Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc.

1985-08-28

Headline: Benefit plan trustees may conduct on-site audits of employer payroll and personnel records, including employees the employer says are not participants, allowing plans to verify contributions and prevent unfunded liabilities.

Holding:

Real World Impact:

Allows multiemployer plans to audit employer payroll and personnel records to verify contributions
Makes it easier for plans to detect underreported employees and potential unfunded liabilities
Does not require audits in every case; courts can limit improper audits

Topics: pension plan audits, ERISA and pensions, employer contributions, multiemployer plans

Summary

Background

Two large multiemployer benefit plans that provide pension and health benefits (Central States) sought to audit payroll, tax, and personnel records at 16 trucking companies (Central Transport) to check which employees were actually covered and whether required contributions were paid. Central Transport refused to allow access to records for employees it said were not plan participants. The District Court ordered the audit; the Sixth Circuit reversed, requiring a showing of "reasonable cause" before a plan could access records of disputed employees. The Supreme Court granted review and addressed whether the trustees could carry out the audit.

Reasoning

The Court looked at the signed trust and bargaining agreements, which authorize trustees to demand records and to examine ‘‘pertinent records’’ at an employer’s place of business. The Court explained that federal law governing private benefit plans (ERISA) and traditional trustee duties support trustees’ need to identify participants and collect contributions. The Department of Labor’s guidance and accepted auditing standards further justify reasonable field audits. The Court rejected the view that unions or the Labor Department alone provide an adequate substitute for trustee audits. The Court therefore reversed the appeals court and allowed the trustees to conduct the requested audit, while stressing trustees must act within their fiduciary duties.

Real world impact

Multiemployer plans can use reasonable on-site audits to verify which employees are covered and to detect underreporting that could create unfunded liabilities. Employers that sign trust participation agreements should expect such verification. The decision does not require plans to audit in every case, and courts may limit audits that exceed proper administrative purposes.

Dissents or concurrances

Justice Stevens (joined by the Chief Justice and Justice Rehnquist) agreed that a contract can permit audits but argued the right arises from the contract language, not ERISA itself, and that the contract term "Employee" may be limited to employees actually covered by the plan, narrowing audit scope.