ERISA 103. Participant, Beneficiary and Claimant Rights. John C. Gall Assistant Vice President & Senior Counsel, Unum January 10, 2013.

Transcription

1 ERISA 103 Participant, Beneficiary and Claimant Rights John C. Gall Assistant Vice President & Senior Counsel, Unum January 10, 2013 #452474v1

2 All citations used in this presentation that refer to ERISA Sections may be found in Title 29 of the United States Code, beginning with 29 U.S.C. Section 1001 et seq. These sections are referenced in the CCH Pension and Employee Benefits: Code, ERISA, Regulations as of January 1, 2007, Volume 2, and The ERISA Outline Book: A Study Guide and Reference Manual in Five Volumes by Sal L. Tripodi. All citations that refer to C.F.R Sections may be found in the Code of Federal Regulation, which can also be found in the same sources as noted above. The law and regulations pertaining to ERISA are also available online. For example, log onto the U.S. Department of Labor s website at and scroll down to the heading Applicable Laws and Regulations for links to the law and regulations. You can use the Bibliography at the end of this presentation for additional information on ERISA.

3 Federal and State Laws Governing Employee Benefits ERISA IRC FASB ADEA ADA FMLA Civil Rights Act of 1964 Privacy Labor: Collective Bargaining Employment Agreements UETA Policy Form Policy Content Unfair Trade Practices Act Insurer Characteristics Rate Filing Marketing Advertising Privacy Little UETAs Eligible Group Attorney Client/Work Product Privileges Policy Language Administrative Letter Side Agreement with policyholder, TPA, etc. Funding Agreement Request for Proposal Employer-Prepared Summary Plan Description Underwriting/Field Files Bill/Invoice Letter/ Note Verbal Discussion Federal State Contractual

4 ERISA 103: Participant, Beneficiary & Claimant Rights Disclosure & Reporting: What Does ERISA Require? SPD SMM SRA Benefit Determinations Timing Notice Appeals Case Studies A Wrap Up Controlling Documents Disclosure Fiduciary Duties Plan Design

5 What does ERISA Require? Requires certain people connected to the plan to act in a certain way Puts in place a structure and system for the operation of an employee benefits plan ERISA does not dictate plan design. ERISA is all about responsibility. The 3 keys to ERISA are: Key # 1 Disclosure: Plan Document, Summary Plan Description ( SPD ), Summary of Material Modification ( SMM ), Summary Annual Report ( SAR ) Key # 2 Reporting: Form 5500, Schedule A, Schedule C Key # 3 Standards of Conduct: Standards for decision making, handling of funds, and claims administration Source: ERISA Sections 402, 101(a), 101(b), 103(a), 104, 4065, 404(a))

6 Disclosure: Disclose What? ERISA requires the disclosure of certain information about the welfare benefit plan. The Summary Plan Description ( SPD ) cornerstone of ERISA u primary vehicle for disclosure and to inform participants and beneficiaries about their rights and benefits under the plan. u the form and content are dictated by the regulations. Summary of Material Modification ( SMM ) u required if there is a material modification or reduction to the plan. Summary Annual Report ( SAR ) - provides financial information on the plan. u the DOL regulations provide sample content, style and format language for a SAR. Sources: 65 Fed Reg (Nov. 21, 2000) ERISA Sections 502(i) and (l) DOL Reg. Sections b-3(c) and b-10(d)

7 Disclosure: Disclose When? A Summary Plan Description must be provided: To a newly covered participant within 90 days after the participant becomes covered under the plan. A new plan within 120 days after the plan first becomes subject to ERISA. If there has been a material modification since the last SPD was released then an updated SPD must be provided within 5 years of the material modification. If there has not been a material modification since the last SPD was released then an updated SPD must be provided within 10 years of the last SPD. A Summary of Material Modifications must be provided within 210 days after the end of the plan year in which the modification is adopted (even if the change is retroactive). Sources: ERISA Sections 104(b) DOL Reg. Sections b-2(a)(1) and (3)

8 Disclosure: Disclose When? A Summary Annual Report must be furnished no later than 9 months after the close of the plan year. Deadline provides the plan administrator 2 months after the Form 5500 filing is due to prepare and distribute the SAR. If the Form 5500 filing is extended, the SAR is due 2 months after the extended due date. Sources: ERISA Sections 104(b) DOL Reg. Sections b-10

9 Disclosure: Disclose to Whom? Fact or Fiction ERISA welfare benefit plans with fewer than 100 covered participants are exempt from SPD requirements. Fact or Fiction ERISA welfare benefit plan beneficiaries must be provided an SPD? Fact or Fiction An executive plan, if unfunded and uninsured, is exempt from all reporting and disclosure requirements. Fact or Fiction Cafeteria plans do not need an SPD.

10 Disclosure: Disclose How? SPDs and SMMs must be furnished in a way reasonably calculated to ensure actual receipt by all participants covered under the plan. Approved methods include: First, second or third class mail Special insert into a company or union publication In hand delivery SPDs and SMMs can be disclosed electronically to all recipients if: Notice of the significance of the document is provided to each recipient A paper version is made available on request at no charge Any confidential information is protected The participant has access to a work related computer or consents Responsibility for disclosure remains with the plan administrator. Sources: ERISA Sections 104(b) DOL Reg. Sections b-1(b)(1) 67 Fed Reg (Apr. 9, 2002)

11 ERISA Responsibilities: Financial Reporting What is the Form 5500? The Form 5500 serves as the plan s annual return to provide the government with statistical information about the plan and the plan sponsor; to report financial information about the plan; and to determine compliance with various legal requirements. Types of Plans required to file Form 5500 ERISA prescribes reporting requirements for employee benefit plans, which include employee pension benefit plans and employee welfare benefit plans. Filing exemptions for some common welfare benefit plan types: 1. An insured or unfunded plan that covers fewer than 100 participants at the beginning of the plan year. 2. Welfare benefit plans maintained outside the U.S. primarily for persons who are nonresident aliens. 3. Non-ERISA plans (e.g., governmental plans, top hat plans, statutory disability plans, church plans that do not elect to be covered under ERISA, etc.)

12 ERISA Responsibilities: Financial Reporting Form 5500 filing deadline The last day of the seventh calendar month after the end of the plan year. Is there an extension of time to file? Yes, a plan may obtain a one-time extension of up to 2 ½ months by filing a Form Are there any schedules associated with the Form 5500 filing? Yes, there are a number of different schedules that accompany the Form 5500 filing. A plan will complete and file only those schedules that apply. Are there any penalties for failing to file or for deficient filings? Both the IRS and DOL have authority to impose penalties. IRS penalties apply only to plans that are subject to the filing requirement under the Code. DOL penalties apply only to plans that are covered by Title I of ERISA and are not otherwise exempt from filing. If the plan is subject to both IRS and DOL filing requirements, then both penalties will apply to a late filing.

13 ERISA III: Participant, Beneficiary & Claimant Rights Disclosure & Reporting: What Does ERISA Require? ü SPD ü SMM ü SRA Benefit Determinations Timing Notice Appeals Case Studies A Wrap Up Controlling Documents Disclosure Fiduciary Duties Plan Design

14 Benefit Determinations: The Basics Steps A ERISA welfare benefit claim is a request for benefits by a claimant in accordance with the plan s reasonable procedure. There are four basic steps to the ERISA claims procedure: 1. Submission 2. Determination 3. Appeal 4. Review. Sources: ERISA Section 503(e) DOL Reg. Sections

15 Claims and Appeals: Overview Incorrectly Filed Claim Notice Incomplete Claim Notice Claim Notification of Benefit Decision 180 / 60 days to appeal an adverse decision Appeal Time period depends on claim type Notification of Benefit Decision on Review Additional appeals as permitted by plan and regulations State procedures under special insured plan preemption rule

16 Claims and Appeals As a general rule, a plan: Can condition how a claims is made (e.g., require a specific claim form) Must provide proper and timely notification of the decision Must provide the information needed to perfect the claim on appeal Must provide the claims procedure in the SPD Sources: ERISA Section 503 DOL Reg. Sections

17 Claims: Group Health, Disability and Other Claims Types of employee welfare benefits claims are: 1. Group Health 2. Disability 3. Other (e.g., severance, life insurance, AD&D, business travel, long term care) A claim may be subject to the disability claim regulations but based on A disability plan, A life insurance plan or A retirement plan. Sources: ERISA Section 503 DOL Reg. Sections

18 Claims: Types of Group Health Plan Claims Group Health plans: provides medical care, items and services to employees or their dependents, directly, through insurance or otherwise. Pre-service claim pre-authorization requires a claim determination before medical care is obtained. Urgent care claim a subset of pre-service claims, but different timing for a determination because delay would (1) jeopardize claimant s health, life or recovery, or (2) subject claimant to severe pain. Post service claim any claim that is not a pre-service claim. Concurrent care decision is a decision on an ongoing course of treatment to be provided for a specified period of time or number of treatments.

19 Claims: Timing for Disability and Other Claims The initial claims decision: For a disability claim the initial claims decision must be made within a reasonable period but not more than 45 days. The plan can have two 30 day extensions, if prior notice is given to the claimant and the extension is needed for reasons beyond the control of the plan. Claimants must be given at least 180 days to appeal an adverse decision. For other claims the initial claims decision must be made within a reasonable period but not more than 90 days. The plan can have one 90 day extensions, if prior notice is given to the claimant and the extension is needed for special circumstances. Claimants must be given at least 60 days to appeal an adverse decision. Sources: ERISA Section 503 DOL Reg. Sections

20 Claims Procedure: Notice of an Adverse Determination The notice of an adverse claims or appeals determination must: u State the specific reason(s) for the determination; u Reference the specific plan provision(s) on which the determination is based u Describe the additional material or information necessary to complete the claim and why such material or information is necessary u Describe the plan procedures and time limits for appealing and the right to obtain information about those procedures and bring a lawsuit under ERISA section 502(a) if there is an adverse decision on appeal u Disclose any internal rule, guideline, protocol or criteria that was relied upon in making the determination or state that such information is available, free of charge Sources: ERISA Section 503 DOL Reg. Sections

21 Appeals Procedure: Disability and Non-Health Claims Claimants may appeal any: u denial, reduction, or termination of benefits u failure to provide or make payment (in whole or in part) u adverse determination of a participant s or beneficiary s eligibility to participate The appeal must be communicated in a manner that is reasonably calculated to alert the appropriate named fiduciary as to: u of the nature of the claim, and u the request an administrative review. Sources: DOL Reg. Sections (h)(1), (m)(4) Preamble 65 Fed Reg (Nov. 21, 2000)

22 Appeals Procedure: Disability and Other Claims On appeal, the review must be: A full and fair review By someone other than the initial decision maker, who is not a subordinate of the original decision maker. The notice of an adverse review determination must: State the specific reason(s) for the determination; Reference the specific plan provision(s) on which the determination is based; Disclose any internal rule, guideline, protocol or criteria that was relied upon in making the determination or state that such information is available, free of charge; Disclose that the right to receive, upon request and without charge, reasonable access or copies of documents relevant to the determination; Include the prescribe statement on any voluntary alternative dispute resolutions options provided by or available to the plan and how to find out about those possible options; and Disclose the right bring a lawsuit under ERISA section 502(a).

23 ERISA III: Participant, Beneficiary & Claimant Rights Disclosure & Reporting: What Does ERISA Require? ü SPD ü SMM ü SRA Benefit Determinations ü Timing ü Notice ü Appeals Case Studies A Wrap Up Controlling Documents Disclosure Fiduciary Duties Plan Design

24 Case Studies The four case studies that follow are intended to put some of the ERISA topics into context. 1. Controlling Documents Which plan document controls? 2. Disclosure Is the plan responsible when a participant is told incorrect information by a plan fiduciary? 3. Fiduciary Duty Does a CEO who decides not to fully fund have an irresolvable conflict of interest? 4. Plan Design When is a plan covering owners an ERISA plan?

25 Controlling Documents: A Case Study What happens when the plan documents (e.g., the SPD) and the insurance policy differ? Insurance is a funding vehicle for the plan but does not define the plan. Benefits may be due under the terms of the plan that are not payable under the contractual terms of the policy. What happens when the policy reflects the plan but the summary of the plan, the SPD, materially differs?

26 Controlling Documents: A Case Study Willie was a plant operator at Murphy s Refinery. He was covered by plan that provides disability benefits to employees with 10 years of service. After 8.5 years, Willie hurt his back at work and took medical leave of absence. Two years later, Willie s employment ended. Murphy s HR department sent Willie a letter stating that he had 10.5 years of service. Willie applied for disability benefit. The calculation was an error- Willie only had 9.5 years of service. The SPD stated that only five years of service was necessary. Can Willie expect to receive disability payments?

27 Disclosure: A Case Study ERISA requires a plan to be written and has specific rules on the format and content of the SPD provided to participants. u What happens when the participant calls a plan fiduciary and gets an answer that is contrary to the SPD? u What if the participant relies on the information provided and, as a result, is not eligible for benefits? Bonus Was there a breach of fiduciary duty?

28 Disclosure: A Case Study Jack works at Digby s Dog Biscuits for 30 hours a week. Digby s has a group life insurance plan. The SPD and the plan require employees to work 40 hour weeks. Jack telephoned the HR department and the plan administrator told Jack that he was covered under the plan. Jack enrolled for an $100,000 in supplemental life insurance and Digby s deducted premiums from Jack s wages. Must the plan pay a benefit after telling Jack that he was covered? Should Jack rely on what the plan administrator said or what is in the SPD and the plan? Bonus Question: Did the plan administrator breach its fiduciary duty?

29 Fiduciary Duty: A Case Study When an employer is acting as a plan administrator what duty does it have to correct problems that may prevent a participant from receiving benefits?

30 Fiduciary Duty: A Case Study Marco elected short term disability (STD) benefits on the standard benefit enrollment form, the day he was hired by Polo s Pool Service. Marco also checked a "waiver of insurance" box on the back of the form and never completed a separate enrollment card required for STD coverage. Polo noticed the problem with Marco s enrollment form, but the problem was not corrected. Polo did not enroll Marco and did not deduct premiums from Marco s wages. Marco was later injured, and Polo tried to enroll him for STD (but failed to include required evidence of insurability). The claims fiduciary, noting the late enrollment, denied Marco s claim. Marco sued for fiduciary breach, seeking to be enrolled in the plan as of his original eligibility date.

31 Plan Design: A Case Study Can an group of individual insurance policies fund or create an ERISA plan? When is a plan established or maintained by the employer? Does it matter if the insured individuals are employees and partners, or just partners?

32 Plan Design: A Case Study Patty, a partner in Sherene Pastries, submitted an individual disability claim under a policy purchased through her firm. Sherene paid all the premiums for the individual policy. The insurer paid benefits for two years before concluding that Patty no longer met the definition of disability. Patty sued the insurer in state court for benefits, breach of contract, and other claims. Arguing that the policy was governed by ERISA, the insurer moved the case to federal court. u u u What factors should be considered by the court in determining if the policy is governed by ERISA? Does it make a difference if the firm paid for policies for senior bakers as well as partners? What if the coverage was provided only to one Sherene employee and all the Sherene partners?

33 ERISA III: Participant, Beneficiary & Claimant Rights Disclosure & Reporting: What Does ERISA Require? ü SPD ü SMM ü SRA Benefit Determinations ü Timing ü Notice ü Appeals Case Studies A Wrap Up ü Controlling Documents ü Disclosure ü Fiduciary Duties ü Plan Design

34 Time for Additional Questions.

35 Bibliography Bitzer, Frank and Nicholas W. Ferrigno, Jr ERISA Facts. Cincinnati: The National Underwriter Company, CCH Editorial Staff Publication. Pension and Employee Benefits: Code, ERISA, Regulations as of January 1, 2007, Volume 2. CCH Incorporated. DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 454 (3d Cir., 2003) Tripodi, Sal. The ERISA Outline Book: A Study Guide and Reference Manual in Five Volumes: 2007 Edition. TRI Pension Services Publication of the American Society of Pension Actuaries (ASPA), Employee Benefits Institute of America publications including its ERISA Manual and its free e-newsletter EBIA Weekly. Sign up at U.S. Department of Labor s ERISA Website

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