Trustee options when a Business Manager will not remove manpower from a delinqent employer

[mal]

We are involved with a Fund that has been

in a struggle with a delinquent employer over the

last several months. The employer generally runs

2-4 months behind, but eventually pays the contributions,

and assessments.

This employer is now a full 6 months behind and there

is some concern he could be heading to bankruptcy

court. The Trustees have requested the business manager

remove all manpower to put pressure on the employer

and to limit liability.

Given the poor employment prospects in the area,

the BM is hesitant to pull the members. Thus, a rift

is developing between the Trustees and the Union.

What options does the Board have to limit its exposure?

Does a health plan have more options than a DB plan?

[KJohnson]

I haven't looked at this in years, but I know that some multis have taken the position that the Trustees can "kick out" a perpetually delinqent employer--in other words refuse to accept contributions and refuse to give credited service. I think you would have a much better chance of this in the welfare plan area.

I guess I am not completely sure about the scope of the problem. For a welfare plan, and profit sharing plan you do not have to give credit unless contributions are actually received. Therefore, unless you have something to the contrary in your document, I am not sure what exposure there is.

For a db plan (or if for some reason you have not converted your mpp to a profit sharing plan) the "kicking the employer out" issue becomes much more complicated. Unless you can terminate the obligation to contribute (in the CBA) I think you are stuck with crediting service in the IRS' view--see GCM 39048

[Guest TMH]

We have 2 plans that have had this same situation before. I'm assuming that the plan to which you are referring, has granted H&W based on payroll stubs in the absense of a reporting form from the employer. This is common in the construction industry.

With Trustee approval, we have sent a letter to the employer notifying them that if they do not become current within a specified number of days, letters will be sent to their employees informing them that no future coverage will be extended unless payment is received from the employer. If no payment is received from the employer, we then send letters out to the last known employees. This has helped in some cases, as the employees either refuse to work for them, or they apply pressure to the employer to make payment, which is often times more successful than the Trust Office sending letters or making phone calls.

[KJohnson]

TMH's idea is a good one. Indeed, you may well have a fiduciary duty to notify the participants directly if the failure to contribute could adversely affect the employees' benefits. Rosen v. Hotel and Restaurant Emp. & Bartenders Union of Phila., Bucks, Montgomery and Delaware Counties, Pa. 637 F.2d 592 (3rd 1981)

If you are in the construction industry, you also might want to check out what there is on mechanics liens, little Miller Act claims, etc. I am not sure where the courts are these days on the preemption analysis. However, without regard to whether you could have a valid lien claim, generals are sometimes willing to cut joint checks to their subs and the plans to which the subs contribute to make sure that the subs keep current--if only for the "labor peace" issues implicated in TMH's post.