Health and Welfare funds provide benefits such as:
- Medical, hospital, dental, vision
- Life insurance
- Accidental death and dismemberment
- Disability
- Vacation, and
- Apprenticeship Training programs.
These funds are established to pay benefits on behalf of active participants but often continue to pay benefits to participants after retirement. Benefits paid on behalf of retired participants are commonly known as "Post Retirement Health Benefits".
In the past, employees often found it difficult to maintain good health care coverage due to the seasonal and transient nature of certain industries. This lead to the establishment of multiemployer health and welfare plans. A multiemployer health and welfare fund is established between a Union and one or more employers operating in specific industries or similar geographic areas.
A Health and Welfare Fund can be either a defined benefit plan or a defined contribution plan. Defined benefit plans establish a determinable benefit amount. Contributions to a defined benefit plan may be calculated actuarially, or estimated based on claims paid in previous years. Usually the Union will negotiate a fixed contribution rate necessary to fund the benefit level. A defined contribution plan establishes an account for each participant, and benefits are paid directly from the accumulated account balance to the extent allowed by law.
Benefits under either type of plan can be paid directly to participants or to insurers. Contracts with insurance companies can be experienced rated or non-experienced rated depending on who assumes the financial obligation to pay the benefit. An experience rated contract allows for a refund or dividend if net benefits incurred are less than premiums paid. Unfortunately, under an experience rated contract, any shortfalls between benefits incurred and premiums paid must be paid by the fund. Under a non-experienced rated contract, the Fund's obligation is the payment of the premiums. The insurance company is fully responsible for covered benefits.
In an attempt to control the high cost of health coverage, plans, like other medical insurers, have expanded to include health maintenance organizations (HMO's), preferred provider plans (PPO's), and managed care networks. An HMO provides participants with unlimited medical coverage, with little out of pocket expenses paid by the participant. However, the participant must use a physician within the HMO organization. Preferred provider plans and managed care networks are organized groups of physicians and hospitals that provide services at discounted fees. These plans may offer employees the option of choosing their own physician or hospital but may impose deductibles and lower benefit reimbursements.
Health and Welfare Funds are facing unique, and sometimes complex audit issues as a result of the outsourcing of plan benefits. As fiduciaries of the Fund, one of the primary responsibilities of the Board of Trustees and the Fund Administrator is to protect Fund assets. This becomes difficult if the Fund maintains no control over service providers and has no access to actual claims paid. As auditors, one of our responsibilities is to obtain sufficient evidence on which to base our opinion. One of our procedures to ensure sufficient evidence is to obtain a Type II SAS 70 report from the service provider. Basically, this is a report on the internal controls in operation at the service provider location. Unfortunately, service providers are under no obligation to provide such reports. We encourage all plans to consider the need to obtain these reports and the important role they play in assuring fiduciaries that service providers are paying claims in accordance with plan regulations. A SAS 70 report should be part of the contractual requirement of any service provider.
One of the biggest changes in Health and Welfare Funds that came about in recent years was the adoption of SOP 92-6, accounting for Post Retirement Benefit Obligations other than Pensions. With the adoption of SOP 92-6 Fund Administrators have to calculate and report in the financial statements, the cost of providing benefits to participants currently retired as well as the future cost of providing retiree benefits to participants who will be entitled to them sometime in the future. This post retirement benefit obligation is usually calculated by an actuary and requires specific demographic information for each participant of the Fund.
Since Health and Welfare Funds are subject to the provisions of the Department of Labor, ERISA (Employee Retirement Income Security Act of 1974), the Internal Revenue Code and Generally Accepted Accounting Principles, these Funds require experienced and knowledgeable auditors who are equipped to deal with the complex auditing and compliance requirements of these particular plans. The auditors here at Schultheis & Panettieri service many Health and Welfare Funds and have the experience to get the job done on a timely basis.
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