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Delegating Effectively: A Case for Delinquency and Payroll Audit Committees

It’s the day of the board meeting, and if you’re a trustee you can expect a long day of deliberations, presentations, and executive sessions.

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Opposing sides of the bargaining table may even caucus in a side meeting to negotiate a contentious issue or two. This is par for course, but you may find yourself wondering if some of these activities could have been handled outside the confines of the meeting agenda. Before long, you’re facing afternoon crunch time and other important issues—such as employer delinquencies—are at risk of being tabled or glossed over. All of this because of something as simple as a member appeal on a special prescription drug claim. We’ve all been there, trustees and plan professionals alike. Twenty individuals will at times sit idle in a room, while a handful of others deliberate, as the minutes turn to hours. You ask yourself: Is this effective? Is this efficient? What am I missing back at the office or union hall because of this? Despite our efforts, time is a precious commodity we can’t replace or slow down. Just as soon as one trust meeting ends it feels like the next one is upon us, and so too is that big agenda book with all those important items to review.

Trustees handle a wide array of issues to meet their fiduciary responsibilities under ERISA, among which is the duty to collect delinquent employer contributions. While this has always been true, things don’t seem to be as simple as they used to. The information age has complicated the issues trustees face, and the legal environment has followed suit. As if board meeting agendas weren’t long enough, just think what has come to the forefront over the last ten years: data security, the “dark web”, the Affordable Care Act. Moreover, the impact of rising health care costs and the economy have driven complex changes in plan design for both welfare and pension funds.

So how much time is left in the meeting agenda to look at employer delinquencies at a full board meeting? The answer: not enough. Too often it’s that omnipresent delinquency list that takes its venerable place at the back of the agenda book and there simply isn’t enough time left in the day. However, trustees can fix this through effective delegation of delinquency collections to a committee (among other committees). This way the full board can focus on comprehensive plan design and management issues, and delinquencies can be handled efficiently.

Establishing an effective collections committee focused on collections can reduce the volume and aging of delinquencies a plan faces. This helps trustees meet their fiduciary duty and it protects all stakeholders, plan participants and trustees alike. This also gives the full board that precious commodity: time.

The most important consideration in designing this committee is its structure. The committee first needs trustee representation delegated with decision-making authority, which should be in the hands of the co-chairs or well-qualified trustee delegates that represent both labor and management. Typically, two to six trustees should be on the committee depending largely on the size of the plan and complexity of the issues faced. A committee deciding on multiple plans should have representation from the different bodies, for example a family of related welfare and pension plans with different boards. The role of the trustee delegates should include hearing collections matters brought forth by the plan professionals, attending arbitrations or mediations, and communicating committee decisions or questions to the full board. The trustee delegates should also direct the plan professionals based on the wishes of the full board, such as changes in collections procedures or direction to audit specific employers with suspected delinquencies. Let’s examine the role these plan professionals play in an effective committee:

Fund Collections Counsel

The role of fund collections counsel in any delinquency committee is central to its success. Think of this quite literally. Like a hub is to a wheel, all collections activity should radiate from the attorney’s advice and counsel and outwards to the other plan professionals. Typically, one or two legal representatives should be present to report and advise on active litigation and advise on the collections procedures in place. Counsel should also seek trustee direction on delinquent employers, such as an employer in bankruptcy where the cost of collections may exceed the amount potentially recovered.

Fund Administrator

The Fund Administrator is the first line of delinquency defense. Ongoing contribution delinquencies should be presented to the committee by the administrator for discussion and direction. For delinquency proceedings to run smooth, it is essential that the collections procedures used by the administrator are well thought out and consistently applied.  This includes direction for billing delinquent employers and referral to collections counsel, as well as advising the auditor of employers entering or withdrawing from the fund to expedite their audits.

Fund Payroll Auditor

As the eyes and ears for the collections committee, often the auditor encounters developing delinquencies before anyone else, and should share what they are seeing at contributing employers. This would typically be included in the auditor’s status report for ongoing and completed payroll audits. It is also important that the auditor explains the challenges faced when doing the payroll audits. Quite often the other committee members can equip the auditors with the tools and information needed to meet these challenges. This could be logistical support from the administrator, referral of an employer to counsel for audit entry, or direction from labor and management on a collective bargaining agreement interpretation issue.

It is important to keep in mind that the role of everyone on the committee is mutually supporting. Members should communicate openly during and in between regularly scheduled meetings as issues arise. The frequency of these scheduled meetings depends largely on the issues faced. Plans with complex issues or frequent delinquencies should obviously meet more often. Plans with simple delinquency issues may not even need a committee. It is also important to consider the economic and industrial context the plan finds itself. For example, you should expect to see an increase in delinquencies for your building trades contractors when times are lean and public works contracts are hard to come by. This means more oversight and more meetings. However, in most cases two to four meetings per year is typical and each should include an agenda. Action items should be summarized with the meeting minutes to keep all delinquency pursuits on track. Necessary items should be reported to the full board to assist in high-level decisions.

Above all else, the success of an effective committee hinges on our understanding that this is a team effort. And although time cannot be replaced or slowed down, it seems we can create it by simply being more efficient in the way we delegate our responsibilities.

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