As a plan trustee, your payroll auditor is often the tip of the spear for you, your administrator, and your legal team. The auditor’s eyes and ears, in conjunction with a well-orchestrated audit program, should be leveraged to reduce delinquency reports and avoid costly legal referrals, expensive arbitrations, and hearings with unfavorable settlements. Timeliness is critical when verifying the records of withdrawing employers to recover uncollected plan assets.
Before the Delinquency - Pre-emptive Collection Support
Trustees should expect a proactive collection team. Courtesy audits for new employers within their first year of contributions can pre-empt potential collections issues before they develop. You will find that your administrator’s delinquency report will be shortened by including courtesy audits as part of your payroll compliance program. ERISA requirements make it clear that communication is a big piece of your fiduciary responsibility as a trustee and, frankly, these audits serve as excellent tools to communicate expectations and improve relationships between all stakeholders. This includes contributing employers, local unions, as well as the collection team itself. Ultimately, this benefits the plan participant. And that’s what matters most.
After the Delinquency - Post-Mortem Collection Support
An employer withdrawing from a plan for any reason should be tested as soon after withdrawal as possible to determine that all employer obligations have been met. Recovering plan assets as a creditor is not easy, and an employer known to be filing for Chapter 7 bankruptcy or Chapter 11 reorganization should be tested as soon as practicable. Too much delay and you might find yourself on the outside looking in as other creditors collect the assets.
Fund actuaries may also want to assess withdrawal liability based on a calculation that includes the delinquency discovered in an audit, especially if the amount represents a significant percentage of the employer’s overall obligation. The testing may also be necessary to determine whether the actuary should assess partial or full withdrawal liability. The financial impact of this decision can be large, and we should ensure the best information is made available.
Contributing employers at times withhold the information necessary to discover and collect delinquencies that an audit would otherwise reveal. Motivations vary and they’re not always ill-intentioned. Regardless of motive, the best solution is the same: a well-structured collection policy. Plan professionals should work together to properly recommend collection policy for the board of trustees. Specifically, fund counsel can work with the auditor to recommend the necessary trust agreement language to properly carry out audit and collection procedures, such as provisions obligating the employer to provide and retain documents. Language should be specific enough to clearly convey what documents the auditor requires and open enough so as to not limit the scope of the auditor’s authority to examine records. Additionally, a travel policy should be defined in the trust agreement. These clear policies will greatly reduce the number of legal referrals obstructing the collection process.
Improve Collection Efficiencies
Your administrator is the front line in collections, and your auditor can help communicate plan rules to employers. Your administrator will have greater success collecting delinquencies by advising the auditor of known issues with delinquent employers. This direction will focus the auditor on helping the collection team substantiate and support ongoing collections efforts. Also, your administrator should provide the auditor with agreements and contribution history to expedite payroll compliance testing. In turn, the discovery process is shortened, which your counsel will greatly appreciate.
Establish and Follow Policies and Procedures
Communication is a repeating theme. The trustees and all members of the collection team should be dialed in to what is tested by the auditor and how the testing is performed. Fund counsel should know that they can turn to the auditor for support when settling or litigating and what kind of information is available. Your audit procedures and collection policies set expectations for your collection team and should be consistently followed once in place.
Each member of the collection team has a mutually supporting role toward a common objective. Clear communication between the service providers will preempt collections issues, contain developed ones, and create testing efficiencies that reduce audit and legal costs.