of the date the notice of adverse benefit determination on review is 
required to be provided and any new or additional

[[Page 92340]]

rationale sufficiently in advance of the due date of the response to an 
adverse benefit determination on review.
    The Department is not aware of data suggesting how often plans rely 
on new or additional evidence or rationale during the appeals process 
or the volume of materials that are received. The Department estimated 
the cost per claim by assuming that compliance will require medical 
office staff, or other similar staff in other service setting with a 
labor rate of $30, 30 minutes to collect and distribute the additional 
evidence considered, relied upon, or generated by (or at the direction 
of) the plan during the appeals process. The Department estimates that 
on average, material, printing and postage costs will total $2.50 per 
mailing. The Department further assumes that 30 percent of all mailings 
will be distributed electronically with no associated material, 
printing or postage costs.
    Providing Notices in a Culturally and Linguistically Appropriate 
Manner: The final rule would require notices of adverse benefit 
determinations with respect to disability benefits to be provided in a 
culturally and linguistically appropriate manner in certain situations. 
This requirement is satisfied if plans provide oral language services 
including answering questions and providing assistance with filing 
claims and appeals in any applicable non-English language. The final 
rule also requires such notices of adverse benefit determinations sent 
by a plan to which the requirement applies to include a one-sentence 
statement in the relevant non-English language about the availability 
of language services. Plans also must provide, upon request, such 
notices of adverse benefit determinations in the applicable non-English 
language.
    The Department expects that the largest cost associated with the 
requirement for culturally and linguistically appropriate notices will 
be for plans to provide notices in the applicable non-English language 
upon request. Industry experts also told the Department that while the 
cost of translation services varies, $553 per document is a reasonable 
approximation of translation cost.
    In discussions with the regulated community, the Department found 
that experience in California, which has a State law requirement for 
providing translation services, indicates that requests for 
translations of written documents averages 0.098 requests per 1,000 
members for health claims. While the California law is not identical to 
the final rule, and the demographics for California do not match other 
counties, for purposes of this analysis, the Department used this 
percentage to estimate of the number of translation service requests 
plans could expect to receive. Based on the low number of requests per 
claim, the Department expects that translation costs would be included 
as part of a package of services offered to a plan, and that the costs 
of actual requests will be spread across multiple plans.
    Duplication, Overlap, and Conflict With Other Rules and 
Regulations: The Department does not believe that the final rule will 
conflict with any relevant regulations, federal or other.

D. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA) (44 U.S.C. 3506(c)(2)), the Department submitted an 
information collection request (ICR) to OMB regarding the ICRs 
contained in the final rule in accordance with 44 U.S.C. 3507(d), for 
OMB's review. OMB approved the ICR under OMB Control Number 1210-0053, 
which currently is scheduled to expire on November 30, 2019.
    As discussed earlier in this preamble, the Department's final 
amendments to its claims and appeals procedure regulation would revise 
and strengthen the current rules regarding claims and appeals 
applicable to ERISA-covered plans providing disability benefits 
primarily by adopting several of the procedural protections and 
safeguards made applicable to ERISA-covered group health plans by the 
ACA. Some of these amendments revise disclosure requirements under the 
current rule that are information collections covered by the PRA. For 
example, benefit denial notices must contain a full discussion of why 
the plan denied the claim, and to the extent the plan did not follow or 
agree with the views presented by the claimant to the plan or health 
care professional treating the claimant or vocational professionals who 
evaluated the claimant, or a disability determination regarding the 
claimant presented by the claimant to the plan made by the SSA, the 
discussion must include an explanation of the basis for disagreeing 
with the views or disability determination. The notices also must 
include either (1) the specific internal rules, guidelines, protocols, 
standards or other similar criteria of the plan relied upon in making 
the adverse determination or, alternatively, or (2) a statement that 
such rules, guidelines, protocols, standards or other similar criteria 
of the plan do not exist.
    A copy of the ICR may be obtained by contacting the PRA addressee 
shown below or at http://www.RegInfo.gov. PRA ADDRESSEE: G. Christopher 
Cosby, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue NW., 
Room N- 5718, Washington, DC 20210. Telephone: (202) 693-8410; Fax: 
(202) 219-4745. These are not toll-free numbers.
    After the implementation of the ACA claims regulations, disability 
plans claimants received fewer procedural protections than group health 
plan participants even though disability plan claimants experience more 
issues with the claims review process. These final regulations will 
reduce the inconsistent procedural rules applied to health and 
disability benefit plan claims and provide similar procedural 
protections to claimants of both types of plans.
    The burdens associated with the regulatory requirements of the ICRs 
contained in the final rule are summarized below.
    Type of Review: Revised collection.
    Agencies: Employee Benefits Security Administration, Department of 
Labor.
    Title: ERISA Claims Procedures.
    OMB Number: 1210-0053.
    Affected Public: Business or other for-profit; not-for-profit 
institutions.
    Total Respondents: 5,808,000.
    Total Responses: 311,790,000.
    Frequency of Response: Occasionally.
    Estimated Total Annual Burden Hours: 516,000.
    Estimated Total Annual Burden Cost: $814,450,000.

IV. Congressional Review Act

    The final rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the 
Comptroller General for review. The final rule is not a ``major rule'' 
as that term is defined in 5 U.S.C. 804, because it is not likely to 
result in an annual effect on the economy of $100 million or more.

V. Unfunded Mandates Reform Act

    For purposes of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 
1501 et seq.), as well as Executive Order 12875, this final rule does 
not include any federal mandate that may result in expenditures by 
state, local, or tribal governments, or the private sector, which may 
impose an annual burden of $100 million or more (as adjusted for 
inflation).

VI. Federalism Statement

    Executive Order 13132 outlines fundamental principles of 
federalism,

[[Page 92341]]

and requires the adherence to specific criteria by Federal agencies in 
the process of their formulation and implementation of policies that 
have ``substantial direct effects'' on the States, the relationship 
between the national government and States, or on the distribution of 
power and responsibilities among the various levels of government. 
Federal agencies promulgating regulations that have federalism 
implications must consult with State and local officials and describe 
the extent of their consultation and the nature of the concerns of 
State and local officials in the preamble to the final regulation.
    In the Department of Labor's view, these final regulations have 
federalism implications because they would have direct effects on the 
States, the relationship between the national government and the 
States, or on the distribution of power and responsibilities among 
various levels of government to the extent states have enacted laws 
affecting disability plan claims and appeals that contain similar 
requirements to the final rule. The Department believes these effects 
are limited, because although section 514 of ERISA supersedes State 
laws to the extent they relate to any covered employee benefit plan, it 
preserves State laws that regulate insurance, banking, or securities. 
In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have federalism 
implications or limit the policy making discretion of the States, the 
Department solicited input from affected States, including the National 
Association of Insurance Commissioners and State insurance officials, 
regarding this assessment at the proposed rule stage but did not 
receive any comments.

List of Subjects in 29 CFR Part 2560

    Claims, Employee benefit plans.

    For the reasons stated in the preamble, the Department of Labor 
amends 29 CFR part 2560 as set forth below:

PART 2560--RULES AND REGULATIONS FOR ADMINISTRATION AND ENFORCEMENT

0
1. The authority citation for part 2560 is revised to read as follows:

    Authority: 29 U.S.C. 1132, 1135, and Secretary of Labor's Order 
1-2011, 77 FR 1088 (Jan. 9, 2012). Section 2560.503-1 also issued 
under 29 U.S.C. 1133. Section 2560.502c-7 also issued under 29 
U.S.C. 1132(c)(7). Section 2560.502c-4 also issued under 29 U.S.C. 
1132(c)(4). Section 2560.502c-8 also issued under 29 U.S.C. 
1132(c)(8).


0
2. Section 2560.503-1 is amended by:
0
a. Adding paragraph (b)(7).
0
b. Revising paragraph (g)(1)(v).
0
c. Adding paragraphs (g)(1)(vii) and (viii).
0
d. Revising paragraphs (h)(4) and (i)(3)(i).
0
e. Revising paragraphs (j)(4) and (j)(5) introductory text.
0
f. Adding paragraphs (j)(6) and (7).
0
g. Revising paragraphs (l) and (m)(4).
0
i. Redesignating paragraph (o) as (p), and adding new paragraph (o).
0
j. Revising newly redesignated paragraph (p).
    The revisions and additions read as follows:


Sec.  2560.503-1  Claims procedure.

* * * * *
    (b) * * *
    (7) In the case of a plan providing disability benefits, the plan 
must ensure that all claims and appeals for disability benefits are 
adjudicated in a manner designed to ensure the independence and 
impartiality of the persons involved in making the decision. 
Accordingly, decisions regarding hiring, compensation, termination, 
promotion, or other similar matters with respect to any individual 
(such as a claims adjudicator or medical or vocational expert) must not 
be made based upon the likelihood that the individual will support the 
denial of benefits.
* * * * *
    (g) * * * (1) * * *
    (v) In the case of an adverse benefit determination by a group 
health plan--
* * * * *
    (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:
    (i) The views presented by the claimant to the plan of health care 
professionals treating the claimant and vocational professionals who 
evaluated the claimant;
    (ii) The views of medical or vocational experts whose advice was 
obtained on behalf of the plan in connection with a claimant's adverse 
benefit determination, without regard to whether the advice was relied 
upon in making the benefit determination; and
    (iii) A disability determination regarding the claimant presented 
by the claimant to the plan made by the Social Security Administration;
    (B) If the adverse benefit determination is based on a medical 
necessity or experimental treatment or similar exclusion or limit, 
either an explanation of the scientific or clinical judgment for the 
determination, applying the terms of the plan to the claimant's medical 
circumstances, or a statement that such explanation will be provided 
free of charge upon request;
    (C) Either the specific internal rules, guidelines, protocols, 
standards or other similar criteria of the plan relied upon in making 
the adverse determination or, alternatively, a statement that such 
rules, guidelines, protocols, standards or other similar criteria of 
the plan do not exist; and
    (D) A statement that the claimant is entitled to receive, upon 
request and free of charge, reasonable access to, and copies of, all 
documents, records, and other information relevant to the claimant's 
claim for benefits. Whether a document, record, or other information is 
relevant to a claim for benefits shall be determined by reference to 
paragraph (m)(8) of this section.
    (viii) In the case of an adverse benefit determination with respect 
to disability benefits, the notification shall be provided in a 
culturally and linguistically appropriate manner (as described in 
paragraph (o) of this section).
* * * * *
    (h) * * *
    (4) Plans providing disability benefits. The claims procedures of a 
plan providing disability benefits will not, with respect to claims for 
such benefits, be deemed to provide a claimant with a reasonable 
opportunity for a full and fair review of a claim and adverse benefit 
determination unless, in addition to complying with the requirements of 
paragraphs (h)(2)(ii) through (iv) and (h)(3)(i) through (v) of this 
section, the claims procedures--
    (i) Provide that before the plan can issue an adverse benefit 
determination on review on a disability benefit claim, the plan 
administrator shall provide the claimant, free of charge, with any new 
or additional evidence considered, relied upon, or generated by the 
plan, insurer, or other person making the benefit determination (or at 
the direction of the plan, insurer or such other person) in connection 
with the claim; such evidence must be provided as soon as possible and 
sufficiently in advance of the date on which the notice of adverse 
benefit determination on review is required to be provided under 
paragraph (i) of this section to give the claimant a reasonable 
opportunity to respond prior to that date; and
    (ii) Provide that, before the plan can issue an adverse benefit 
determination on review on a disability benefit claim based on a new or 
additional rationale, the plan administrator shall provide the

[[Page 92342]]

claimant, free of charge, with the rationale; the rationale must be 
provided as soon as possible and sufficiently in advance of the date on 
which the notice of adverse benefit determination on review is required 
to be provided under paragraph (i) of this section to give the claimant 
a reasonable opportunity to respond prior to that date.
* * * * *
    (i) * * *
    (3) Disability claims. (i) Except as provided in paragraph 
(i)(3)(ii) of this section, claims involving disability benefits 
(whether the plan provides for one or two appeals) shall be governed by 
paragraph (i)(1)(i) of this section, except that a period of 45 days 
shall apply instead of 60 days for purposes of that paragraph.
* * * * *
    (j) * * *
    (4)(i) A statement describing any voluntary appeal procedures 
offered by the plan and the claimant's right to obtain the information 
about such procedures described in paragraph (c)(3)(iv) of this 
section, and a statement of the claimant's right to bring an action 
under section 502(a) of the Act; and,
    (ii) In the case of a plan providing disability benefits, in 
addition to the information described in paragraph (j)(4)(i) of this 
section, the statement of the claimant's right to bring an action under 
section 502(a) of the Act shall also describe any applicable 
contractual limitations period that applies to the claimant's right to 
bring such an action, including the calendar date on which the 
contractual limitations period expires for the claim.
    (5) In the case of a group health plan--
* * * * *
    (6) In the case of an adverse benefit decision with respect to 
disability benefits--
    (i) A discussion of the decision, including an explanation of the 
basis for disagreeing with or not following:
    (A) The views presented by the claimant to the plan of health care 
professionals treating the claimant and vocational professionals who 
evaluated the claimant;
    (B) The views of medical or vocational experts whose advice was 
obtained on behalf of the plan in connection with a claimant's adverse 
benefit determination, without regard to whether the advice was relied 
upon in making the benefit determination; and
    (C) A disability determination regarding the claimant presented by 
the claimant to the plan made by the Social Security Administration;
    (ii) If the adverse benefit determination is based on a medical 
necessity or experimental treatment or similar exclusion or limit, 
either an explanation of the scientific or clinical judgment for the 
determination, applying the terms of the plan to the claimant's medical 
circumstances, or a statement that such explanation will be provided 
free of change upon request; and
    (iii) Either the specific internal rules, guidelines, protocols, 
standards or other similar criteria of the plan relied upon in making 
the adverse determination or, alternatively, a statement that such 
rules, guidelines, protocols, standards or other similar criteria of 
the plan do not exist.
    (7) In the case of an adverse benefit determination on review with 
respect to a claim for disability benefits, the notification shall be 
provided in a culturally and linguistically appropriate manner (as 
described in paragraph (o) of this section).
* * * * *
    (l) Failure to establish and follow reasonable claims procedures. 
(1) In general. Except as provided in paragraph (l)(2) of this section, 
in the case of the failure of a plan to establish or follow claims 
procedures consistent with the requirements of this section, a claimant 
shall be deemed to have exhausted the administrative remedies available 
under the plan and shall be entitled to pursue any available remedies 
under section 502(a) of the Act on the basis that the plan has failed 
to provide a reasonable claims procedure that would yield a decision on 
the merits of the claim.
    (2) Plans providing disability benefits. (i) In the case of a claim 
for disability benefits, if the plan fails to strictly adhere to all 
the requirements of this section with respect to a claim, the claimant 
is deemed to have exhausted the administrative remedies available under 
the plan, except as provided in paragraph (l)(2)(ii) of this section. 
Accordingly, the claimant is entitled to pursue any available remedies 
under section 502(a) of the Act on the basis that the plan has failed 
to provide a reasonable claims procedure that would yield a decision on 
the merits of the claim. If a claimant chooses to pursue remedies under 
section 502(a) of the Act under such circumstances, the claim or appeal 
is deemed denied on review without the exercise of discretion by an 
appropriate fiduciary.
    (ii) Notwithstanding paragraph (l)(2)(i) of this section, the 
administrative remedies available under a plan with respect to claims 
for disability benefits will not be deemed exhausted based on de 
minimis violations that do not cause, and are not likely to cause, 
prejudice or harm to the claimant so long as the plan demonstrates that 
the violation was for good cause or due to matters beyond the control 
of the plan and that the violation occurred in the context of an 
ongoing, good faith exchange of information between the plan and the 
claimant. This exception is not available if the violation is part of a 
pattern or practice of violations by the plan. The claimant may request 
a written explanation of the violation from the plan, and the plan must 
provide such explanation within 10 days, including a specific 
description of its bases, if any, for asserting that the violation 
should not cause the administrative remedies available under the plan 
to be deemed exhausted. If a court rejects the claimant's request for 
immediate review under paragraph (l)(2)(i) of this section on the basis 
that the plan met the standards for the exception under this paragraph 
(l)(2)(ii), the claim shall be considered as re-filed on appeal upon 
the plan's receipt of the decision of the court. Within a reasonable 
time after the receipt of the decision, the plan shall provide the 
claimant with notice of the resubmission.
* * * * *
    (m) * * *
    (4) The term ``adverse benefit determination'' means:
    (i) Any of the following: A denial, reduction, or termination of, 
or a failure to provide or make payment (in whole or in part) for, a 
benefit, including any such denial, reduction, termination, or failure 
to provide or make payment that is based on a determination of a 
participant's or beneficiary's eligibility to participate in a plan, 
and including, with respect to group health plans, a denial, reduction, 
or termination of, or a failure to provide or make payment (in whole or 
in part) for, a benefit resulting from the application of any 
utilization review, as well as a failure to cover an item or service 
for which benefits are otherwise provided because it is determined to 
be experimental or investigational or not medically necessary or 
appropriate; and
    (ii) In the case of a plan providing disability benefits, the term 
``adverse benefit determination'' also means any rescission of 
disability coverage with respect to a participant or beneficiary 
(whether or not, in connection with the rescission, there is an adverse 
effect on any particular benefit at that time). For this purpose, the 
term ``rescission'' means a cancellation or discontinuance

[[Page 92343]]

of coverage that has retroactive effect, except to the extent it is 
attributable to a failure to timely pay required premiums or 
contributions towards the cost of coverage.
* * * * *
    (o) Standards for culturally and linguistically appropriate 
notices. A plan is considered to provide relevant notices in a 
``culturally and linguistically appropriate manner'' if the plan meets 
all the requirements of paragraph (o)(1) of this section with respect 
to the applicable non-English languages described in paragraph (o)(2) 
of this section.
    (1) Requirements. (i) The plan must provide oral language services 
(such as a telephone customer assistance hotline) that include 
answering questions in any applicable non-English language and 
providing assistance with filing claims and appeals in any applicable 
non-English language;
    (ii) The plan must provide, upon request, a notice in any 
applicable non-English language; and
    (iii) The plan must include in the English versions of all notices, 
a statement prominently displayed in any applicable non-English 
language clearly indicating how to access the language services 
provided by the plan.
    (2) Applicable non-English language. With respect to an address in 
any United States county to which a notice is sent, a non-English 
language is an applicable non-English language if ten percent or more 
of the population residing in the county is literate only in the same 
non-English language, as determined in guidance published by the 
Secretary.
    (p) Applicability dates and temporarily applicable provisions. (1) 
Except as provided in paragraphs (p)(2), (p)(3) and (p)(4) of this 
section, this section shall apply to claims filed under a plan on or 
after January 1, 2002.
    (2) This section shall apply to claims filed under a group health 
plan on or after the first day of the first plan year beginning on or 
after July 1, 2002, but in no event later than January 1, 2003.
    (3) Paragraphs (b)(7), (g)(1)(vii) and (viii), (j)(4)(ii), (j)(6) 
and (7), (l)(2), (m)(4)(ii), and (o) of this section shall apply to 
claims for disability benefits filed under a plan on or after January 
1, 2018, in addition to the other paragraphs in this rule applicable to 
such claims.
    (4) With respect to claims for disability benefits filed under a 
plan from January 18, 2017 through December 31, 2017, this paragraph 
(p)(4) shall apply instead of paragraphs (g)(1)(vii), (g)(1)(viii), 
(h)(4), (j)(6) and (j)(7).
    (i) In the case of a notification of benefit determination and a 
notification of benefit determination on review by a plan providing 
disability benefits, the notification shall set forth, in a manner 
calculated to be understood by the claimant--
    (A) If an internal rule, guideline, protocol, or other similar 
criterion was relied upon in making the adverse determination, either 
the specific rule, guideline, protocol, or other similar criterion; or 
a statement that such a rule, guideline, protocol, or other similar 
criterion was relied upon in making the adverse determination and that 
a copy of such rule, guideline, protocol, or other criterion will be 
provided free of charge to the claimant upon request; and
    (B) If the adverse benefit determination is based on a medical 
necessity or experimental treatment or similar exclusion or limit, 
either an explanation of the scientific or clinical judgment for the 
determination, applying the terms of the plan to the claimant's medical 
circumstances, or a statement that such explanation will be provided 
free of charge upon request.
    (ii) The claims procedures of a plan providing disability benefits 
will not, with respect to claims for such benefits, be deemed to 
provide a claimant with a reasonable opportunity for a full and fair 
review of a claim and adverse benefit determination unless the claims 
procedures comply with the requirements of paragraphs (h)(2)(ii) 
through (iv) and (h)(3)(i) through (v) of this section.

    Signed at Washington, DC, this 9th day of December, 2016.
Phyllis C. Borzi,
Assistant Secretary, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2016-30070 Filed 12-16-16; 8:45 am]
 BILLING CODE 4510-29-P