Do your organization’s recordkeeping policies address requirements posed by multi-employer Plans? Appropriate recordkeeping allows for more efficient compliance examinations and avoids costly consequences of missing records. Overall, recordkeeping and retention is a rather complex issue that should be discussed with your organization’s legal counsel; however, the following considerations may help you navigate the conversation.
The Employee Retirement Income Security Act (ERISA) and Department of Labor (DOL) regulations impose recordkeeping and retention requirements on plan sponsors (trustees) and certain service providers. In the context of multi-employer pension, health and other welfare plans, the Employer also shares recordkeeping and retention responsibilities, which are contractually established through the Plan’s Trust Agreement and Employer’s Collective Bargaining Agreement (CBA).
The Employee Retiree Income Security Act of 1974 (ERISA) is a federal law that sets the minimum standards for the protection of participants of established pension and health and welfare plans within private industry. The Department of Labor (DOL) enforces the federal laws that regulate employee benefit plans. ERISA contains two general provisions regarding recordkeeping and retention, and DOL regulations provide more specific clarifications.
ERISA Section 107 requires plan sponsors, administrators, and service providers that file reports on behalf of the Plan to retain supporting records. DOL regulations interpret this to include copies of form 5500’s, claims files, pension and medical claim checks, contractor report forms, employer reporting or remittance forms, reciprocity requests and transmittals, and eligibility reports. ERISA Section 209 requires Employers to maintain records necessary to determine the benefits due or that may become due to plan participants. DOL regulations interpret this to include eligibility records, individual census data, employee work history, contractor reporting forms, employer reporting and remittance forms, and reciprocity requests and transmittals.
What does all of this have to do with employers participating in multi-employer Plans? Most importantly, ERISA also establishes that plan trustees have a fiduciary responsibility to collect delinquent employer contributions, a responsibility which is met by verifying employer contributions through payroll audit examinations. The Trustees then obligate the signatory employer to submit to compliance audit examinations through the Trust Agreement and Collective Bargaining Agreement.
The Trust Agreement generally defines the rights and responsibilities of the Trustees, including the authority to examine all books and records necessary to determine whether the Employer is making all required contributions to the Trust. The provisions of the Trust Agreement are usually incorporated by reference in the signatory employer’s collective bargaining agreement (or other written agreement such as a participation agreement or subscription agreement with the benefit plans). The collective bargaining agreement typically specifies that the undersigned employer agrees to be bound by all the terms and provisions of the Plans and Trust Agreements which govern each applicable Funds or Plans. Trust Agreements generally require an employer to produce all books and records, including, but not limited to:
- Payroll registers and/or journals
- Timekeeping records
- Job cost reports
- General ledger
- Check registers and cancelled payroll checks
- California quarterly payroll tax returns (DE-6's)
- Monthly remittance forms to the Trust
- Detailed documentation of the employees' job classifications not reported to the Trust
- Cash disbursement journals (including accounts payable)
- 1099 Forms
- Monthly remittance forms to other Trust Funds
- Dispatch slips
- Copies of the Employer's federal, state and local payroll tax reports
What are the consequences of failing to maintain the records required the collective bargaining agreement (and by extension, the Trust Agreement)? Interestingly, the “Employer” referenced in ERISA, Section 209 is not limited to plan sponsors. Courts have held that section 209 creates an obligation for employers to maintain records of hours worked by employees to enable multiemployer plan trustees to determine the accuracy of a participating employer’s contributions to the Funds.1 Which means Trust Funds will direct their auditors to employ assumptions when determining contributions due to the Fund. If a Trust Fund raises legitimate concerns about the accuracy of the employer’s records impacting contributions due to the funds, the burden of proof shifts to the employer. Trust Funds may obtain evidence such as declarations from employees or other documentation which may prompt the shift.2 Essentially, employers that do not maintain records do not receive the benefit of the doubt. Auditors may be directed to employ assumptions such as 40 reportable hours per week per employee in cases where payroll records were destroyed, resulting in large audit deficiencies. In some cases, attempting to recreate the timekeeping records can be as costly as settling the payroll audit deficiency.
We’ve explained the various sources of recordkeeping requirements, and hopefully you have been persuaded of the benefits of maintaining complete and accurate records. An obvious question at this point is: How long am I required to retain these records?
ERISA Section 107, which, as explained earlier, applies to plan sponsors, administrators, and certain service providers, requires applicable records to be maintained for a minimum of six years. ERISA Section 209 requires Employers to maintain records necessary to determine the benefits due or that may become due to plan participants but does not specify a retention period. This open-ended requirement has been interpreted by the DOL to mean indefinitely in some cases. The statute of limitations requirements may differ by context, for example regarding a benefit claim versus a contribution deficiency. An organization’s retention policy must also incorporate Internal Revenue Service (IRS) retention guidelines, which can be anywhere between three to seven years, depending on the issue. Overall, developing a record retention policy is a complex undertaking that requiring considerations beyond the laws governing multi-employer plans, and we recommend consulting an attorney before finalizing any policy.
Employers participating in multi-employer plans must be aware of the recordkeeping requirement imposed on them through the Trust Agreement and collective bargaining agreements. Maintaining appropriate records promotes efficient audit examinations with less surprises and avoids litigation with multi-employer plans. Employers must also be aware that record retention is a complex issue due to the web of various retention laws and statute of limitations applicable in various contexts. Best practices should incorporate the most conservative requirements, and if you have any questions, don’t hesitate to consult your organizations legal counsel and benefit plan auditor(s).