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BENEFITS FRAUD ON PREVAILING WAGE JOBS

BENEFITS FRAUD ON PREVAILING WAGE JOBS. Apprenticeship, Health and Welfare, and Pension. Federal, King County, Drywall . Federal, King County—WA 1996 - 2006. California, SF County, Bricklayers. California, SF County, 2001 - 2006. Rochester U.S. DOL 2007-08 Building Rates.

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BENEFITS FRAUD ON PREVAILING WAGE JOBS

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  1. BENEFITS FRAUD ON PREVAILING WAGE JOBS Apprenticeship, Health and Welfare, and Pension

  2. Federal, King County, Drywall

  3. Federal, King County—WA 1996 - 2006

  4. California, SF County, Bricklayers

  5. California, SF County, 2001 - 2006

  6. Rochester U.S. DOL 2007-08 Building Rates • Insulator: $25.41 wage and $14.66 benefits • Bricklayer: $26.09 wage and $15.41 benefits • Electrician: $29.10 wage and $15.82 benefits • Sheet Metal: $28.28 wage and $15.86 benefits • Ironworker: $24.55 wage and $17.84 benefits • Operator: $26.67 wage and $18.28 benefits

  7. New York City U.S. DOL 2007-08 Building Rates • Laborer: $34.89 wage and $22.61 benefits • Insulator: $46.86 wage and $26.97 benefits • Plumber: $46.15 wage and $29.65 benefits • Electrician: $46.00 wage and $34.18 benefits • Sheet Metal: $43.69 wage and $34.69 benefits • Ironworker: $38.65 wage and $49.26 benefits

  8. Nonunion Benefit Plan Prevalence • Over half of nonunion construction companies with over 25 employees provide a health plan • About 40% of nonunion construction companies with over 25 employees provide a pension plan • Construction companies in states with prevailing wage laws are 20% more likely to provide health plans and 80% more likely to provide pension plans.

  9. Three Areas of Potential Violations • Prevailing wage laws • ERISA laws • IRS laws

  10. Prevailing Wage Laws • Annualization • Reasonably Related

  11. Annualization • Applies to all benefit contributions, H&W, Pension, Apprenticeship, Vacation/sick/holiday • Defined contribution plans have an exemption from the U.S. Department of Labor but not from the NYS DOL • Purpose: prevailing wage jobs don’t pay for all of workers’ benefits • Only the hourly cost of the benefit cost, calculated over a full year, can be deducted from a worker’s check • Results: equal benefit contributions must be made on private as well as public work

  12. Annualization Done Right • Health care premiums for the worker costs $6,240 a year. • $6,240, divided by the 2,080** work hours in the year, equals $3.00 an hour. • The suggested wage determination for health care is $6 an hour. • This contractor takes a $3.00 health care fringe credit---and pays the worker an additional $3.00 an hour in wages.

  13. Annualization Done Wrong • Joe works for Scuzzy Contractors; 1,040 hours on prevailing wage jobs and 1,040 hours on private jobs • On prevailing wage jobs, the contractor takes the full $6 an hour credit in the wage determination for health care, contributing $6,240 to the health plan • Joe gets coverage from same plan while working on private jobs with no contributions by the contractor. • This worker is owed $3,140, plus interest, for this year alone; and the contractor faces fines and possible disbarment .

  14. Suit Kote Construction • Both 2006 benefit plan reports were filed with the U.S. DOL with an outside auditor’s report. • Estimates show the company spent $5.18 per hour on fringes. • $3.21 for health care • 88 cents for vacation • $1.01 for pension • 2007 certified payrolls claim an hourly fringe credit of $12.35 to $18.65 an hour.

  15. Annualization Scams • Contributions only made on public work, or the contributions are higher on public work • Workers with different contributions on public projects get the same benefits. • Contributions cover benefits for workers who performed no public work • The employer takes credit for premium payments made by the employee. • Employer claims credit for health premiums on overtime hours.

  16. Annualization Law • Required by U.S. Department of Labor • Endorsed by Miree Construction Corp. v. Dole, 930 F.2d 1536 (11th Cir. 1991) • Rejected unless DOL shows that benefits not received from other plan for private work: Mistick v. Reich, 54 F.3d 900 (D.C. Cir. 1995) • Many states are modeled on federal law but could also officially adopt the interpretation • Some states have improved • E.g., New York (HMI, Chesterfield) and Ohio

  17. New York Laws • No Annualization Exemption--ever! • Rarely enforced to date • Criminal time for prevailing wage fraud • NY Supreme Court oked Jan 29, 2008 • Second prevailing wage violation in five years, disgorge all profits from the job • SB 6519 signed on Feb. 6, 2008 • Failure to submit payrolls is now a felony • SB 6519 signed on Feb. 6, 2008 • No private right of action.

  18. Defined Contribution Exemption • The Law—500 hours service requirement • Examples of violations • Excessive Service requirements • Vesting • Forfeitures • What is a defined contribution plan? • 401K • Annuity • Supplemental unemployment

  19. Reasonable Relationship Issues • For prevailing wage credit, contributions must go for benefits • Contributions can’t be excessive compared to benefits • Measure benefits received • Examine costs as percentage of contributions

  20. Reasonable Relationship Law • DOL requires • Upheld in Miree and Royal Roofing • Failed in Mistick • Workers got benefits and remainder in cash with interest • Contractor’s claim; DOL didn’t disprove • Specific laws: California, Kentucky & Ohio • Many states are modeled on federal law but could also officially adopt the interpretation

  21. Florida East Coast ABC • In 1998, this ABC Chapter charged its affiliated education trust $24,800 for rent and $69,438 for administrative services to train 550 students • In 2002, the Chapter charged its affiliated education trust $333,157 for rent and $954,408 for administrative services to train 914 students

  22. Ohio Valley ABC Apprenticeship Trust • If training money is sent is a prevailing wage benefit deduction [i.e. a worker’s money] the Trust charges 50 percent administration fee. • If training money is sent from the contractor, [i.e. the contractor’s money] the Trust charges as little as an 8 percent administration fee. • Every year, the Trust pays an administrative fee to the Chapter, which it lists not in the income line but as a negative number in a schedule of other expenses.

  23. ERISA Laws • Breach of general fiduciary duty • Prohibited transactions • Remedies: Removal of fiduciaries, disgorgement • Standing: Current participant, or U.S. DOL Secretary of Labor

  24. Contractors Choice Trust Health Plan • Between 2003 and 2006, the Trust spent $82 million on health care premiums and $16.7 million on commissions and administrative fees. • $9.1 million of these fees and commissions were paid to a company owned by two plan trustees. • While not a non-profit, the Trust does not pay state or federal income tax due to what it calls the “body of case law” about complex trusts.

  25. Account Balances Kept • Contractors Choice Health Plan • Keeps accrued dollar bank balance unless the worker asks for the money back • Western Electrical Contractors Pension Plan • Separated workers must wait 3 years to get balance, and in fifth year money is forfeited.

  26. U.S. DOL Benefit Documents • www.freeerisa.com • U.S. DOL office for auditor’s report and older documents • Welfare plan filing issue • Training trust exemption issue • Participant access laws

  27. ERISA Information Rights • ERISA 104(b)(4) allows current participants or beneficiaries to ask • Statutory list: • summary plan description—[can help cost the plan] • latest annual report • any terminal report • bargaining agreement • trust agreement • Contract or other instruments under which the plan is established or operated

  28. Whom To Ask • Plan Administrator • Check SPD or filings for identification • Default: Plan sponsor • May be employer • May be trade association or even provider • “Third-party administrator” usually not Plan Administrator

  29. Enforcement Of Requests • ERISA 502(c) gives 30 days to furnish • Can file suit in federal court and win fines and attorney fees • ERISA 510 says Unlawful to discharge, fine, suspend, expel, discipline, or discriminate against requester • Unlawful for “any person” to do this; contractors (current or future) or apprenticeship plans • ERISA 502(a)(3) allows for reinstatement and attorneys’ fees, • Can use of Federal court, not NLRB or other agency.

  30. IRS laws • Misuse of 501(c)3 money • Failure to disclose related party transactions • Action by the IRS is the only recourse, but the IRS documents can also help show violations of other laws.

  31. National Association of Prevailing Wage Employers • A nonprofit founded by a father and son insurance agent team. • IRS annual reports for 17 affiliated nonprofit benefit plans disclose fees of 11% of annual contributions. • Denied made to a related nonprofit, while the plan website lists an administrator owned by the family • DOL annual report form 5500s would solve the controversy, but none have ever been filed. • Individual participants are not informed of the amounts in their account, nor are they allowed to file claims—a right reserved for the participating contractor/employer.

  32. Other Nonunion Groups • The Air Conditioning Trade Association (ACTA) Training Trust spent $771,026 on salaries from 2002 to 2004, while ACTA itself spent only $153,732 • The Chapter’s program graduated 14 apprentices a year. • The Western Electrical Contractors Association (WECA) Trust paid WECA a $1.6 million “administration fee” in 2005. • This was three times the amount WECA raised through membership dues

  33. IRS Documents • IRS Annual Reports • Request to IRS • www.guidestar.org • Public access laws for last 3 years filed • Application to become a nonprofit • Request to IRS • Public access laws if filed after July 15, 1987.

  34. Miscellaneous Other Legal Issues • U.S. DOJ actions • RICO • False Claims Act • IRS Tax Fraud Finders Fee

  35. How Much Work is at Stake? • In 2006, employers contributed almost $100 million to the pension plan of the Associated Prevailing Wage Contractors. • If these pension deductions were 10% of payroll, their workers were paid $1 billion of Davis Bacon wages. • If labor is a quarter of construction costs, these nonunion contractors performed $4 billion in prevailing wage work in 2006 alone in just this one plan.

  36. BREAK

  37. Documents • State and federal certified payrolls • U.S. DOL benefit plan documents • IRS nonprofit documents

  38. Certified Payroll Forms • General Problems • Some agencies refuse to release • Some agencies refuse to release names and/or addresses • Federal form: WH-347 • Obtuse instructions • NYS FAQ on “Supplements:” Great • NYS Form: Great but…. • “For contractor’s optional use” • California Initial Benefit Statement • Great form

  39. Examples of Certified Payrolls • Maurer Electrical • Suit Kote • Lykins Reinforcing

  40. Possible NYS DOL To Do List • Make NYS DOL certified payroll form mandatory. Get the NYS DOT on board. • Issue advisory that only remedy for failure to properly file certified payrolls is to stop progress payments to the general contractor. • Create an initial benefit statement filing requirement like in California. • Take action when given good cases

  41. Examples: U.S. DOL Benefit Plan Documents • List of Schedules and how to get • Helix Electric—Schedule A • BCBS Monthly Rates • HGH Electric—Schedule I • Contractors Choice Trust—Schedule H and Auditor’s report

  42. Estimating Hourly Benefit Costs • Schedule A and/or Form 5500 • Number of worker covered • Schedule A, Schedule H/I, or auditor’s report. • Cost of benefits paid by employer • Estimate hours worked for the year • 2,080 or 1,820 • Multiple number of workers by hours worked for total hours worked under the plan • Divide cost of benefits by total hours worked to get the estimated hourly benefit costs.

  43. Empire State Highway Contractors Association – Health Plan • Fully self-insured as of 2006 • Claims to be a single employee “Taft-Hartley” plan • Pays vacation and apprenticeship benefits as well • Also pays all the fees for the retirement trust • In 2006, $6.4 million for health care versus $1.8 million in administrative cost • “Excess money” is sent to the retirement plan. • The plan’s members once “owned” 80% of the Oriska Insurance Company, which provided the health care. • DOL investigated. Ownership and coverage ended

  44. ESHCA 2006 Health Plan Report -- Delaney Construction • Company contributed $1.6 million. • Workers need 800 hours to qualify for coverage • Plan provides coverage for six months of unemployment. [unless you quit or were fired] • Plan provides coverage for all company employees but with two different levels of contributions. • Prevailing wage fringes or • 1.5% of compensation for employees “for whom no such contributions is made.” • “Excess contributions” over the cost of these benefits are paid to the retirement plan • Delany currently owes $1.3 million in such contributions.

  45. Empire State Highway Contractors Association – Pension Plan 2006 • $129 million in assets, $6.7 million in employer contributions. • “None of the investments are participant directed” • Defined contribution plan for all employees • Funded by the “prevailing pension supplement” or • 1.5% of compensation for employees “for which no prevailing pension supplement contribution is made.” • 1,000 hours required “to receive your allocation.” • Unless attained age of 59.5 years, who need no work hours. • Once awarded, amounts vest slowly • 20% after three years, 100% after seven years • Non-vested amounts forfeited and divided up among remaining participants.

  46. ESHCA 2006 Pension Plan Report -- Delaney Construction • Filed as a single employer plan with Delaney listed as sponsor and administrator. • Delaney’s contribution was $1.6 million • $1.4 million of that was listed as a receivable • The plan held $850,540 in forfeitures at the end of the year. • Another $109,005 in forfeitures were “reallocated” at end of the plan year.

  47. GMR Associates Benefit Plan • $11 million in annual contributions in 2006 • 44 upstate NY nonunion contractors participate • “Defined contribution plan” that provides “insurance and non-insurance benefits.” • medical, training, sick, holiday, vacation, pension, supplemental unemployment, etc • Employees fully vested in all contributions • Audit provides little information on spending • $10.1 million as “benefits paid to participants” • $500,182 in “management fees”

  48. GMR Associates Benefit Plan-- RSI Roofing Documents • The GMR cascading buckets • Health care holds a 7 month premium balance • 401K only receives prevailing wage contributions • SUB receives the balance of prevailing wage fringe, and rolls it over to the health care account • GMR pays no interest on the money held • RSI offsets profit-sharing contributions by the fringe amount received.

  49. GMR Associates Benefit Plan-- RADEC Electric Documents • Made 401(k) contributions and training contributions only on prevailing wage jobs. • Likely did the same for vacation and sick pay contributions • Paid only half of health care premiums on private jobs • took a fringe credit for the full amount on prevailing wage jobs.

  50. Examples of IRS documents • How to get • Ohio Valley Construction Education Foundation • Ohio Valley Associated Builders and Contractors (ABC) Chapter • Western Electrical Contractors Association Training Fund • Western Electrical Contractors Association (WECA)

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