We're all aware of the numerous recent articles concerning the Department of Labor's (DOL) interest in apprentice and training funds. Many of us inadvertently omit apprentice funds from discussions of funds subject to ERISA, such as welfare and pension funds. The DOL's recent interest in these funds should serve as a reminder that, in general, apprentice funds must operate under essentially the same rules as other ERISA funds. Phyllis Borzi, Assistant Secretary of Labor for Employee Benefits Security Administration (EBSA), has stated in recent speeches that DOL's investigations showed widespread misuse of plan assets, a lack of written procedures regarding fees and expenses, and a lack of internal controls for expenses in multiemployer apprentice and training plans.
ERISA requires a fiduciary to discharge his/her duties solely in the interest of participants and beneficiaries and for the exclusive purpose of providing benefits and defraying reasonable expenses of administering the plan. Unfortunately, whether a particular expense is "reasonable" may vary from one DOL investigator to another or from the regional office from which the investigation stems. Whether an expenditure is "ok" may depend on the structure of your fund (self-administered or third-party), what the governing documents allow (Is a graduation celebration a "benefit" of training received under the plan?), or what the plan's written policies allow or prohibit.
In sorting through these various issues, the importance of documentation cannot be overstated. Trustees should document their decision and the basis for it. Expenditures must be reasonable and necessary for administering the plan. Especially tricky expenditures include dinners, alcohol, gifts, gratuities, and advertisements. Trustees should be very cautious concerning expenses for plan employees. A written expense reimbursement policy may help. One thing is for sure -- examination of apprentice funds is on the DOL's agenda and may remain there for some time. Trustees should consult their fund counsel for legal advice regarding their specific situation.
By Bob Cann, CPA, Partner, rcann@legacycpas.com