Fiscal Meltdown '08. Indications are the market decline will lead to funding problems for many plans. At the same time, a sharp economic downturn is likely to cause a decrease employer contributions, potentially threatening the long term viability of many plans. How should trustees respond?
Trustees should react to these threats just as any business organization should react, by protecting and maximizing revenues, and carefully controlling costs.
We can expect contributions to be down due to layoffs and closings.
However, we can also expect contributions to be down due to increased cheating. Employers are more likely to underreport covered hours, more likely to employ nonunion workers in positions covered by the CBA, and more likely to employ some workers "off the books." Employers covered by a CBA are more likely to establish separate companies to do nonunion work. (On the flip side, rising medical costs increase the chance some employers will try to secure coverage for a few ineligibles.)
Such cheating hurts everyone. Participants suffer when plans can’t maintain their benefits without proper funding. Honest employers suffer when they can’t compete with those who don’t pay the same benefit costs.
One tool to protect revenues is the payroll audit of contributing employers. Trustees always have a responsibility to diligently collect all monies owed to their plan, but in tough times this becomes more even more important. In fact, ERISA requires that trustees and administrators collect that money, and makes these fiduciaries personally responsible for uncollected funds, if they don't try hard enough,
A payroll audit program helps document the Trustees diligence. A well designed payroll audit program will usually generate more contributions than it costs. In addition, the knowledge that payrolls will be audited will increase compliance in future contributions. And, employers that are competing unfairly by cheating on benefits can be brought into compliance. Trustees benefit, the Plan benefits, participants benefit, and those honest employers benefit.
There are no guidelines under ERISA on how to conduct payroll audits. Some plans attempt to audit every employer, sometimes over a 3 year cycle. I think a more targeted program can be just as effective, and much less costly. I also think the program can be enhanced by participant education and business agent/shop steward involvement.
The first step, if you have a payroll audit program: review the results. Is it costing more than it recovers? Is it properly designed? If you don't have a payroll audit program in place, call me. Let's discuss what you can be doing, and how I can help.
