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BENEFITS FRAUD ON PREVAILING WAGE JOBS
Apprenticeship, Health and Welfare, and Pension
Federal, King County, Drywall
1996 -- 20%
$23.00
$5.71
Wages Benefits
2006 -- 30%
$12.23
$28.06
Wages Benefits
Federal, King County—WA 1996 - 2006
35%
78%
31%
68%
30%
71%
14%
106%
0%
20%
40%
60%
80%
100%
120%
Carpenters Electrician Laborer Boilermaker
Wage Increase Benefits Increase
California, SF County, Bricklayers
2001 -- 25%
$29.45
$9.75
Wages Benefits
2006 -- 37%
$18.45
$31.50
Wages Benefits
California, SF County, 2001 - 2006
5%
36%
8%
38%
11%
42%
7%
89%
0%
20%
40%
60%
80%
100%
Sheetmetal Electrician SprinklerFitter
Bricklayer
Wage Increase Benefits Increase
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
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
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.
Three Areas of Potential Violations
Prevailing wage laws ERISA laws IRS laws
Prevailing Wage Laws
Annualization Reasonably Related
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
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.
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 .
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.
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.
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
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.
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
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
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
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
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.
ERISA Laws
Breach of general fiduciary duty
Prohibited transactions
Remedies: Removal of fiduciaries, disgorgement
Standing: Current participant, or U.S. DOL Secretary of Labor
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.
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.
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
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
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
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.
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.
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.
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
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.
Miscellaneous Other Legal Issues
U.S. DOJ actions RICO False Claims Act IRS Tax Fraud Finders Fee
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.
BREAK
Documents
State and federal certified payrolls U.S. DOL benefit plan documents IRS nonprofit documents
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
Examples of Certified Payrolls
Maurer Electrical Suit Kote Lykins Reinforcing
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
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
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.
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
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.
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.
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.
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”
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.
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.
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)
Empire State Highway Contractors Association – Apprenticeship Fund
A trade association with 2006 income of $760,000 – $350,000 each from benefit and apprenticeship administration – Sponsors laborer, carpenter, and operating engineer
Seven staff on the website; only one with apprenticeship in a job title.
Reported spending only $29,500 for training and instructors.
The training is done by a related for-profit entity.– The Association claimed the entity was a nonprofit on IRS
annual reports– The same for-profit owns the school [43 acres of mostly
farmland]
Empire State ABC Training Trust
Charges a 12% “accounting fee” on all contributions.
Does not credit any earned interest to the beneficiary’s training fund account.
Takes all money from a training account that is not used within 12 months.
Tuition often exceeds $2,000, far more than comparable courses at a community college
Empire State ABC Chapter
The Chapter’s “training income” the last four years was $2.2 million.
The Training Trust stated it would pay the tuition to the ABC Chapter in its application to become a nonprofit
In the last four years, the Trust listed over $800,000 in spending as “education.” – Not allowed under IRS annual reporting rules– Were did the money go?
Empire State ABC Chapter—Tax Fraud
The ABC Workers Compensation Trust has been paid the Chapter some $115,000 a year. – Federal and state tax is due on this income.
The Chapter filed tax returns; with false deductions.
– 15% of Rebecca Meinking’s time– 10% for office space– 100% of the costs for three cars
The Trust stated the Chapter did no work– an “endorsement fee” based on total premiums
NonUnion Apprenticeship Programs
Performance Issues
Unions Enroll and Graduate More Apprentices
Unions Enrolls and Graduate More Female and Minority Apprentices
Nonunion Programs are Deeply Flawed The U.S. Department of Labor Refuses to
Take Action About this Problem
Construction Apprenticeships--2003
Enrollments
20%22,000
80%88,000
Union
Non-Union
Graduations
14%6,000
86%37,000
Construction Apprenticeships36 States in DOL System: 1989-2004
Female Enrollments
81%
19%
Union
Non-Union
Minority Enrollments
27%
73%
Misuse of Journeyman to Apprentice Ratios
Determine ratios for particular craft Examine ratio on apprenticeship program
annual reports Examine ratios on private jobsites as well as
prevailing wage jobsites
Failure to Provide Continuous Employment
Review program standards and state law for wording on obligation
Research how program is really run Role of lay offs in a multi-employer non-
union apprenticeship program Role of ULPs in a multi-employer non-union
apprenticeship program
Improper Apprentice Wage Scales
Review wage rate scale in approved apprenticeship standards
Investigate actual non-union wage rates paid to the journeymen and apprentices
Locate apprentices who have been cheated and who want to take legal action
Call for better NYS regulations have been filed
Failure to Provide Related Instruction
Classes and hours Competent instructors Proper training materials Adequate facilities State licensing
Decker College
A for-profit construction craft training school funded by federal student loans
Three of four branches in partnership with ABC chapters
Former top ABC/NCCER leader Dan Bennett was on Decker staff
Former Massachusetts governor and former NY candidate for governor William Weld was Decker CEO and part owner
BREAK
Workers Compensation Costs in Construction
Costs Rules Scams
Workers Compensation Costs as a Percent of Payroll--2005
1.6%
2.2%
5.0%
0%
2%
4%
6%
8%
10%
Service Manufacturing Construction
Median Workers Compensation Rates per $100 of Payroll
$6$8
$12
$16
$28
$0
$10
$20
$30
$40
$50
Electrical Plumbing Masonry Carpentry Roofing
Government Regulations
Monopoly States– WV, Ohio, Washington: great for fraud research
Non-Monopoly States– Everyone else
National Association of Insurance Commissioners [www.naic.org]– Database of experience ratings from all major
insurers and clients--access for members only State Insurance Departments
– Largely industry run
Workers Compensation Scams
Paid off the books Paid as independent contractors Misclassifications of workers
– Claims denials
Temp agencies and employee leasing firms– Experience ratings games / misclassifications of work– Claims denials
Self-insured status: single or multi-employer– Misclassifications of workers– Claims denials
Labor Ready--1998
Classified 47% of employees as “office services” work in Washington State
Classified 25% of its workforce as “retail store employees,” or “clerical office employees,” or “salespeople” in Ohio.
CEO stated Labor Ready “focuses strictly on blue-collar labor.”
Renamed TrueBlue Inc and has survived Bought Contractors Labor Pool
– – 80 locations mostly west coast
Empire State ABC Workers Compensation Trust: April 2005 to May 2006 annual report
380 contractor members $20 million in contributions, up from $2 million
in 1999 The Trust claims injuries have declined 40%
in last 5 years. The reasons– “financial penalties & rewards” based on claims
experience – “aggressive claims investigations and litigation”
Nationally, workers compensation claims in construction rose 20% from 2002 to 2006.
New York State Workers’ Compensation Board: Filings by Self-Insured Plans
Annual financial statement Trust agreement and by-laws List of contractor members Contributions by worker classification codes
– In aggregate AND by each employer All denied as trade secrets after my FOIL.
– Improperly used the trade secret exemption– Refused to segregate material or to acknowledge the Trust
has made material public– Ignored advisory opinion from Committee on Open
Government in NYS Secretary of State’s Office.
New York State Workers’ Compensation Board: Agency Failures
Employers who are self-insured, or who participate in a group self-insurance trust, are exempt from the misclassification law. – Statute refers to premiums. Self-insured and
group members only pay “contributions.” – This has legalized cheating and ignores claims
suppression The agency will not conduct dual audits with
NYS DOL as part of the task force– The agency will, however, “share results.”
Key NYS Joint Task Force Goal: Data Mining to Find Fraud
Create an industry-occupation matrix, from the BLS or from the NAIC
Compare the occupation breakdowns in the matrix to the to self-insured group members in the construction industry.
Investigate the statistical outliers– A plumbing contractor who claims to employ 50%
clerical workers and 40% laborers.– Electrical contractors with no electricians
Possible Action Steps
Temporary Agency and Professional Employment Agency workers compensation classification bill
– Experience rating follows the company– California Building Trades tried this but failed
File for advisory ruling from the Committee on Open Government in NYS Secretary of State’s Office
– They will support the claim but the opinion is not binding File FOIL on the ABC Workers Compensation Trust
– Then sue the York State Workers’ Compensation Board Rewrite the premium fraud law, or win a better
agency interpretation of the existing law– Premium fraud requires claims suppression; examples of
this will build the case for change