Those Unpaid Benefits IOU Blues

Nearly a year after their long-time property manager died in the summer of 2014, the board in a condominium on the East Side of Manhattan turned to Key Real Estate Associates to take over management of its building. Before long, the new firm came to the board bearing some very bad news.

“They discovered that union benefit payments in excess of $200,000 were owed, and a judgment had been issued,” says Bonnie Reid Berkow, a partner in the firm Wagner Berkow, and the condo’s attorney for the past five years.

The previous (deceased) manager, for reasons that remain a mystery, had failed to make full payments into the union benefit funds, then failed to show up for an arbitration hearing. The State Supreme Court judgment against the condo was for $218,000. By the time Key discovered the problem, the unpaid benefits, interest, and penalties for the building’s six employees had ballooned to $300,000.

Berkow, who, like the board, was blindsided by the news, had an obvious question: “Why was this not known? At the very least there was negligence. Possibly money was being embezzled.”

Part of the problem, Berkow speculates, is that the board had been using the same management company for many years, and it let management handle everything. “I think the accountant may have dropped the ball because he didn’t bring it to the board that there were some outstanding payments,” Berkow says. “They thought it was a simple matter of cash flow.”

And they thought wrong. In most co-op and condo buildings with a unionized staff, the monthly payment of employee benefits – health care, retirement, training, and legal fund costs – is a routine, if complex, matter. In March 2013, more than 5,000 city employers – including co-op and condo boards – began phasing out paper billing and began tracking and paying these monthly benefits electronically through the website of the Service Employees International Union’s Local 32BJ, the union that represents more than 30,000 doormen, supers, porters, and handymen in New York City. By the end of 2015, all buildings had shifted to electronic payments. Since the switch to digital, the union has become more aggressive about hitting delinquent buildings with 6 percent annual interest and 24 percent annual penalties, known as “liquidated damages.”

When Berkow contacted 32BJ to try to negotiate the $300,000 debt, she was told that under the Employee Retirement and Income Security Act of 1974, the principal and the accrued interest were sacrosanct and could not be negotiated, but the liquidated damages were in play. She and the union hammered out a debt of $230,000, which called for a $75,000 upfront payment, with the balance to be paid in monthly installments ending in January 2017. The board levied a $200,000 assessment to pay for it.

The board wasn’t happy, but it had learned a valuable lesson: boards should always be able to review union bills, correspondence, and notices of nonpayment and arbitration. In the contract the condo board signed with 32BJ back in 2004, the former property manager was named as the employer and then failed to give the board such access. That changed when Key added the board to its log-on list for the 32BJ website.

“Now,” says Berkow, “board members can see what’s being billed and what’s being paid every month. A board relies on [its professionals]. Nonethelesss the board should review the financial information and make sure the professionals are doing their jobs. Everybody needs to take a certain amount of responsibility for their own financial welfare.”