Delinquencies in a down economy are a struggle for every trust fund to try to manage. During the recent quarterly trustee call, there was a discussion of utilizing plan rules to cut off health benefits to the employees of a delinquent contractor unless the employee paid for coverage himself. In this way, some Trusts hoped to put pressure on the delinquent employer to become current and avoid large delinquencies from amassing over time.
Below is some sample language from a summary plan document (SPD) that one Trust has implemented. Please remember that any Trust considering taking similar action would need to adopt written rules and form letters as well as similar SPD language.
Sample SPD Language:
On occasion the Fund experiences problems with employers becoming delinquent in their contributions to the Fund. This has necessitated the adoption of a delinquency collection procedure of which all employers who are contributing employers to this Trust Fund have been notified.
Since the Trustees are required by law to administer the Fund for the benefit of all participants in a prudent manner, the Trustees have determined that if an employer is more than __ month(s) delinquent in his contribution to the health and welfare fund, continued medical coverage of the employee/participant of that delinquent employer can only be accomplished if the individual employee/participant pays the monthly cost of the health care coverage. Once the delinquencies have been collected from the employer, the employee/participant will receive a refund of any monies paid to keep the health care coverage in force.
Our delinquency collection procedure which has been communicated to the contributing employers provides as follows:
1. Any employer who is one day late in making required contributions to the Fund will be deemed “delinquent.”
2. If the delinquency extends beyond the month in which the contribution is due, the employer is automatically subjected to a 10% penalty.
3. If the delinquency extends beyond the second month from the due date of the contribution, suit is instituted and the employer will be liable for 20% delinquency charge, interest, and attorneys’ fees. (All of these are required by ERISA to award to the Fund.)
During the first __ month(s) that an employer is delinquent, the health coverage will continue to be provided for the participants of the Fund. During the __ month, however, a letter will be sent out to the employee/participant of that delinquent employer advising the employee/participant of the delinquency and requiring that the employee/participant pay the monthly cost of the health care coverage in force. When the Fund collects the delinquencies for any month in which the employee made a self-payment, that monthly payment will be refunded to the employee. Should the employee not make the monthly payment into the Fund, medical coverage will be terminated and not reinstated until and unless the delinquencies have been collected from the employer.
The above language is for illustrative purposes only and may not be appropriate for your fund. Please consult with your fund’s legal counsel before adopting any plan changes.