You may not realize it, but most collectively bargained joint apprenticeship and training committees (JATC) are employee benefit plans under ERISA. Although the purpose and structure of JATCs are very different than other ERISA plans, JATC trustees are still subject to the general fiduciary standards of conduct and the plan must be operated in compliance with all ERISA requirements. The following is a summary of some of the rules and requirements specific to JATCs.
Purchases from Contributing Employers
Under ERISA, transactions between a plan and a party-in-interest--including a contributing employer--are prohibited unless specifically excluded. However, it is not uncommon for a JATC to purchase tools and materials used in its training program from a contributing employer. Because of this, a class exemption was created to allow purchases of property from a contributing employer for no more than fair value. Consequently, the JATC can purchase property from a contributing employer if the plan pays fair value or less for the property. Although still considered a party-in-interest transaction, the purchases are exempt from the prohibited transaction rules of ERISA.
The class exemption, however, does not provide relief regarding self-dealing, unless certain conditions are met. In order for the transaction to be exempt, the trustee affiliated with the contributing employer cannot participate in the decision to purchase from such contributing employer. The JATC should either have a policy not to purchase from any contributing employer that employs a trustee or those trustees must recuse themselves from all considerations by the plan if their employer is potentially a party to the transaction. Such decisions and actions should be documented in the minutes of JATC trustee meetings.
Leasing Arrangements with Party-in-Interest
JATCs frequently lease office and/or classroom space from a related union, related fund, or contributing employer. These arrangements involve two potential types of prohibited transactions: transactions with a party-in-interest and self-dealing/conflict of interest with regard to the trustees. In October 2011, the DOL issued FAQs on Multiemployer Plan Leasing Arrangements addressing some common problems with these leases. The FAQs offer guidance on how to structure such a lease to prevent the plan from entering into a prohibited transaction.
There are various exemptions for transactions involving the lease by a plan from a party-in-interest and, depending on which exemption applies, the requirements differ. In general, a JATC can lease space from a related union, related fund, or contributing employer as long as the JATC pays no more than fair value, the terms of the lease are at least as favorable to the JATC as an arm's length transaction, and any trustee with a conflict of interest does not participate in the decision-making process. In order to establish compliance with the applicable exemption, the lease agreement must be in writing at the time the lease commences. A JATC must retain documentation, such as a current appraisal, that provides evidence that the rent amount and terms of the lease are reasonable. Also, the minutes must reflect the recusal by any trustee with a conflict of interest from the decision-making process. The FAQs and applicable exemptions should be reviewed prior to entering into a leasing arrangement with a party-in-interest to ensure compliance.
Graduation Ceremonies, Promotion Expense, and Internal Controls
Earlier this year the DOL issued Field Assistance Bulletin No. 2012-01 addressing JATCs using plan assets for graduation ceremonies and program marketing. The purpose of a field bulletin is to assist DOL agents and promote consistency in the enforcement positions on specific issues.
The Field Bulletin emphasized that under ERISA, the assets of a plan must be used exclusively for the benefit of the participants and necessary plan administration. It is the trustees' responsibility to ensure that all plan expenditures promote legitimate plan objectives. The Department of Labor (DOL) acknowledges that due to the nature of many apprenticeship and training programs, a graduation ceremony, while not appropriate for an ERISA plan in general, may be appropriate for a JATC under certain circumstances. In general, the JATC may pay for a modest graduation ceremony but the plan may not pay for excessive or elaborate expenses. The trustees should thoroughly review the Field Bulletin prior to planning any graduation ceremony to ensure only allowable expenditures are made by the JATC.
The Field Bulletin also addresses expenditures for marketing and promotion. Such expenses must be limited to marketing or promoting the plan itself. Expenditures for the advancement of the industry, contributing employers, or the union are not allowable. The Field Bulletin states that payments by a JATC for the purchase of tickets to sporting and other entertainment events, gifts, charitable donations, and staff holiday parties are generally not permissible. If paid for by the plan, any of these transactions would likely be considered a prohibited transaction.
The Field Bulletin suggests that JATCs should establish and implement adequate internal accounting, recordkeeping, and administrative controls to prevent inappropriate, excessive, or abusive expenditures of plan assets. Furthermore, the Bulletin provides a reminder that the Department's Office of Labor Management Standards has published a list of some internal controls that may be useful for apprenticeship and training plans to consider at http://www.dol.gov/olms/regs/compliance/internal.htm. Investigators are advised in the Bulletin to consider citing trustees with an ERISA violation if they fail to follow a plan's written expense policy, to require the plan to establish written plan expense policies, and to recommend implementing appropriate internal controls when violations are identified as part of the correction process.
Even though Field Bulletin 2012-01 was not addressed to the JATCs or their trustees, it does provide valuable insight into how the DOL will interpret certain transactions and should be given careful consideration.
Form 5500 Exemption
Under ERISA, employee benefit plans are required to file Form 5500 annually. However, a plan that exclusively provides apprenticeship and training benefits may file a notice in accordance with ERISA Regulation 2520.104-22 for exemption from filing. The notice must be filed with the DOL and include the name, employer identification number, name of administrator, and the name and location of the person from whom an individual can obtain certain program information. Once filed, the notice must be updated for any changes. In many cases the notice was filed and forgotten. Therefore, we recommend that all JATC's review their records to verify that the information on the notice is current. If the notice cannot be found or is not current, the JATC should consider filing an updated notice.
In order to assist JATCs and their trustees, the DOL has an apprenticeship and training plans section on their website at www.dol.gov/ebsa/apprenticeshipplans.html. The website has valuable information on plan compliance and requirements, including the FAQs and Field Bulletin discussed above.
Let us know if you have any questions or if you need any additional information.