Analysis of the Financial and Operating Practices of Union-Administered Benefit Funds’ Fiscal Year 2020

The purpose of this report is to provide a comparative analysis of the overall financial activities of union-administered benefit funds that received City contributions. Such an analysis is prepared annually based on the independently audited financial reports and other information filed by the funds in accordance with New York City Comptroller’s Directive #12 (Directive #12). This report aggregates the information reported by the funds and compares funds of similar type and size of City contribution in relation to the amounts spent on administration, operating surplus/deficits, benefits provided, and year-end reserves.^[1] In 2020, the City contributed approximately $1.47 billion to 106 union-administered active and retiree welfare and annuity funds.

Summary of Findings

Of the 106 funds, 15 were identified with more than one potential area of concern based on our review. None were identified to be at-risk of financial insolvency. The Comptroller’s office will conduct follow-up meetings with funds identified as having potential risk factors to discuss the identified conditions and consider potential follow-up audits.  The Office of Labor Relations should also review and follow up on the potential financial issues identified in this report. These financial risks fall into four categories:

• Funds operating at a deficit, due to expenses that exceeded revenues, which reduced their available reserves;
• Administrative expenses that exceeded 30% of the average for that category of fund;
• Benefit expenses that were 20% lower than the average for that category of fund; and
• Operating surpluses that resulted in higher-than-average reserves.

In addition to the financial issues identified above, the review also identified the following concerns:

• 18 funds received “qualified” opinions from their independent auditors.[2]
• 51 funds did not submit their Directive #12 reports within the prescribed time frame.
• 57 funds did not use a certified public accountant (CPA) firm listed on the Comptroller’s prequalified list as recommended by Directive #12 to audit their financial statements.
• 1 fund continues to delay benefit eligibility for new members in violation of its agreement with the City of New York.[3]

Recommendations

As a result of our analysis, we make 11 recommendations —  8 to the trustees of individual funds and 3 to the Office of Labor Relations (OLR):

• Trustees of funds with higher-than-average administrative costs as a percentage of total revenue should reduce administrative expenses and determine whether the savings can be redirected to increased benefits for members.
• Trustees of funds with lower-than-average benefit expenses as a percentage of total revenues should determine whether their revenues can support increased benefits for members.
• Trustees of the fund that maintains a low reserve level should take steps to ensure that the fund remains solvent. To accomplish that goal, the fund should seek to reduce administrative expenses. If that is not possible or does not provide sufficient funds to ensure solvency, the trustees should attempt to reduce costs associated with benefits.
• Trustees of the fund that incurred an operating deficit and maintained a low level of reserve should ensure that anticipated benefits and administrative expenses will not exceed projected total revenue.
• Trustees of funds with high reserve levels, particularly those whose funds spend less than average amounts of their revenue on benefits, should consider enhancing their members’ benefits.
• Trustees of funds are required to submit to the Comptroller’s Office an annual report showing the fund’s condition and affairs in accordance with Directive #12, and that submission must be filed within nine months after the close of a fund’s fiscal year-end. Trustees should ensure that these filings are submitted timely in accordance with Directive #12.
• Trustees of funds should consider contracting with CPAs that are listed on the Comptroller’s prequalified
• Trustees of funds that delay members’ eligibility for benefits beyond their first day of employment must revise their fund’s policy to comply with their union’s welfare fund agreement with the City.
• OLR should use the information in this report to ensure that the trustees of the relevant funds correct the conditions cited in qualified opinions received from their independent accountants.
• OLR should consider withholding City contributions from all delinquent funds that failed to submit their Directive #12 reports to the Comptroller’s Office, or fail to otherwise abide by the terms of that Directive and/or their welfare fund agreements with the City.
• OLR should recover from the fund the portion of the City’s contributions that corresponds to the number of employees whose coverage was delayed and the period of such delay, whenever a fund improperly delays the provision of benefits to members after their first day of City employment.

[1] The Comptroller’s Office issued Directive #12 to ensure uniform reporting and auditing requirements for union-administered benefit funds that receive contributions from the City.  The Comptroller’s Directives are used to establish policies governing internal controls, accountability, and financial reporting. The Comptroller is not, however, a regulator with remedial powers charged with enforcing fiduciary obligations under a rubric of laws and regulations akin, for example, to the United States Department of Labor or the New York State Department of Financial Services.

[2] CPAs may render one of the following opinions on a fund’s audited financial statements: Unqualified, Qualified, Adverse, and Disclaimer. Descriptions of each of these types of CPA opinions can be found on page 17.

[3] District Council 9 Painters Industry Welfare Fund delays benefit eligibility for 90 days for new members.