What is an exit audit?
An exit audit is a payroll compliance audit of an employer terminating from a trust. The primary objective of an exit audit is to ensure the employer complies, through the withdrawal date, with the reporting requirements set forth in the collective bargaining agreement. These requirements may include extended coverage necessary for plant closures, layoffs or other bargained extended benefits when there is a decrease in business or a termination of operations.
Benefits of an exit audit
Employers stop contributing to trust funds for many reasons, including termination of the collective bargaining agreement, general business slowdown, termination of operations, or purchase by another company. Employer termination from a plan can trigger pension withdrawal liability or extended medical coverage. Exit audits can:
· Support accurate withdrawal liability calculations, and
· Facilitate transition of participant eligibility.
It is imperative that employers make contributions through the extended period for all participants eligible so that participants will not suffer a lapse in coverage.
Exit audits should be scheduled immediately after the employer exits a plan. Timely exit audits increase the probability that employer documents are easily accessible. It makes sense to ask for records before they are archived, often off-site. Prompt scheduling can improve potential for recovering delinquent contributions discovered during an exit audit.
An effective payroll compliance program supports trustees in meeting their fiduciary responsibilities. The trust collection procedures should include the testing of all employers leaving the trust to ensure all employer contributions are recovered, through their withdrawal, in accordance with labor agreements, trust agreements and applicable laws. Performing these audits at the termination of an employer's participation concludes with certainty that no outstanding money is owed and that the trustees have met their obligations to ensure accurate contributions are collected in a timely manner for each participant.