Navigating the complex landscape of multi-employer Taft-Hartley plans can be daunting for businesses. These plans, while offering significant cost savings, are subject to stringent regulations and potential compliance issues. Understanding the nuances of these plans is crucial to avoid penalties and ensure the long-term sustainability of your employee benefits program.
Characteristics
- Multi-employer, collectively bargained healthcare and pensions plans (often called Taft-Hartley plans) are common in industries comprised of many small-scale employers, like construction, health services and retail. Often, these funds are the only way small employers can afford to provide employee benefits; the central administration and pooling of resources provides these employers with “economies of scale” cost-savings.
- More than one employer contributes to the fund, and size varies from plans with a few employers to plans with hundreds. There are currently about 2,500 multi-employer Taft-Hartley funds, with about 700,000 contributing employers.
- The funds are the product of collective bargaining between one or more union and each participating employer. The fund and its assets are managed by a joint board of trustees representative of management and the union.
- These are typically defined benefit plans (as opposed to defined contribution plans). Pursuant to the collective bargaining agreement (CBA), employers agree to contribute to the fund at a fixed rate based upon the hours worked by covered employees.
- Taft-Hartley funds are covered by ERISA, and are subject to regulation by the Justice Department, the Treasury Department/IRS, and the Pension Benefit Guarantee Corporation.
- ERISA mandates a specified minimum funding of plans, but parties may collectively bargain for employer contributions greater than and separate from the ERISA minimums. International Union, United Auto., etc. v. Keystone Consol. Industries, Inc., 793 F2d 810 (7th Cir. 1986).
Scrutiny, potential issues for employers
IRS Identifies Compliance Issues:
- The IRS Employee Plans Team Audit (EPTA) is a standing program that examines pension plans, including Taft-Hartley Plans. The IRS has also established the Employee Plans Compliance Unit to audit such plans.
- Internal Revenue Code § 432 was added to the code by the Pension Protection Act of 2006 (PPA). PPA requires multiemployer defined benefit plans to submit an annual actuarial certification from the actuary no later than 90 days after the end of the plan year. The certification includes information regarding whether the plan is in Endangered status, Critical status, or Neither Endangered or Critical status.
- The EPTA has recently identified four areas that will be subject to IRS scrutiny:
- Plans that do not have a participation agreement from each participating employer, or that fail to have procedures in place to enforce participation from each employer.
- Conflicts exist between the plan documents and other documents. For example, the plan document sets a certain contribution formula, but the CBA calls for a different formula.
- Eligibility of non-CBA employees (who tend to be higher-paid) for CBA benefits.
- Failure to actuarially adjust monthly benefits for years in which benefits were suspended.
Under-funding and employer liability:
- A major issue for employers is the requirement of minimum funding levels under ERISA or under their CBA. If an employer is accused of underfunding a plan, that employer will face scrutiny from the IRS.
- The principal enforcement mechanism Congress enacted to address the problem of underfunding is an excise tax. 26 U.S.C. §§ 412, 4971 (2006). If a pension plan has a problem with underfunding, and the deficiency is not corrected within eight and a half months of the current plan year, the employer becomes liable for an excise tax equal to five percent of the deficiency. 26 U.S.C. § 4971(a).
- In addition, ERISA provides both employees and plan trustees with a private cause of action against employers for failure to adequately fund a plan. 29 U.S.C. § 1132. The Supreme Court recently ruled that district trial courts have broad discretion in awarding attorney’s fees in suits brought under this cause of action; employers may failing interpret this as “paving the way” for more such suits. Hardt v. Reliance Std. Life Ins. Co., 130 S. Ct. 2149; 176 L. Ed. 2d 998 (2010) (party need not “prevail” to be eligible for award of attorney’s fees).
Seeking Expert Guidance?
The complexities of multi-employer Taft-Hartley plans necessitate expert guidance. Charapp & Weiss is committed to providing comprehensive legal counsel to help employers navigate the intricacies of these plans. Our experienced attorneys can assist with plan establishment, ongoing compliance, and addressing potential issues to safeguard your business’s interests.
