Multi-Employer Plan Fiduciaries Rely on TPA’s Payroll Auditing for ERISA Compliance

September 26, 2019

Under ERISA, multi-employer plan trustees have a fiduciary responsibility to collect all monies owed to their plan. One way to convey and document that they have performed essential due diligence regarding this responsibility is to have a thorough payroll audit performed. Today, more than ever before, multi-employer plan fiduciaries are relying on third party administrators (TPAs) to perform this task and facilitate their plans’ compliance.

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Extensive, Detailed Payroll Audits

TPAs offer multi-employer Taft-Hartley plans thorough payroll auditing services. While there are no specific ERISA guidelines on how a payroll audit should be performed, there are best practices to follow. The best payrolls audits include the review of records for every plan member for whom contributions were made over a specified period of time between one to five years. Each contributing member’s payroll record is reviewed. Other records such as cash receipts, disbursement records, financial statements, and income tax returns may also be reviewed. Additionally, the audit will encompass the review of the plan’s collective bargaining agreement and all governing documents to determine its method of contributions. A TPA’s payroll auditing services are performed either at their own offices or on-site at the client’s facility.

In conducting the payroll audit, the TPA is looking to determine if the plan is receiving the proper employer contributions, and if the data for each plan participant is complete and accurate. This exhaustive review, when performed by knowledgeable and experience payroll audit professionals, can return significant contributions to plans that far outweigh the cost of the audit.

It is advised that all multi-employer plans have a policy governing how their plan’s records will be reviewed, as well as an appeals process. This process would enable contributing employers a method to defend and provide associated documentation as to why an employee may not be covered under the collective bargaining agreement, thereby avoiding penalties for failing to make the proper contributions.

The Number One Reason Multi-Employer Plans Fail a DOL Audit

The Department of Labor (DOL) has reported that the number one reason multi-employer plans fail a DOL audit is their failure to perform payroll audits. Not collecting all of the funds owed to the plan is viewed as a prohibited transaction wherein a credit is being advanced to a contributing employer considered a “party-in-interest.” Under the DOL’s Prohibited Transaction Class Exemption 76-1, consideration is given to those plans which can demonstrate a diligent, consistent effort to collect contributions.

The Benefits of Payroll Audits to Multi-Employer Plans and Their Fiduciaries

Passing a DOL audit and retrieving all contributions owed to the plan should be incentive enough to have payroll audits performed by a qualified TPA. Fulfilling their fiduciary responsibilities and avoiding personal liabilities should further motivate multi-employer plan trustees to rely on an experience TPA to perform a comprehensive payroll audit.