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Labor: What to do when you get a letter from a union health or pension plan payroll auditor

How to work with the auditor to handle a broad request

Employers who participate in multi-employer health or pension plans are often surprised by the broad nature of the requests from payroll auditors. Frequently, the request will suggest dates when the auditor plans to be on-site at the employer’s place of business and will ask for payroll information for nonunion and other employees for whom the employer may not be required to make contributions to the health or pension plan. We often get calls from employers who would like to limit the information provided or to have the audit performed offsite.

Some employers try the route of stonewalling the auditor, suggesting that every possible date proposed by the auditor is inconvenient. Others try to insist that the audit can only be performed after normal business hours. Both of these approaches are mistakes. A payroll auditor generally has a right to perform the audit on-site at a time convenient to the auditor. If the dates proposed by the auditor would present a true hardship for the employer, the employer should advise the auditor of the conflict and work with the auditor to find a mutually convenient date for the audit. While the employer can choose a location at the worksite that is designed to be minimally invasive to conducting business, the employer should offer a reasonable schedule that includes normal business hours for the auditor to be present.

Many employers incorrectly believe that they can withhold data for executives and other nonunion employees because these individuals do not participate in the plan. But the trust agreements for most health and pension plans permit exactly that. Employers are well-advised to review the trust agreement and any participation agreement with the plan. Most commonly, the employer agreed to be bound by the terms of the trust agreement at the same time it signed the collective bargaining agreement.

The trust agreement usually provides the health or pension plan with direct authority to audit the employer’s complete payroll records. In addition, the Supreme Court has found that the audit of all payroll records is a reasonable method for independently verifying the status of all individuals employed by an employer to insure that the right amount of benefit contributions are being paid. (Central States Pension Fund v. Central Transp.) This applies not only to executive salaries but also to nonunion employees, including those in right-to-work states where specific employees have elected not to join the union. Because union status is distinct from the right to benefits, if an employee is performing work covered by a collective bargaining agreement, the company must make contributions on behalf of the employee. Health and pension plans have a right to review the payroll records relating to all employees, including executives and nonunion employees, to determine whether the company properly made contributions.

Employers will be well-served to review the applicable language in their collective bargaining agreements to ensure they are making contributions for all work covered by the agreement. This may include work performed by temporary employees, work performed by nonunion employees and contributions relating to vacation or severance pay paid at the time of an employee's termination. Employers who self-audit on these issues are likely to avoid unpleasant surprises in the auditor's formal findings.

Employers who receive a letter from a plan auditor may want to consider the following suggestions:

  1. Review the trust agreement and any participation agreement for a broader understanding of the health or pension plan's audit authority
  2. Be cooperative with scheduling
  3. To the extent possible, prepare and review the required materials in advance of the audit
  4. Because many employers are concerned about releasing the salary information of their executives, the auditor may be willing to accept a total salary figure for a group of executives. In addition, many auditors are willing to sign confidentiality agreements in which they agree not to provide salary information about executives to the plan or the union.

Contributing Author

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Angela Marie Hubbell

Angela Marie Hubbell is a partner at Quarles & Brady in the Employee Benefits & Executive Compensation Group. Her practice involves counseling and representing employers...

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