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Published: Winter, 2003; Vol 5, Num 1

 

NJ Funds Merger Saves Money, Improves Service

After its first full year in operation, the New Jersey Building Laborers Statewide Funds cite improved collections, reduced costs and enhanced service as sure evidence that the merger of 53 local health and welfare, annuity and pension funds into a single entity was a wise decision, according to Dave Connolly, the Funds' first General Manager.

In 1999, under the leadership of LIUNA Vice President and Eastern Regional Manager Ray Pocino and Jack Kocsis, head of the Building Contractors Association of New Jersey, the state's local building fund operations were merged. Previously, each was associated with a single laborers' local and was managed jointly by local union and management trustees.

The merger came in the course of a successful, parallel effort to re-organize the state's building laborers' local unions to achieve a common, statewide collective bargaining agreement. Under the old system of local collective bargaining, each local union negotiated its own arrangements with local building contractors. As a result, each local had its own wage and fringe benefit schedule, contribution forms and benefit payment procedures, and even the allocation balance between wages and benefits varied widely from local to local.

"For members," says Pocino, "the system was a nightmare. We're not living in the 30s anymore. These days, members are mobile and work all over the state. That made it difficult for fund administrators to collect fees from participating union contractors outside their area, and it was hard for members to assess and acquire the full extent of their benefit coverage."

Despite its problems, the local system resisted merger. Each local fund had its own set of employees, consultants and trustees-more than 100 trustees around the state-and they were leery of relinquishing their fiduciary responsibilities and prerogatives. "Most of these were dedicated, capable people," says Pocino. "They expressed concern that a statewide fund would be bureaucratic and lose its sensitivity to the needs of members and their families."

"Ray saw all this coming and had been talking quietly about the need to merge the local funds to reduce administrative costs for several years," says Connolly, who worked with Pocino as General Manager of the statewide New Jersey Heavy and Highway Funds before the merger (the Heavy and Highway Funds were not part of the merger). "Then, when he was elected Regional Manager, he had the chance to push it to a beneficial conclusion for the members and their families. In the end, it was communication that swung the vote. Communication, communication and more communication."

It took a vote of the trustees of each of the local funds to effect its merger into the new, statewide operation.

Alternate description

LIUNA General Secretary-Treasurer and LHSFNA Labor Co-Chairman
Armand E. Sabitoni

"Though the decision to merge is never easy," says LIUNA General Secretary Treasurer Armand E. Sabitoni, "it is an option that many smaller funds may want to consider because of the mounting economic and federal regulatory pressures."

By "federal regulatory pressure" Sabitoni refers to HIPAA, the Health Insurance Portability and Accountability Act, passed by Congress in 1996. The law requires every entity providing health insurance to develop the capacity for privacy-protected, electronic data interchange. This imposes heavy administrative burdens and expenses on small funds which may have to purchase software that is compatible with the new, national reporting standards, upgrade hardware, expand administrative staff, train employees and enact new procedures to ensure privacy for participants.

"I'm sure there's going to be more federal regulation down the road," says Connolly, "but we escaped a bullet in this round because we were merging and could take on the problem as a big fund instead of 53 little ones." Small funds in other regions are not so lucky; currently, they must seek HIPAA compliance solutions on their own.

Last month, after issuing the statewide fund's first annuity statement of the merged operation, Connolly reflected on its "historic" accomplishments. "It was a great first year. No glitches, no complaints, smooth as silk …the members have definitely benefited from this!

"Economies of scale," he says, "are already in evidence. I go to an investment house now with $530 million in total assets. Of course, I get better service and lower commissions than I would with a small fund. We also are in a better position to negotiate with insurance carriers.

"As expected, we are more efficient, too," he continues. "Our average cost for operating the three funds-annuity, pension and welfare-ran seven percent in 2001, and that included significant one-time, start-up expenses. Under the old system, administrative expenses typically varied between eight and 15 percent. Also, there's been close to a 50 percent drop in collection costs. Contractors are paying faster, and there's less delinquency. With cuts in administrative expense, we have more benefit dollars to spend for members."

What is the downside? "Our local funds had a strong tradition of personal service," says Pocino. "HIPAA, more than the merger, jeopardizes that because the new privacy regulations limit the kind of information we can make available over the phone and to whom. To compensate, we have to devote more resources to member service and think carefully about how to facilitate active member, family and retiree access to benefit information. This is a top priority. In balance, though, this merger has been a tremendous success, and our members will be the beneficiaries, even as health care costs continue to rise."

[Steve Clrk]