# Amicus Curiae Brief — Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0016%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1985 - **Citation:** 472 U.S. 559 ## Text IN THI Supreme Court of the United States October term, 1983 PETITION FO SsrATEN COL RIT MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE IN SUPPORT OF THE PETITION FOR WRIT OF CERTIORARI AND BRIEF OF AMICUS CURIAE IN SUPPORT OF THE PETITION FOR A WRIT OF CERTIORARI BEST AVAILABLE COPY QUESTION PRESENTED MAY AN EMPLOYER, WHICH PARTICIPATES IN A MULTIEMPLOYER BENEFIT PLAN, REFUSE TO MAKE AVAILABLE ITS EMPLOYEE RECORDS, INCLUDING RECORDS OF ITS PURPORTEDLY NON-COVERED EMPLOYEES, WHICH IT IS REQUIRED BY sTATUTE TO KEEP TO DETERMINE EMPLOYEE BENEFIT PLAN ELIGIBILITY, TO THE INTERNAL AUDITORS OF THAT MULTIEMPLOYER BENEFIT PLAN. IN THE Supreme Court of the United States October Term, 1983 ' NTR " { EN TRA ~ATATE> > the | n ec S Ais in ‘ DINK Be e west Are Pens : : _ centr States Pen ' - udcits . $s empiovee Denent pians ry ¢ . ve Ss SUC . Pet oOner;rs - stees COMmpIy WILD ne il Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1461, and the regulations promulgated there- under, 29 C.F.R. § 2520.103 et seg Most employee benefit plans are required to file with the Department of Labor annual reports which include the plan’s financial statements. The annuai reports of plans with over 100 participants must include an independent accountant’s opinion that the plan’s financial statements have been audited in accord- ance with generally accepted auditing standards (“GAAS”). As is demonstrated in the brief amicus curiae, the ruling of the Sixth Circuit is inconsistent with this requirement and will materially impair the ability of independent certified public accountants to audit multiemployer benefit plans in accordance with GAAS Congress required independent audits of the financial state- ments of employee benefit plans (/.e., employee pension and employee welfare plans) to provide, inter alia, a level of assur- ance on the plan's financial statements. Although an independent audit also provides an important control on the administration of a plan, [t]he primary objective of a plan’s financial Statements 1s to provide financial information that is useful in assessing the plan’s present and future ability to pay benefits when due FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINANCIAL ACCOUNTING STANDARD No. 35 at §2 (1980) In 1974 with the passage of ERISA Congress not only man- dated an independent audit, but also required defined benefit pension plans to have triennial actuarial valuations. Both the annual audit and triennial actuarial requirements are comple mentary: to assure that appropriate information is available so that plan participants and others (including regulatory authori- ties) can evaluate the ability of a plan to pay benefits when due When Congress enacted ERISA requiring that all employee benefit funds be audited in accordance with GAAS, 29 U.S.¢ $§ 1023, 1024, there was a defined body of professional practice iV and literature detailing the audit procedures necessary in mul- tiemployer health and welfare benefit funds and which aiso pro- vided guidance for the audits of multiemployer plans. These procedures included the testing of employer records. Congress also knew that to conduct a GAAS audit the independent auditor would be required to test the adequacy of the funding of employee benefit plans according to the law and the terms of the plan. To fulfill this goal, the auditor, inter alia, performs tests to determine that the proper universe of plan participants has been identified, contributions have been paid by the employer for each plan par- ticipant, and that participant benefit entitlements have been prop- erly reflected in the actuarial calculations and related contributions received or receivable. GAAS thus requires not only the testing of the admittedly covered employees, but also testing for improper exclusion of covered employees from the contribution and benefit calculations. Since benefit eligibility in a multiemployer plan is determined by an individual's employment status and not whether the employer has contributed to the plan, absent such testing or a comparable alternative procedure, it is impossible to determine if all required employer contributions have been made or if the actuarial valuation of a pension plan was correct. Accordingly, one may not be able to determine if a pension plan is under- funded -- a major concern underlying enactment of ERISA, 29 U.S.C. §§ 1001-1461, and the Multiemployer Pension Plan Amendments Act of 1980, Act of Sept. 26, 1980, Pub. L. No. 96- 364, 1980 U.S. Cope Conca. & Ab. News (94 Stat.) 1208 and the creation of the Pension Benefit Guaranty Corporation, 29 U.S.C. §§ 1301-1309, in 1974. For example, if there was an annual under-reporting of only one half of one percent (.5%) of all participants currently estimated to be members of multiem- ployer pension plans (over 8,000,000 as of 1978) and the average employer contribution per participant to multiemployer plans were $50 a week (as it is in National Master Freight Agreement at issue in the underlying proceeding), there would be an annual initial under-funding of contributions in excess of $100,000,000 (40,000 omitted participants x $2600) for all multiemployer plans. (The compounded lost earnings from these unmade contri- butions is staggering.) To the extent plan under-funding occurs, the resultant short falls ultimately must be made up either by all employers in the plan (including those who did not under-report their employees) either through increased contributions or increased premium charges by the Pension Benefit Guaranty Cor- poration. Moreover, to the extent the existence of under-funding cannot be determined, payments imposed upon employers with- drawing from the plan cannot be properly calculated Although recognizing a very limited right of access to employer data concerning purportedly non-covered employers, the opinion of the Sixth Circuit has effectively precluded auditors from test- ing the universe of plan participants in most multiemployer plans thus creating a possible “scope” limitation on the audit. A “scope” limitation ipso facto results in a non-GAAS audit and would require the auditors to “qualify” or “disclaim” their opinions on employee benefit plan financial statements. The trustees would then fail to meet the statutory requirements for an audit of the plan financial statements in accordance with GAAS. Congress could not have mandated an audit knowing what it entailed and at the same time denied plan trustees the ability to fulfill that requirement In addition to causing a “scope” limitation in the audit, restrict- ing access to employer data by the plan’s internal auditors signifi- cantly reduces internal control over contributions legitimately due the plan and thus increases the likelihood of error. The inabil- ity in a multiemployer plan audit to routinely test whether pur- portedly non-covered employees are covered is likely to lead to a greater number of failures by employers to report covered employees (and to make the corresponding required contribu- tions) -- either through inadvertent oversight or possibly as a result of intentional under-reporting. The significant deterrent value of the audit tests would then be lost Thus amicus curiae Arthur Young has a direct interest in the outcome of this proceeding -- not only as it affects (and may vi substantially impair) its ability to conduct its audit of the Central States Pension Fund, but also its ability to conduct audits of other multiemployer benefit plans. As a result of the Sixth Circuit opinion, one employer has already refused access of its records to Arthur Young and it is concerned that other employers will do likewise. WHEREFORE, Arthur Young respectfully moves this Court that leave be granted to it to file the annexed brief amicus curiae Dated: July 6, 1983 Respectfully submitted, S CARL D. LIGGIO Carl D. Liggio General Counsel Arthur Young & Company 277 Park Avenue New York, New York 10172 Telephone: (212) 407-2367 Vil TABLE OF CONTENTS PAGi QUESTION PRESENTED MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE IN SUPPORT OF THE PETITION FOR A WRIT OF CERTIORARI T TABLE OF CONTENTS vi TABLE OF AUTHORITIES ix PRELIMINARY STATEMENT INTEREST OF AMICUS CURIA}! 2 THE PROCEEDING BELOW 3 SUMMARY OF ARGUMENT 3 ARGUMENT 4 |. Background-Multiemployer Plans . ll. Congress Directed That Multiemployer B Plans Have Annual Independent A Financial Statements in Accord y Accepted Auditing Standard \ The Audit Requireme: B What an Audit of a M Plan In Accordance A Auditing employer Z The use of interna GAAS ( The Impact of a Qualified Auditor's Oy lll. Congress Intended Plans to Have Access to A Employer Records A. Access to All Employer Data was Contemplat ed by Congress in Order to Satisfy the Audit Requirement B In Order to Ascertain Funding Requirements Access to All Employer Data was Contempilat- ed by Congress |. Lack of access to employer data precludes adequate funding determinations required by Congress > The PBGC is adversely affected CONCLUSION APPENDIX PAaGt TABLE OF AUTHORITIES Pa ( ases Centrui States, et ai. v. Central Transport. Inc.. et ai. $2? F. Supp. 658, reversed 698 F.2d 802, (6th Cir 933 Weinhe rger \ H So Ve of tt and ry snnine . 4 ; | ~ ALIY : QO) 3 . Statutes, Rules, and Regulations > ) | ed ‘1 es { ae & 1 k6ic . ‘ Y§ ih af ~ mM? i¢ 4 N KM)? ] 4 ~ 2 _ 7 ~ »~ ‘5 ~ > ~ é ~ ~ ~ _ ~ ~ 4 . ~ + SW ~ . ~ + ~ - ‘ ~ - _ ’ _ ‘ . s , | ~ + 5 . > YY SS & ‘xz r > cy ~ >» . r . *. , \ sw 4 ‘ ~~ ~ ‘*) ~ = 4 rei 4- } - + > ~ if ~ , : — é 4 . . * : * Other Authoritics Ad ry Opinion Augu 176, PE’ Rep. (BNA BEN! : } 5. 9 H. R. Rep. No. 533, 93rd Cong., 2d Sess. reprinted in 1974 US. Cope Conc. & Ab. News 4639. 4649 Lublin Law to Protect VUulti Employer Pensions Js ( ausing Hardship for Many Businesses. Wall St. J Mar. 5. 1982 at 40. col NATIONAL JOURNAL. June 28 98> PENSION BENEFIT GUARANTY CORPORATION. Mui tiempioyer Study Required by P.L. 95-214 (1978 Append v Potentia! Multiemployer p an | sabalit es Under Title [V of ERISA 979.198 PENS. PLAN G ANNOT (CCH) ‘ 97 e77 (Oct ‘ RO ) AC S S. SUTHERLA* STA RY CONSTRL rtON. & 04 (4t? { 97) 3 S Rep. } 93rd Cong.. 2d Sess reprinted in |\97/4 i SS Cone Com & An. News 4838. 4864 \S Keep N\ . 7+5th Cong st Sess.. reprinted in |\9// ['S Cone Con & Ary News 4178. 4179 | A IN THI Supreme Court of the United States October Term, 1983 Ni ENTRAL STATI SOL THEAST AND SO HWEST AREAS PEN LON Ff } A f ENTRAIL STATES SO THEAST AND SOLTTH WEST AR s HEALTH AND WELFARE FUND Petitioners { EPNTRA IR ANSPOR | PN fi a Respondents Py TION FOR A WRIT OF CERTIORARI TO THE UNITED TATESN CCM RT Odi APPELALS FOR THE SIX THM CIRGCLTTI BRIEF OF AMICUS CURIAL IN SUPPORT OF THE PETITION FOR A WRIT OF CERTIORARI Preliminary Statement Arthur Young & Company (“Arthur Young’) submits this brie! as amicus curiae in support of the petition for a writ o ihat this Court review the judgement and lor the United States Court of Appeals for the Sixt! pinio;r ( cu n Central States. Southeast and Southwest Areas Pen n Fund Central Transport. inc.. 698 F.2d 8O2 (6th Ci a4) I he petition for certiorari materially iffects the ability of ove abe’ muilemy myer pension pians Witt ver $80 Pillion in assets mn in excess of 5 U0) ON Dial part cipants rocon ply with ¢ yf ” ss rst ' ’ ry mf ’ iy mandated aud ima aciva _ CuUuire ‘ also impacts multiemployer welfare plans. In fact, if the decision of the Sixth Circuit is allowed to stand, the salutory purposes of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§ 1001-1461, and the Multiemployer Pension Plan Amendments Act of 1980, Pub. L. No. 96-364, 1980 U.S. Copt Conc. & Ap News (94 Stat.) 1208, could be substantially yeopardized INTEREST OF AMICUS CURIAE Arthur Young, a partnership of certified public accountants, has over 90 offices and 6000 professionals in the United States In addition to auditing public and private companies, Arthur Young is the independent auditor of Petitioner, Central States, South- east and Southwest Areas Pension Fund (“Central States Pen- sion Fund”). as well as numerous employee benefit plans several of which are multiemployer plans such as Petitioners. These audits permit the plan trustees to comply with ERISA, 29 US $§ 1001-1461 (1976 & Supp. V. 1981), and the regulations promulgated thereunder, 29 C.F.R § 2520.103 (1982) ef seq Most employee benefit plans are required to file with the Department of Labor annual reports which include the plan's financial statements. The annual reports of plans with over 100 participants must include an independent accountant’s opinion that the plan financial statements have been audited in accord ance with generally accepted auditing standards (“GAAS”). The ruling of the Sixth Circuit ts inconsistent with this requirement and will materially impair the ability of independent certihed public accountants, such as Arthur Young, to conduct audits of multiemployer employee benefit plans in accordance with GAAS Thus amicus curiae, Arthur Young, is vitally interested in having this Court resolve the question presented by this Petition May an employer, which participates in a multiemployer benefit plan, refuse to make available its employee records, including records of its purported!y non covered employees, which it is required by statute to keep to deter mine employee benefit plan eligibility, to the internal aud! tors of that multiemployer benefit plan [HE PROCEEDING BELOW . k ’ » ‘ ~ p ' 5 ~ Ves . - } A ‘ . , : \A : » ; j x ’ ‘ 658 (&.D. Mi ) ‘ _ x | ~ R x _ SL VMMARY OF ARGL MENT r RISA WW wr : > is Tees | meet the stat tory report ne eT 4 ’ pe . | : ine . ur ' iDt = th effect ve 5 pre. uces the rus! sir ° statutory obligations and makes difficult, if not NOss! Oe Gcependce uc | tre Dian I he Ggecision of tne mnpecals negates the sudstantia Ggeterreni effec Mat the : ’ icverse ’ 7 pacts tne aL. U > ” ' ; > _ ' > Ls he, “ nar a“ : . . \ . ARGU MENT BACKGROUND-MULTIEMPLOYER PLANS study estimated that more than 16 million workers will be covered by multiemployer pension plans by the year 2000. 1979-198] PENS. PLAN GUIDE ANNOT. (CCH) 922,877 (OcrT. 15, 1980) Virtually all multiemployer plans require contributions solely from employers. /d. For these plans funding is solely dependent on employer contributions and plan eligibility is determined “solely on the basis of service performed for a participating employer, regardless whether that employer has made or defaulted on his 1 *quired contributions.” Advisory Opinion, 31 August 1976, Pens. Rep. (BNA), No. 221, Jan. 8, 1979 Accordingly, even if an employer fails to report the employee as a participant and make the required contribution, the multiem- ployer plan is obligated to pay those benefits when demanded, see 29 U S.C. §§ 1052 and 1053; 29 C.F.R. § 2206-2(a)(1)(2), thus creating an under-funding situation for the plan Although multiemployer plans were subject to ERISA, it was the Multiemployer Pension Plan Amendments Act of 1980 (MEPPAA) which directly addressed a growing concern over inadequate funding of these plans. The Pension Benefit Guaranty Corporation (PBGC } found that 12 percent of all multiemployer pension plans, covering one-fifth of all multiemployer pension plan par ticipants, are experiencing extreme or significant financial hardship which may result in plan termination Two percent of all multiemployer plans, with a total unfunded vested liability of more than $350 million, were found to be experiencing extreme financial hardship and to have a high potential for termination. The remaining 10 percent were deemed to have a significant potential for termina tion, with a total unfunded vested liability of $3.5 billion S. Rep. No. 570, 95th Cong., Ist Sess., reprinted in 1977 U.S Cope CONG. & AD. NEwS 4128, 4129 (footnote omitted) Inadequate funding caused by, inter alia, under-reporting and declining work forces in certain industries could lead to billions of dollars in unfunded liabilities, far more than the resources avail able to the PBGC to cover any failures. PENSION BENEFIT 6 GUARANTY CORPORATION, Multiemployer Study Required by P.L. 95-214 (1978), Appendix I, Potential Multiemployer Plan Liabilities Under Title IV of ERISA. CONGRESS DIRECTED THAT MULTIEMPLOYER BENE- FIT PLANS HAVE ANNUAL INDEPENDENT AUDITS OF PLAN FINA™ CIAL STATEMENTS IN ACCORDANCE WITH GENERALLY ACCEPTED AUDITING STANDARDS. A. The Audit Requirement Congressional concern with employee benefit funds dates back to the enactment of the 1947 Labor Management Relations Act H.R. Rep. No. 510, 80th Cong., Ist Sess., reprinted in 1947 US Cope Conc. & Ab. News 1135, 1173. In 1947, one way Con- gress sought to protect certain employee benefit funds was by requiring an annual audit of such funds. 29 U.S. § 186(c)(5) The legislative history reveals that the annual audit require- ment was intended to put safeguards on the improper and unsuc- cessful administration of employee benefit funds. Accordingly, Congress decreed that company contributions to employee benefit funds would not constitute an unfair labor practice if such funds were “guarded by certain restrictions, such as that it should be subject to joint control by employer and employees and by an annual audit to insure its protection as a trust fund.” 93 CONG Rec. 3565 (1947). (Emphasis added ) In 1974 ERISA supplemented existing reporting and disclo- sure requirements with provisions requiring the reporting of more detailed information concerning the administration of plan assets and the payments of benefits. Moreover, it continued and strengthened the independent audit requirement, 29 US€ § 1023(a)(3)(A), by adding to the arsenal of weapons to protect employee benefit plans already available to the Secretary of Labor the right to hire independent auditors to audit such plans 29 U.S.C. § 1024(a)(5) * es] =" 2a eee ee ns In enacting ERISA Congress was concerned over the adequacy of information available on employee plans. The House Report, evidencing this concern, noted that experience has shown that the limited data available under the present Act is insufficient. Changes are there- fore required to increase the information and data required in the reports both in scope and detail. Experi- ence has also demonstrated a need for a more particular ized form of reporting so that the individual participant knows exactly where he stands with respect to the plan - what benefits he may be entitled to, what circumstances may preclude him from obtaining benefits, what proce dures he must follow to obtain benefits, and who are the persons to whom the management and investment of his plan funds have been entrusted. At the same time, the safeguarding effect of the fiduciary responsibility section will operate efficiently only if fiduciaries are aware that the details of their dealings will be open to inspection, and that individual participants and beneficiaries will be armed with enough information to enforce their own rights as well as the obligations owed by the fiduciary to the plan in general H.R. Rep. No. 533, 93rd Cong., 2d Sess. reprinted in 1974 U.S CODE CONG. & AD. NEWS 4639, 4649 Ihe Senate Report similarly concluded that an opinion of an independent auditor based upon the results of an annual audit would “allow better assessment of the plan’s financial soundness by administrators and participants alike.” S. Rep. No. 127, 93rd Cong., 2d Sess., reprinted in 1974 U.S. Cope CONG. & AD NEWS 4838, 4864. The Conference Report, recognizing the importance of the audit requirement, specifically noted that “the accountant is to give an opinion as to whether the financial state ments of the plan conform with generally accepted accounting principles and the statement is to be based upon an examination in accordance with generally accepted auditing standards.” H CONF. Rep. 1280, 93rd Cong. 2d Sess., reprinted in 1974 U.S CODE CONG. & AD. News 5038, 5040 8 B. What an Audit of a Multiemployer Benefit Plan in Accordance With GAAS Entails 1. Auditing employer records When Congress imposed the audit requirement for employee benefit plans under ERISA, a body of professional literature and practice existed outlining the procedural steps required for audits in general and audits of employee benefit plans in particular. For example, in 1972, the American Institute of Certified Public Accountants had published an Industry Audit Guide, AUDITS Of EMPLOYEE HEALTH AND WELFARE BENEFIT FUNDS, which, although not directly controlling audits of pension plans, summa- rized audit requirements that had general applicability to pension plans and specific applicability to employee health and welfare funds such as Petitioners Central States, Southeast and South- west Areas Health & Welfare Fund. The Guide noted that not only its specific requirements apply, but Generally accepted auditing standards apply to audits of an employee health and welfare benefit funds to the same extent they apply to the audits of a commercial enterprise AicPA. AUDITS OF EMPLOYEE HEALTH AND WELFARE BENE rit FUNDS (1972) at 18 The 1972 Industry Audit Guide reviewed the critical areas ol employee health and welfare benefit fund audits. One such area was the audit of employer contributions -- the basic funding vehicle for any benefit plan Contributions The basic objective in auditing contributions ts to deter- mine that amounts due the fund have been received and properly recorded and that employer records and partict- pant records (eligibility or vacation contribution) are being properly maintained The auditing procedures employed should normally ‘nclude. but are not necessarily limited to, the following (1) Total cash receipts shown by the cash receipts bOOK [or a selected period should be reconciled to the total amount ’ edger contribution accounts. to the credited to the genera! tola imount posted to the employer s record ing to deposits shown by the Dank statements ?) Selected individual employer contribution payments is shown by the cash rec eipts book should be compared t the amount shown on the employer s contribution report d to the amount posted to the individual employer s bution record. Selected postings to the employer s iu ge the test period should De traced the cas! DOOK a ine npiover s —— a 13 the inability to test plan participation data does not comply with either the Labor Management Relations Act of 1947 or ERISA. Arthur Young has been orally informed by the Department of Labor that in all likelihood the absence of a “clean” opinion caused by a “scope” limitation will be treated as a failure by a plan to comply with the Annual Report filing requirements. Cy. 29 C.F.R. §§ 2520.103-1(b) (5) (iv) and 2520.103-2(b) (5) (iv). CONGRESS INTENDED PLANS TO HAVE ACCESS TO ALL EMPLOYER RECORDS. A. Access to all employer data was contemplated by Con- gress in order to satisfy the audit requirement. One objecuive of financial statements of employee benefit plans is to permit the assessment of the adequacy of a plan’s present and future ability to pay benefits to covered employees. FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT OF FINAN- CIAL ACCOUNTING STANDARD NO. 35 at f 2 (1980). The Sixth Circuit decision, Central States v. Central Transport, Inc., 698 F.2d 802 (6th Cir. 1983), restricting the scope of an audit only to employer records of concededly covered employees, defeats this objective. Since multiemployer plans are liable for benefits to eligible employees whether or not a particular employer has made contri- butions on the employees’ behalf, see 29 U.S.C. §§ 1052 and 1053, Advisory Opinion, 31 August 1976, PENS. Rep. (BNA), No. 221. Jan. 8, 1979, it is important to ascertain whether any plan participants have been omitted and if all required contribu- tions have been made. If access to the “entire universe” (i.e., both admittedly covered and allegedly non-covered employees ) of plan participants is denied, no one will be able to assess whether the plan financial statements reflect all benefits likely to be paid and, more importantly, all required contributions to fund those benefits. 0 ee Pe ee re ee ee ee 14 It is in this context that Congress required employer record keeping for all employees,’ not just plan participants, 29 U.S.C. § 1059(a), and imposed penalties on employers who failed to keep such records. 29 U.S.C. § 1059(b). Moreover, Congress imposed on employers reporting obligations based on these record keeping requirements. 29 U.S.C. § 1059(a). A court imposed “scope” limitation on access to all employer records is likely to create an insurmountable audit problem to discovery of instances of under-reporting and non-reporting for alleged non-covered employees who are in fact covered by and entitled to plan benefits. In fact, to deny access to those records inhibits crucial auditing procedures, violates established stan- dards of auditing practice, and essentially renders the reporting, disclosure. and auditing requirements of ERISA and the Labor Management Relations Act ineffective. Moreover. when Congress enacted the audit requirements of ERISA and established the foregoing employer record keeping and reporting requirements for all employees, existing audit prac- tices included the testing of employer records to determine whether there were unreported employees who were nevertheless entitled to benefits. Supra at 8-12. As the record keeping require- ment complements the audit requirement by assuring the availa- bility of information to make the necessary evaluations, the two provisions should be read together. To deny access to the very records which Congress has required employers to keep to deter- mine both plan eligibility and the amount of employer contribu- tions while requiring an audit which must examine, inter alia, the universe of plan participants, which in turn requires access to those records, creates an internal inconsistency in the statute. Application of the basic rules of statutory construction further supports the view that the Sixth Circuit decision is contrary to congressional intent and inconsistent with the applicable statute. It is an established tenet of statutory construction that acts of 4. The definition of employee as set forth in ERISA, 29 U.S.C. § 1002 (6) includes any in ividual employed by an employer. Thus, ERISA fails to make a distinction between “covered” and “non-cov- ered” employees. rtrtneetinnta itil 0 TE Pe eee ee EE a ST FLD LF OT EE TT EY 15 Congress relating to the same subject matter are to be read in pari materia. Weinberger v. Hynson, Westcott and Dunning, Inc. 412 U.S. 609, 631-32 (1973) [separate provisions of a single act should be interpreted to give the Act “the most harmonious, comprehensive meaning possible” in light of the legislative policy and purpose]. 2A C. SANDS, SUTHERLAND STATUTORY CON. STRUCTION, § 51.03 (4th ed. 1973). This harmony can only be achieved here if 29 U.S.C. § 1059 is read as a grant of authority to a Plan to enable it to fulfill its statutory audit requirement. Finally, although the Sixth Circuit recognized that there is a “reasonable cause” standard which allows access to employer records, 698 F.2d at 810, it felt it was arbitrary and capricious to “audit” all employee records of the employer. /d. at 811. This holding failed to consider the statutory requirement placed on the trustees to obtain an independent audit of the plans and obtain an opinion on the plan’s financial statements as to whether they were prepared in accordance with generally accepted accounting prin- ciples. Since the failure to obtain access to the employer records could result in a non-GAAS audit and a “qualified” or “dis- claimed” opinion on the plan’s financial statements, it follows that the Sixth Circuit’s holding that, as a matter of law, a request for inspection of “non-covered” employee records is “arbitrary and capricious” is, a fortiori, incorrect. In fact, failure to seek access to the records may be a failure by the trustees to maintain ade- quate internal controls which, inter alia, could result in a scope limitation in the audit and could well violate the “prudent man” standard found in ERISA, 29 U.S.C. § 1104(a)(1)(B). B. In order to ascertain funding requirements access to all employer data was contempiated by Congress Another Congressional concern was the possible draining of fund assets in the future by persons unidentified in the plan records and for whom employer contributions were not made. At the time such under-reporting becomes known, the employer responsible may be neither in business nor a participating employer. Te eS TY ET ET Rr TR ROR TE FT > CE OS OF IT LE ee See 16 1. Lack of access to employer data precludes adequate funding determinations required by Congress The Multiemployer Act of 1980 significantly changed an employer's funding responsibilities in a multiemployer plan. An employer's obligation to fund benefits is no longer limited to its negotiated contribution plus a modest contingent liability upon withdrawal. When an employer withdraws completely or partially from a plan, the Act converts what would otherwise be a contingent liability assessed only on plan termination into a present liability for the employer’s share of all unfunded vested benefits. 29 U.S.C. §§ 1381 et. seg.. In three out of the four methods for calculating an employer's withdrawai liability, amounts are real- located from other employers who have escaped liability. 29 U.S.C. § 1391. (Thus, an employer may become liable for bene- fits earned by workers who were never in its employ. ) Moreover, to minimize the impact of underfunding, the Mul- tiemployer Act of 1980 also provided that, to the extent multiem- ployer pension plans were underfunded, all employers in the plan could be assessed to cure the underfunding. 29 U.S.C. § 1421 et. seg. If a plan does not meet the funding standards required by the Act, a plan may be placed in reorganization and an employer’s contribution may be increased to prevent the plan from terminating. 29 U.S.C. § 1423(b). If a plan terminates, employers may be required to continue to contribute in order to fund the plan’s unfunded vested benefits. Thus, the burden for such latent benefits due to under-reporting falls on other employ- ers through increased future contributions to the plan and proba- bly increased insurance premiums to the PBGC. Unless the total universe of plan participants is identified, the actuarial computations to determine plan funding, 29 U.S.C. §§ 1023(d) and 1393, and withdrawal liabilities, 29 USC. § 1391, are suspect and both an employer's current funding obli- gations and withdrawal liabilities cannot be determined, let alone accurately determined. Accordingly, access to all employee data to ascertain that all plan participants are reasonably accounted oe nee ee eee ee BR ER OL EE Ne eR OO - = ee ee Fe TP Se ee berm rer me > 18 employees either through inadvertence or design. Thus the deter- rent effect of the audit process would be substantially weakened. Finally, the ability to calculate employer plan withdrawal liabili- ties is adversely impacted. Wherefore Amicus Curiae Arthur Young respectfully requests that this Court grant certiorari to determine this critically impor- tant question. Dated: July 6, 1983 Respectfully submitted, p \ S CARL D. LIGGIO General Counsel Arthur Young & Company 277 Park Avenue New York, New York 10172 (212) 407-2367 Of Counsel JOHN E. MATSON Associate General Counsel PAUL J. OSTLING Associate General Counsel A-| APPENDIX § 1002. Definitions For purposes of this subchapter: * * * (5) The term “employer” means any person acting directly as an employer, or indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity. (6) The term “employee” means any individual employed by an employer. § 1023. Annual Reports (a) (1) (A) An annual report shall be published with respect to every employee benefit plan to which this part applies. * * * (B) The annual report shall include the information described in subsections (b) and (c) of this section and where applicable subsections (d) and (e) of this section and shall also include -- (i) a financial statement and opinion, as required by paragraph (3) of this subsection, and (ii) an actuarial statement and opinion, as required by paragraph (4) of this subsection. * * * (3) (A) Except as provided in subparagraph (C), the administrator of an employee benefit plan shall engage, on behalf of all plan participants, an independent qualified public accountant, who shall conduct such an examination of any financial statements of the plan, and of other books and records of the plan, as the accountant may deem A-2 necessary to enable the accountant to form an opinion as to whether the financial statements and schedules required to be included in the annual report by subsection (b) of this section are presented fairly in conformity with gener- ally accepted accounting principles applied on a basis con- sistent with that of the preceding year. Such examination shall be conducted in accordance with generally accepted auditing standards, and shall involve such tests of the books and records of the plan as are considered necessary by the independent qualified public accountant. The inde- pendent qualified public accountant shall also offer his opinion as to whether the separate schedules specified in subsection (b) (3) of this section and the summary mate- rial required under section 1024 (b) (3) of this title pre- sent fairly, and in all material respects the information contained therein when considered in conjunction with the financial statements taken as a whole. The opinion by the independent qualified public accountant shall be made a part of the annual report. In a case where a plan is not required to file an annual report, the requirements of this paragraph shall not apply. (B) In offering his opinion under this section the accoun- tant may rely on the correctness of any actuarial matter certified to by an enrolled actuary, if he so states his reliance. (4) (D) In making a certification under this section the enrolled actuary may rely on the correctness of any accounting matter under subsection (b) of this section as to which any qualified public accountant has expressed an opinion, if he so states his reliance. A-3 (b) An annual report under this section shall include a financial statement containing the following information: * * * (2) With respect to an employee pension benefit plan: a statement of assets and liabilities, and a statement of changes in net assets available for plan benefits which shall include details of revenues and expenses and other changes aggregated by general source and application. In the notes to financial statements, disclosures concerning the following items shall be considered by the accountant: a description of the plan including any significant changes in the plan made during the period and the impact of such changes on benefits; the funding policy (including policy with respect to prior service cost), and any changes in such polici.s during the year; a description of any significant changes in plan benefits made during the period; a descrip- tion of material lease commitments, other commitments, and contingent liabilities; a description of agreements and transactions with persons known to be parties in interest; a general description of priorities upon termination of the plan; information concerning whether or not a tax ruling or determination letter has been obtained; and any other matters necessary to fully and fairly present the financial statements of such pension plan. * * * (c) The administrator shall furnish as a part of a report under this section the following information: (1) The number of employees covered by the plan. * * * (5) Such financial and actuarial information including but not limited to the material described in subsections (b) and (d) of this section as the Secretary may find necessary or appropriate. A-4 Actuarial statement (d) With respect to an employec pension benefit plan (other than (A) a profit sharing, savings, or other plan, which is an individual account plan, (B) a plan described in section 1081 (b) of this title, or (C) a plan described both in section 1321(b) of this title and in paragraph (1), (2), (3), (4), (5), (6), or (7) of section 1081 (a) of this title) an annual report under this section for a plan year shall include a complete actuarial statement appli- cable to the plan year which shall include the following: (1) The date of the plan year, and the date of the actuarial valuation applicable to the plan year for which the report is filed. (2) The date and amount of the contribution (or contribu- tions) received by the plan for the plan year for which the report if filed and contributions for prior plan years not previously reported. (3) The following information applicable to the plan year for which the report is filed: the normal costs, the accrued liabilities, an identification of benefits not included in the calculation; a statement of the other facts and actuarial assumptions and methods used to determine costs, and a justification for any change in actuarial assumptions or cost methods; and the minimum contribution required under section 1082 of this title. (4) The number of participants and beneficiaries, both retired and nonretired, covered by the plan. (5) The current value of the assets accumulated in the plan, and the present value of the assets of the plan used by the actuary in any computation of the amount of contribu- tions to the plan required under section 1082 of this title and a statement explaining the basis of such valuation of present value of assets. SET EL) Pee er 0 2 ee ee er EP pete 0 ee er eT OT OT PLES ee : OS OE . 266. Ere) are a ee A-5 (6) The present value of all of the plan’s liabilities for nonforfeitable pension benefits allocated by the termina- tion priority categories as set forth in section 1344 of this title, and the actuarial assumptions used in these computa- tions. The Secretary shall establish regulations defining (for purposes of this section) “termination priority cate- gories” and acceptable methods, including approximate methods, for allocating the plan’s liabilities to such termi- nation priority categories. (7) A certification of the contribution necessary to reduce the accumulated funding deficiency to zero. (8) A statement by the enrolled actuary— (A) that to the best of his knowledge the report is complete and accurate, and (B) the requirements of section 1082(c) (3) of this title (relating to reasonable actuarial assumptions and methods) have been complied with. (9) A copy of the opinion required by subsection (a) (4) of this section. (10) Such other information regarding the plan as the Secretary may by regulation require. (11) Such other information as may be necessary to fully and fairly disclose the actuarial position of the plan. Such actuary shall make an actuarial valuation of the plan for every third plan year, unless he determines that a more frequent valuation is necessary to support his opinion under subsection (a)(4) of this section. § 1024. Filing and furnishing of information (a)(1) The administrator of any employee benefit plan subject to this part shall file with the Secretary— , a ad FL EE ST TTT 7 TO OE eee FR we a Eg a ret nabbutrerumn: ETO A-6 (A) the annual report for a plan year within 210 days after the close of such year (or withi. such time as may be required by regulations promulgated by the Secre- tary in order to reduce duplicative filing); * * * (5) If the Secretary rejects filing of a report under para- graph (4) and if a revised filing satisfactory to the Secre- tary is not submitted within 45 days after the Secretary makes his determination under paragraph (4) to reject the filing, and if the Secretary deems it in the best interest of the participants, he may take any one or more of the following actions— (A) retain an independent qualified public accountant (as defined in section 1023(a)(3)(D) of this title) on behalf of the participants to perform an audit, (B) retain an enrolled actuary (as defined in section 1023(a)(4)(C) of this title) on behalf of the plan par- ticipants, to prepare an actuarial statement, (C) bring a civil action for such legal or equitable relief as may be appropriate to enforce the provisions o7 this part, or (D) take any other action authorized by this subchapter The administrator shall permit such accountant or actuary to inspect whatever books and records of the plan are necessary for such audit. The plan shall be liable to the Secretary for the expenses for such audit or report, and the Secretary may bring an action against the plan in any court of competent jurisdiction to recover such expenses. § 1030. Alternative methods of compliance (a) The Secretary on his own motion or after having received the petition of an administrator may prescribe an alternative A-7 method for satisfying any requirement of this part with respect to any pension plan, or class of pension plans, subject to such requirement if he determines— (1) that the use of such alternative method is consistent with the purposes of this subchapter and that it provides adequate disclosure to the participants and beneficiaries in the plan, and adequate reporting to the Secretary, (2) that the application of such requirement of this part would— (A) increase the costs to the plan, or (B) impose unreasonable administrative burdens with respect to the operation of the plan, having regard to the particular characteristics of the plan or the type of plan involved; and (3) that the application of this part would be adverse to the interests of plan participants in he aggregate. (b) An alternative method may be prescribed under subsection (a) of this section by regulation or otherwise. If an alternative method is prescribed other than by regulation, the Secretary shall provide notice and an opportunity for interested persons to pre- sent their views, and shall publish in the Federal Register the provisions of such alternative method. § 1059. Recordkeeping and reporting requirements (a) (1) Except as provided by paragraph (2) every employer shall, in accordance with regulations prescribed by the Secretary, maintain records with respect to each of his employees sufficient to determine the benefits due or which may become due to such employees. The plan administrator shall make a report, in such manner and at such time as may be provided in regulations prescribed by the Secretary, to each employee who is a participant under the plan and who— 0 er eT BT en ee Ee ee) eee ee ee A-8 (A) requests such report, in such manner and at such time as may be provided in such regulations, (B) terminates his service with the employer, or (C) has a 1-year break in service (as defined in section 1053(b)(3)(A) of this title). The employer shall furnish to the plan administrator the infor- mation necessary for the administrator to make the reports required by the preceding sentence. Not more than one report shall be required under subparagraph (A) in any 12-month period. Not more than one report shall be required under sub- paragraph (C) with respect to consecutive l-year breaks in ser- vice. The report required under this paragraph shall be sufficient to inform the employee of his accrued benefits under the plan and the percentage of such benefits which are nonforfeitable under the plan (2) If more than one employer adopts a plan, each such employer shall, in accordance with regulations prescribed by the Secretary, furnish to the plan administrator the informa- tion necessary for the administrator to maintain the records and make the reports required by paragraph (1). Such administrator shall maintain the records and, to the extent provided under regulations prescribed by the Secretary, make the reports, required by paragraph (1). * * . --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0016%3A03. Public record. Not legal advice.