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United States Government Accountability Office: 
GAO: 

Report to the Chairman, Committee on Education and the Workforce, 
House of Representatives: 

March 2013: 

Private Pensions: 

Timely Action Needed to Address Impending Multiemployer Plan 
Insolvencies: 

GAO-13-240: 

GAO Highlights: 

Highlights of GAO-13-240, a report to Chairman, Committee on Education 
and the Workforce, U.S. House of Representatives. 

Why GAO Did This Study: 

Multiemployer pension plans-—created by collective bargaining 
agreements including more than one employer-—cover more than 10 
million workers and retirees, and are insured by the PBGC. In recent 
years, as a result of investment market declines, employers 
withdrawing from plans, and demographic challenges, many multiemployer 
plans have had large funding shortfalls and face an uncertain future. 

GAO examined (1) actions that multiemployer plans in the weakest 
financial condition have taken to improve their funding levels; (2) 
the extent to which plans have relied on PBGC assistance since 2009, 
and the financial condition of PBGC’s multiemployer plan insurance 
program; and (3) options available to address PBGC’s impending funding 
crisis and enhance the multiemployer insurance program’s future 
financial stability. 

GAO analyzed government and industry data and interviewed government 
officials, pension experts-—including academics, actuaries, and 
attorneys, multiemployer plans’ trustees and administrators, employers 
and trade associations, unions, advocacy organizations, and other 
relevant stakeholders. 

What GAO Found: 

The most severely distressed multiemployer plans have taken 
significant steps to address their funding problems and, while most 
plans expected improved financial health, some did not. A survey 
conducted by a large actuarial and consulting firm serving 
multiemployer plans suggests that the large majority of the most 
severely underfunded plans—-those designated as being in critical 
status—-either have increased or will increase employer contributions 
or reduce participant benefits. In some cases, these measures will 
have significant effects on employers and participants. For example, 
several plan representatives stated that contribution increases had 
damaged some firms’ competitive position in the industry, and, in some 
cases, threatened the viability of such firms. Similarly, reductions 
in certain benefits-—such as early retirement subsidies-—may create 
hardships for some older workers, such as those with physically 
demanding jobs. Most of the 107 surveyed plans expected to emerge from 
critical status, but about 25 percent did not and instead seek to 
delay eventual insolvency. 

The Pension Benefit Guaranty Corporation’s (PBGC) financial assistance 
to multiemployer plans continues to increase, and plan insolvencies 
threaten PBGC’s multiemployer insurance fund’s ability to pay pension 
guarantees for retirees. Since 2009, PBGC’s financial assistance to 
multiemployer plans has increased significantly, primarily due to a 
growing number of plan insolvencies. PBGC estimated that the insurance 
fund would be exhausted in about 2 to 3 years if projected 
insolvencies of either of two large plans occur in the next 10 to 20 
years. More broadly, by 2017, PBGC expects the number of insolvencies 
to more than double, further stressing the insurance fund. PBGC 
officials said that financial assistance to plans that are insolvent 
or are likely to become insolvent in the next 10 years would likely 
exhaust the insurance fund within the next 10 to 15 years. If the 
insurance fund is exhausted, many retirees will see their benefits 
reduced to an extremely small fraction of their original value because 
only a reduced stream of insurance premium payments will be available 
to pay benefits. 

Experts and stakeholders cited two policy options to avoid the 
insolvencies of severely underfunded plans and the PBGC multiemployer 
insurance fund, as well as other options for longer term reform. 
Experts and stakeholders said that, in limited circumstances, trustees 
should be allowed to reduce accrued benefits for plans headed toward 
insolvency. Also, some experts noted that, in their view, the large 
size of these reductions for some severely underfunded plans may 
warrant federal financial assistance to mitigate the impact on 
participants. Experts and stakeholders also noted tradeoffs, however. 
For example, reducing accrued benefits could impose significant 
hardships on some retirees, and any possible financial assistance must 
be considered in light of the existing federal debt. Options to 
improve long term financial stability include changes to withdrawal 
liability—payments assessed to an employer upon leaving the plan based 
on their share of unfunded vested benefits—to increase the amount of 
assets plans can recover or to encourage employers to remain in or 
join the plan. In addition, experts and stakeholders said an 
alternative plan design that permits adjustments in benefits tied to 
key factors, such as the funded status of the plan, would provide 
financial stability and lessen the risk to employers. These and other 
options also have important tradeoffs, however. 

What GAO Recommends: 

Congress should consider comprehensive and balanced structural reforms 
to reinforce and stabilize the multiemployer system. PBGC generally 
agreed with our findings and analysis. 

View [hyperlink, http://www.gao.gov/products/GAO-13-240]. For more 
information, contact Charles Jeszeck at (202) 512-7215 or 
jeszeckc@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Severely Underfunded Plans Have Cut Benefits to Current Employees and 
Increased Employer Contributions, but Financial Outlook for Some Plans 
Remains Bleak: 

PBGC Provides Financial Assistance to a Greater Number of Plans Each 
Year, Endangering the Multiemployer Program and Guaranteed Retiree 
Benefits: 

Key Options to Reduce Liabilities and Change Plan Designs Could Help 
Improve Financial Stability, but Pose Trade-offs: 

Conclusions: 

Matters for Congressional Consideration: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Pension Benefit Guaranty Corporation: 

Appendix III: GAO Contacts and Acknowledgments: 

Tables: 

Table 1: Selected Differences between Single-employer and 
Multiemployer Defined Benefit Pension Plans: 

Table 2: PPA Provisions Related to Endangered and Critical Status 
Plans: 

Table 3: Selected Examples and Impact of Adjustable Benefits 
Reductions: 

Table 4: Examples of Benefit Cuts to Be Applied to Employees of 
Withdrawing Employers but Not to Those of Employers Remaining in the 
Plan: 

Table 5: Classifications of Plans on PBGC's Contingency List: 

Table 6: Key Features of Proposals to Allow Severely Underfunded Plans 
to Reduce Accrued Benefits: 

Table 7: Options to Address Challenges Associated with Withdrawal 
Liability: 

Table 8: Options for a Flexible DB Plan to Address Risks Facing 
Multiemployer Plans: 

Figures: 

Figure 1: Number of Multiemployer Plans in Each Funding Zone Status, 
as Certified with IRS, 2008 through 2011: 

Figure 2: Number of Plans Proposing Actions in Rehabilitation Plans: 

Figure 3: Percentage Contribution Increases in Rehabilitation Plans in 
First Year: 

Figure 4: Percentage Accrual Rate Reductions in Rehabilitation Plans: 

Figure 5: Plans' Expectations about Emergence from Critical Status: 

Figure 6: Illustration of the Manner by Which Financial Distress in 
Multiemployer Plans May Spread to Other Employers and Plans: 

Figure 7: Multiemployer Plans Receiving PBGC Financial Assistance and 
Amounts Received, Fiscal Years 2001 through 2012: 

Figure 8: PBGC's Financial Assistance to Multiemployer Plans, by Type 
and Amount, Fiscal Year 2011 (dollars in millions): 

Figure 9: Liability from Probable Multiemployer Plan Insolvencies on 
PBGC's Contingency List, Fiscal Years 2000 through 2012: 

Figure 10: Hypothetical Illustration of Guaranteed Benefit Levels 
under PBGC's Multiemployer Insurance Program: 

Figure 11: Hypothetical Illustration of the Effects of Guaranteed 
Monthly Pension Benefit Levels under PBGC's Multiemployer Insurance 
Program: 

Figure 12: Key Federal Policy Options and Possible Effects on Key 
Stakeholders: 

Figure 13: Comparison of the Segal Client Base and Multiemployer 
Universe, by Major Industry: 

Abbreviations: 

DB: defined benefit: 

ERISA: Employee Retirement Income Security Act of 1974: 

FY: fiscal year: 

GAO: U.S. Government Accountability Office: 

IRS: Internal Revenue Service: 

MPPAA: Multiemployer Pension Plan Amendments Act of 1980: 

NCCMP: National Coordinating Committee for Multiemployer Plans: 

PBGC: Pension Benefit Guaranty Corporation: 

ME-PIMS: Multiemployer Pension Insurance Modeling System: 

PPA: Pension Protection Act of 2006: 

PRA: Preservation of Access to Care for Medicare Beneficiaries and 
Pension Relief Act of 2010: 

UFCW: United Food and Commercial Workers: 

WRERA: Worker, Retiree, and Employer Recovery Act of 2008: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 28, 2013: 

The Honorable John Kline: 
Chairman: 
Committee on Education and the Workforce: 
House of Representatives: 

Dear Mr. Chairman: 

Multiemployer plans--defined benefit plans established through 
collectively bargained pension agreements between labor unions and two 
or more employers--are a vital source of retirement income for 
millions of Americans. Multiemployer plans cover unionized workers in 
many industries, such as trucking, retail food, construction, mining, 
and garment making. There are about 1,500 multiemployer plans covering 
more than 10 million workers and retirees. The structure of 
multiemployer plans has some advantages compared to single-employer 
plans. For example, workers in multiemployer plans can continue to 
accrue pension benefits when they change employers if their new 
employer is a contributing employer in the same plan. Thus, these 
plans provide some portability of benefits and can be particularly 
beneficial to workers who change employers as long as their new 
employer participates on the same plan. However, the structure of 
multiemployer plans can also pose challenges in some cases. Unlike 
plans sponsored by a single-employer in which plans do not share risk 
with other employers, a multiemployer plan continues to operate if an 
individual employer leaves or goes out of business, leaving the 
remaining employers to cover any unfunded benefits of the vested 
workers of the departed employers. Many plans are in declining 
industries that have witnessed numerous bankruptcies, leaving a 
considerable share of participants with no contributing employer. This 
effect, combined with an aging workforce and declining unionization, 
leaves many plans facing demographic challenges that threaten their 
long-term financial outlook. 

In 2010, we reported that due to investment market declines and 
demographic challenges, most multiemployer plans had large funding 
shortfalls and faced an uncertain future.[Footnote 1] We noted that 
some plans would likely be able to improve their funded status with 
improvements to the economy, but plans in the worst condition may have 
been unable to fully address these challenges through increasing 
employer contributions or reducing certain benefits. We found that 
without additional options to address plan underfunding or to attract 
new contributing employers, plans may be more likely to require 
financial assistance from the Pension Benefit Guaranty Corporation 
(PBGC). This would, in turn, further strain the multiemployer pension 
insurance program that PBGC operates.[Footnote 2] More recently, a 
January 2013 report published by three federal agencies noted the 
grave condition of some multiemployer plans and PBGC's multiemployer 
insurance program.[Footnote 3] This tri-agency report further noted 
that unless timely action is taken to provide additional tools for the 
multiemployer plan trustees to stabilize the financial conditions of 
their plans, more costly and intrusive intervention may ultimately be 
necessary. 

Given the financial challenges that multiemployer plans continue to 
face, we sought to answer the following questions: 

1) What actions have multiemployer plans in the weakest financial 
condition taken in recent years to improve their long-term financial 
position? 

2) To what extent have plans relied on PBGC assistance since 2009, and 
what is known about the prospective financial condition of the 
multiemployer plan insurance program? 

3) What options are available to address PBGC's impending funding 
crisis and enhance the program's future financial stability? 

To answer these questions, we analyzed government and industry data; 
reviewed relevant federal laws, regulations, and documentation from 
plans; and interviewed a wide range of industry experts and 
stakeholders. In particular, to identify actions that multiemployer 
plans in the weakest financial condition have taken to improve their 
long-term financial position, we reviewed the survey methodology and 
analyzed multiemployer plan survey data from the Segal Company, a 
large actuarial firm with a client base representing about 25 percent 
of multiemployer plans. To supplement the survey data, we conducted 
structured interviews with 13 multiemployer plans across the country. 
We selected these plans in order to obtain a range of key 
characteristics, including industry, region, funded status, and number 
of participants. Among the 13 plans included in our review, 8 plans 
were in critical status, 2 plans were in endangered or seriously 
endangered status, and 3 plans were in neither critical nor endangered 
status.[Footnote 4] To determine the extent to which plans have taken 
advantage of PBGC financial assistance and to assess the financial 
condition of PBGC's insurance program, we obtained PBGC data on 
various types of assistance to plans and data regarding plans that are 
insolvent or expected to become so in the next 20 years. To identify 
options available to address PBGC's impending funding crisis and 
enhance its future financial stability, we distinguished between 
options that would address the more immediate funding crisis facing 
plans headed toward insolvency and options that may enhance the long-
term stability of the multiemployer system for plans that may not be 
headed for insolvency, but, nevertheless, face financial challenges. 
In addition, we assessed the tradeoffs of various options for current 
workers, retirees, and employers, as well as the federal government. 
To identify and assess available options, we interviewed government 
officials, pension experts--including academics, actuaries, attorneys, 
multiemployer plans' trustees and administrators, employers and trade 
associations, unions, advocacy organizations, and other relevant 
stakeholders. We also reviewed relevant research and documentation, 
including proposals by the National Coordinating Committee on 
Multiemployer Plans (NCCMP) and a consortium of employer 
representatives from the construction industry.[Footnote 5] 

We conducted this performance audit from March 2012 through March 2013 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

Multiemployer defined benefit (DB) pension plans are created by 
collective bargaining agreements between labor unions and two or more 
employers, and generally operate under the joint trusteeship of unions 
and employers. Such plans typically exist in industries with many 
small employers who may be unable to support an individual DB plan, or 
where seasonal or irregular employment results in high labor mobility 
between employers. Industries where multiemployer plans are prevalent 
include trucking, construction, retail, and mining and manufacturing. 
Like single-employer DB plans, multiemployer DB plans pay retirees a 
defined benefit after retirement.[Footnote 6] 

Under the Employee Retirement Income Security Act of 1974 (ERISA), as 
amended,[Footnote 7] the benefits of multiemployer plans are insured 
by PBGC.[Footnote 8] As shown in table 1, PBGC's multiemployer fund is 
financed by insurance premiums paid by plans, with each multiemployer 
plan paying an annual premium of $12 per participant to PBGC as of 
2013.[Footnote 9] In return, PBGC provides financial assistance in the 
form of loans to plans that become insolvent, that is, plans that do 
not have sufficient assets to pay pension benefits at the PBGC 
guaranteed level for a full plan year. Although such financial 
assistance is referred to as a "loan," and is by law required to be 
repaid, in practice such loans have almost never been repaid, as plans 
generally do not emerge from insolvency. Before PBGC will provide the 
loans, participants' retirement benefits must be reduced to a level 
specified in law.[Footnote 10] Even after insolvency, the plan remains 
an independent entity managed by its board of trustees. This contrasts 
with the agency's single-employer program under which PBGC does not 
provide assistance to ongoing plans, but instead takes over terminated 
underfunded plans as a trustee, and pays benefits directly to 
participants. 

Table 1: Selected Differences between Single-employer and 
Multiemployer Defined Benefit Pension Plans: 

Plan characteristic: PBGC benefit guarantee levels; 
Single-employer plans: PBGC guarantees benefits up to $57,477.24 per 
year for a retiree at age 65 in plans that terminate in 2013. 
Guarantee levels are indexed for inflation; 
Multiemployer plans: PBGC guarantees benefits up to $12,870 per year, 
based on 30 years of employment. Guarantee levels are not indexed for 
inflation. 

Plan characteristic: PBGC premium structure; 
Single-employer plans: In 2013, plans pay PBGC a flat rate of $42 per 
participant that is indexed for inflation. Plans are also subject to a 
variable rate premium based on underfunding. Terminating plans are 
also subject to a termination premium; 
Multiemployer plans: In 2013, plans pay PBGC an annual flat rate 
premium of $12 per participant. The premium is indexed for inflation. 

Plan characteristic: Insurable events; 
Single-employer plans: The insurable event is plan termination, often 
due to the bankruptcy of a plan sponsor with an underfunded plan, 
after which PBGC assumes responsibility and pays benefits directly to 
participants; 
Multiemployer plans: The insurable event is plan insolvency. 

Plan characteristic: Provision of financial assistance; 
Single-employer plans: PBGC provides no financial assistance to plans 
but instead takes over terminated underfunded plans as trustee; 
Multiemployer plans: PBGC provides loans to plans when they become 
insolvent, and a plan need not be terminated to qualify for financial 
assistance. Insolvent plans also are required to reduce or suspend 
payment of any portion of benefits to beneficiaries that exceeds 
PBGC's guarantee level. If a plan recovers from insolvency, it must 
begin repaying the PBGC loan. 

Plan characteristic: Fiduciary and settlor function[A]; 
Single-employer plans: Sponsor generally assumes fiduciary role in 
addition to its settlor role; 
Multiemployer plans: Individual employers do not assume a fiduciary 
role in plan management, which is instead handled by a board of 
trustees. 

Plan characteristic: Risk distribution; 
Single-employer plans: Plans generally do not share the risk with 
other employers; 
Multiemployer plans: Plans typically continue to operate after an 
individual employer goes out of business because the plan's remaining 
employers are collectively liable for funding benefits for all vested 
participants. 

Plan characteristic: Portability of benefits[B]; 
Single-employer plans: Plans are generally maintained by only one 
employer and their benefits are not normally portable; 
Multiemployer plans: Plans provide participants some benefit 
portability because they allow workers to continue to accrue pension 
benefits when they change jobs as long as their new employer also 
participates in the same plan. Many plans provide reciprocity, 
allowing portability among plans. 

Plan characteristic: Ability to adjust contribution and benefit levels; 
Single-employer plans: Employers, depending on their employees' 
bargaining rights, may make adjustments to future contributions and 
benefits according to the company's fiscal condition provided that 
minimum funding requirements are met; 
Multiemployer plans: Typically, the collective bargaining parties set 
the contribution rates for the duration of the collective bargaining 
agreements and plans may have to wait 2 or 3 years before all 
agreements are renegotiated to increase contribution rates. 

Plan characteristic: Plan terminations; 
Single-employer plans: PBGC assumes trusteeship and administers 
payment of participant benefits when an underfunded plan terminates 
with a bankrupt sponsor; 
Multiemployer plans: If an employer withdraws from a plan, the accrued 
benefits for its workers stay in and are administered by the plan. The 
plan terminates by mass withdrawal of all contributing employers. When 
a plan becomes insolvent, PBGC does not take over trusteeship but 
instead provides financial assistance to its trustees, who continue to 
administer the plan until all benefits are paid out. 

Plan characteristic: Employer withdrawal; 
Single-employer plans: Withdrawal liability does not apply to single-
employer plans sponsors. However, employers are liable for benefits 
earned by their employees and to PBGC for any underfunding; 
Multiemployer plans: An employer seeking to withdraw from a plan is 
liable for its allocable share of the plan's unfunded vested benefits 
for all employees covered by the plan. In cases of bankruptcy, the 
remaining employers in the plan assume responsibility for funding 
benefits to the bankrupt employer's participants. 

Source: GAO analysis of ERISA, PBGC documents, and prior GAO reports. 

[A] A settlor or settlor function, typically of a plan sponsor or 
employer, includes functions such as establishing a plan and choosing 
its design and features. A settlor or settlor function typically does 
not include any fiduciary responsibility and therefore can include 
consideration of a company's business interests. 

[B] Multiemployer plans provide portability in that they enable 
participants to change employers under the plan without interrupting 
their benefit coverage. 

[End of table] 

Congress included provisions directed at imposing greater financial 
discipline on multiemployer plans in the Pension Protection Act of 
2006 (PPA).[Footnote 11] Specifically, as outlined in table 2, this 
law includes new provisions designed to compel multiemployer plans in 
poor financial shape to take action to improve their financial 
condition over the long term. The law established two categories of 
troubled plans--endangered status (commonly referred to as "yellow 
zone," and which includes an additional subcategory of "seriously 
endangered") and a more seriously troubled critical status (commonly 
referred to as "red zone"). PPA further requires plans in these 
categories to develop strategies that include contribution increases, 
benefit reductions, or both, designed to improve their financial 
condition in coming years. Multiemployer plans in endangered status 
are to document these strategies in a funding improvement plan, and 
multiemployer plans in critical status plans are to do so in a 
rehabilitation plan. The plan trustees can offer the bargaining 
parties multiple schedules from which to choose, but one of these must 
be designated as the "default schedule," which is to be imposed if the 
bargaining parties do not select one of the schedules within a 
specified timeframe. Once plan trustees have adopted a funding 
improvement or rehabilitation plan, bargaining parties are to select 
one of the available benefit and/or contribution schedules through the 
collective bargaining process. The multiemployer plan is then required 
to report on progress made in implementing its funding improvement or 
rehabilitation plan.[Footnote 12] 

Table 2: PPA Provisions Related to Endangered and Critical Status 
Plans: 

Zone Status: Endangered; 
Criteria[A]: 
* Plan is less than 80 percent funded or is projected to have a 
funding deficiency within 7 years; 
Required plans and objectives[B]: Funding Improvement Plan; Designed 
to close the funding gap by one-third over 10 years; 
Additional flexibilities: None. 

Zone Status: Seriously Endangered; 
Criteria[A]: 
* Plan is both less than 80 percent funded and is projected to have a 
funding deficiency within 7 years; 
Required plans and objectives[B]: Funding Improvement Plan; Designed 
to close funding gap by one-fifth over 15 years; 
Additional flexibilities: None. 

Zone Status: Critical; 
Criteria[A]: 
* Plan is less than 65 percent funded and projects a funding 
deficiency within 4 years or projects insolvency within 6 years; or; 
* the plan projects a funding deficiency within 3 years; or; 
* liabilities for inactive participants are greater than for active 
participants, contributions are less than normal cost--defined as the 
annual growth in pension liabilities resulting from an additional year 
of service by plan participants--and interest on unfunded liabilities, 
and a funding deficiency is expected within 4 years; or; 
* the plan projects insolvency within 4 years; 
Required plans and objectives[B]: Rehabilitation Plan; Designed to get 
the fund out of critical status within 10 years; 
Additional flexibilities: Plan can also reduce "adjustable benefits"--
that is, certain optional benefit payments such as early retirement 
and disability benefits for participants who have not yet retired; 
reductions in the level of accrued benefits payable at normal 
retirement remains generally prohibited.[C] 

Source: GAO analysis of PPA requirements. 

[A] A plan's "percent funded" or funded percentage is defined as the 
percentage of plan assets to the plan's actuarial accrued liability. 
For this purpose, plan assets are allowed to be measured using a 
"smoothed" value that delays recognition of market fluctuations. A 
plan has an accumulated funding deficiency if, according to 
calculations specified by ERISA, required minimum contributions have 
not been made to the plan. 

[B] As described below, Congress subsequently allowed eligible plans 
to opt for a 3 year extension, so that endangered and critical status 
plans would have 13 rather than 10 years (and seriously endangered 
plans would have 18 rather than 15 years) to close the funding gap. 

[C] Under 29 U.S.C. § 1085(e)(8)(A)(iv)(III), benefit increases that 
are not eligible for a PBGC guarantee under 29 U.S.C. § 1322a (i.e., 
benefit increases adopted or first effective less than 60 months 
before the first day of the first critical status year) may be reduced 
even if the participant has started receiving his or her benefit. 

[End of table] 

Because of the greater severity of critical status plans' funding 
condition, such plans have an important exception to ERISA's anti-
cutback rule[Footnote 13] in that they may reduce or eliminate certain 
so-called "adjustable benefits" such as early retirement benefits or 
subsidies, certain post-retirement death benefits, and disability 
benefits for plan participants who have not yet retired. For example, 
if a critical status plan were to adopt a rehabilitation plan that 
proposed to eliminate an early retirement benefit, appropriate notice 
was provided, and the reduction agreed to in collective bargaining, 
then participants not yet retired would no longer be able to receive 
that early retirement benefit.[Footnote 14] 

PPA funding requirements took effect in 2008 just as the nation was 
entering a severe economic crisis. The dramatic decline in the value 
of stocks and other financial assets in 2008 and the accompanying 
recession broadly weakened multiemployer plans' financial health. 
[Footnote 15] In response, Congress enacted the Worker, Retiree, and 
Employer Recovery Act of 2008 (WRERA) which contained provisions 
designed to help pension plans and participants by providing funding 
relief to help them navigate the difficult economic environment. 
[Footnote 16] For example, WRERA relief measures allowed multiemployer 
plans to temporarily freeze their funding status at the prior year's 
level, and extend the timeframe for plans' funding improvement or 
rehabilitation plans from 10 to 13 years.[Footnote 17] In addition, 
Congress enacted the Preservation of Access to Care for Medicare 
Beneficiaries and Pension Relief Act of 2010 (PRA), which provides 
additional funding relief measures for multiemployer plans as long as 
a plan meets certain solvency requirements.[Footnote 18] Generally, 
PRA allows a plan to amortize the investment losses from the 2008 
market collapse over 29 years rather than 15 years, and to recognize 
such losses in the actuarial value of assets over 10 years instead of 
5 years, so that the negative effects of the market decline on asset 
values are spread out over a longer period.[Footnote 19] 

Overall, since 2009, multiemployer plans have experienced improvements 
in funding status, but a sizable portion of plans are still critical 
or endangered. According to plan-reported data--current through 2011--
from the IRS (see figure 1), while the funding status of plans has not 
returned to 2008 levels, the percentage of plans in critical status 
declined from 34 percent in 2009 to 24 percent in 2011.[Footnote 20] 
Similarly, the percentage of plans in endangered status also declined, 
and to a greater extent, from 34 percent in 2009 to 16 percent in 
2011. However, based on the 2011 data from the IRS, despite these 
improvements, 40 percent of plans still have not emerged from critical 
or endangered status. 

Figure 1: Number of Multiemployer Plans in Each Funding Zone Status, 
as Certified with IRS, 2008 through 2011: 

[Refer to PDF for image: horizontal bar graph] 

Number of plans: 

2008: 
Critical or Endangered: 321; 
Critical: 139; 
Endangered: 182; 
Safe: 1,047. 

2009: 
Critical or Endangered: 934; 
Critical: 471; 
Endangered: 463; 
Safe: 434. 

2010: 
Critical or Endangered: 657; 
Critical: 385; 
Endangered: 272; 
Safe: 682. 

2011: 
Critical or Endangered: 531; 
Critical: 319; 
Endangered: 212; 
Safe: 774. 

Source: GAO analysis of Internal Revenue Service annual certification 
data. 

Note: The total number of plans filing a zone-status certification 
declined from 2008 to 2011. According to IRS, the decline may be 
attributable to plan mergers or terminations and plans' failure to 
file a certification. 

[End of figure] 

Severely Underfunded Plans Have Cut Benefits to Current Employees and 
Increased Employer Contributions, but Financial Outlook for Some Plans 
Remains Bleak: 

The large majority of the most severely underfunded multiemployer 
plans--those in critical status--have, according to a 2011 survey, 
both increased required employer contributions and reduced participant 
benefits in an effort to improve plans' financial positions. Plan 
officials explained that these changes have had or are expected to 
have a range of effects, and in some cases may severely affect 
employers and participants. While most critical status plans expect to 
recover from their current funding difficulties, about 25 percent do 
not and instead seek to delay eventual insolvency. 

Critical Status Plans Have Established a Range of Contribution 
Increases and Benefit Cuts: 

A 2011 survey of 107 critical status multiemployer plans conducted by 
the Segal Company shows that the large majority developed 
rehabilitation plans that included a combination of both contribution 
increases and benefit reductions to be implemented in the coming 
years.[Footnote 21] Further, plans proposed to take these measures 
regardless of whether the bargaining parties adopt the preferred 
schedule or the default schedule.[Footnote 22] As figure 2 
illustrates, of the preferred schedules of 107 critical plans 
surveyed, 81 included both contribution increases and benefits cuts, 
while 14 proposed contribution increases only, and 7 included benefit 
reductions only. Most default schedules also include both increased 
contributions and reduced benefits, but compared to the preferred 
schedules, a much larger percentage chose to reduce benefits only. The 
reason for this difference is not clear, but Segal Company officials 
noted that because prompt adoption of an acceptable schedule is 
desirable, some plans may take special steps to make the default plan 
especially unappealing.[Footnote 23] 

Figure 2: Number of Plans Proposing Actions in Rehabilitation Plans: 

[Refer to PDF for image: stacked horizontal bar graph] 

Number of plans: 

Preferred schedules: 
Contribution increases only: 14; 
Benefit reductions only: 7; 
Both contribution increases and benefit reductions: 81. 

Default schedules: 
Contribution increases only: 3; 
Benefit reductions only: 23; 
Both contribution increases and benefit reductions: 77. 

Source: GAO representation of data compiled by Segal Company. 

Note: Of the 107 plans surveyed, this chart does not reflect 4 plans 
that determined they would emerge from critical status with no action. 
Also, the preferred schedule bar excludes one plan that submitted only 
a default schedule. 

[End of figure] 

Most plans--95 out of 107--developed preferred schedules that called 
for contribution increases and, while the range of these increases 
varied widely among plans, some were quite high.[Footnote 24] As 
figure 3 shows, most plans proposed increases of 10 percent or more in 
the first year of the collective bargaining agreement, and a little 
over a quarter of plans proposed increases of 20 percent or more. The 
median first-year contribution increase was 12.5 percent. Overall, the 
range of first-year increases was quite broad however, ranging from 
less than 1 percent to 225 percent. These data tell only a partial 
story, however, because rehabilitation plans may mandate a series of 
contribution increases in subsequent years. Of the eight critical 
status plans we contacted, the rehabilitation plans of seven increased 
contribution rates, and six of these specified a series of 
contribution increases over subsequent years. For example, one plan 
proposed contribution increases of 10 percent compounded annually over 
10 years, so that at the end of this period, a contribution rate of 
$2.00 per hour, for example, would have been increased to $5.25 per 
hour, or by 162 percent.[Footnote 25] 

Figure 3: Percentage Contribution Increases in Rehabilitation Plans in 
First Year: 

[Refer to PDF for image: horizontal bar graph] 

Number of plans: 

No increase: 7; 
Less than 10%: 23; 
10% to less than 20%: 43; 
20% or more: 28. 

Source: GAO representation of data compiled by Segal Company. 

Note: Of the 107 plans surveyed, these figures exclude the four "do 
nothing" plans that proposed neither to increase contributions nor 
reduce benefits, and two other plans for which preferred schedule data 
were not available. The contribution increases reflect those to be 
made in the first year of the subsequent collective bargaining 
agreement. 

[End of figure] 

Thirty-two plans developed rehabilitation plans that reduced the rate 
of future benefit accruals.[Footnote 26] As figure 4 illustrates, 15 
of these plans reduced future benefit accruals by 40 percent or more, 
and another 12 plans reduced future benefit accruals 20-40 percent. 
The median reduction for all 32 plans was 38 percent. As with 
contribution increases, the survey data on reductions to benefit 
accrual rates paint only a partial picture. Reductions in the benefit 
accrual rate are more common among troubled multiemployer plans than 
these data show because such reductions were often made prior to the 
rehabilitation plan. For example, findings from the Segal Company's 
survey show that, of the plans that expected to exit critical status 
within the specified timeframes, about one-third had cut future 
accrual rates before preparation of the rehabilitation plan, either 
directly or by a plan amendment that excluded recent contribution 
increases from the benefit formula. 

Figure 4: Percentage Accrual Rate Reductions in Rehabilitation Plans: 

[Refer to PDF for image: horizontal bar graph] 

Number of plans: 

Less than 10%: 2; 
10% to less than 20%: 3; 
20% to less than 40%: 12; 
40% or more: 15. 

Source: GAO representation of data compiled by Segal Company 

[End of figure] 

Also, a large majority of plans--88 out of 107--reduced one or more 
types of the adjustable benefits as outlined by the PPA.[Footnote 27] 
Typically, these reductions applied to both vested but inactive and 
active participants, but some plans applied them to only one or the 
other.[Footnote 28] 

Plan Officials Indicated That Efforts to Improve Funding Will, in Some 
Cases, Require Significant Sacrifices by Employers and Active 
Participants: 

Impact of Contribution Increases: 

Officials of seven of the eight critical status plans we contacted 
increased contributions rates, and several of these plans indicated 
that contribution increases could be absorbed without undue stress to 
the plan. For example, one plan representing maintenance workers 
proposed to increase the weekly employer contribution rate for each 
worker from $82.75 per employee in 2011 to $130.75 per employee in 
2023, a 58 percent increase over 12 years. While this makes some 
significant demands on employers, they are nonetheless in agreement, 
and the reaction of both employers and participants to the 
rehabilitation plan has been constructive. Similarly, officials of 
another plan covering sheet metal workers said that the annual 
contribution increases ranging from 30 percent in 2009-2010 to 5.8 
percent in 2015-2016 can be absorbed by plan employers without great 
difficulty. 

In contrast, officials of some plans and contributing employers we 
contacted said that contribution increases would have very severe 
negative effects on some employers and possibly the plan itself. For 
example, officials of one plan told us that a proposed series of 
annual increases of 10 percent (compounded) represents a significant 
increase in labor costs. Plan officials said contributing employers 
are competing against firms outside of the plan that do not have 
comparable pension or health insurance costs, and contribution 
increases put them at a competitive disadvantage. Similarly, an 
official of a long-distance trucking firm said that the high 
contribution rates of underfunded multiemployer plans have greatly 
affected this firm's cost structure and damaged its competitive 
position in the industry. In other cases, plans may have been unable 
to increase contributions as much as necessary. For example, our 
review of one plan's rehabilitation plan revealed that the 15 percent 
contribution increase resulted from a difficult balance between, among 
other factors, adequately funding the plan and avoiding excessive 
strain on employers. According to the plan administrator, plan 
trustees determined that many contributing employers were in financial 
distress and that a significant increase in contributions would likely 
lead to business failures or numerous withdrawals. After the 
rehabilitation plan was adopted, five employers withdrew from the plan. 

Contribution increases could have a significant impact on 
participating workers as well as employers because in some cases at 
least a portion of the increases will be funded through reductions in 
pay or other benefits. For example, officials of one large national 
plan with hundreds of contributing employers in a variety of 
industries told us that employers will pass a substantial part of the 
higher contributions to employees in the form of lower wages. They 
noted that workers' wages have been stagnant for 10 years, so the need 
to return to full funding so quickly in accordance with the Pension 
Protection Act of 2006 (PPA) requirements is hurting workers in the 
short term. More broadly, a recent report developed by a construction 
industry consortium notes that higher contributions make less money 
available for wage increases and other benefits. The report further 
notes that in some cases the additional contribution comes directly 
from the existing wage package, so a worker's take home pay may remain 
stagnant or even be reduced.[Footnote 29] In other cases, the 
contribution increases will not have an immediate impact on 
participants' pay, but will affect other portions of their benefit 
package. For example, one plan opted to increase pension contributions 
by diverting 2 percent of employers' contributions from another 
benefit account. An official of another plan explained that the plan 
funded increased pension contributions by, for example, reducing 
contributions to a health benefit plan. Instead of directly reducing 
current wages, these actions will likely lead to higher health care 
costs or reduced benefits for employees. 

Impact of Benefit Reductions: 

Among plans we contacted that had reduced future benefit accruals in 
recent years, the cumulative impact varied. For example, officials of 
one plan covering sheet metal workers explained that since 2003 the 
plan had reduced future benefit accruals by 75 percent per each dollar 
contributed to the plan. Another plan covering mine industry workers 
completely eliminated future benefit accruals for new, inexperienced 
miners hired on or after January 1, 2012, even though a contribution 
of $5.50 per hour of work will be made on their behalf. Another plan 
made no changes to benefit accrual rates but made a series of changes 
to eligibility and thresholds for retirement credits, with the result 
that some employees will have to work longer to accrue the same 
benefit they would have before adoption of the rehabilitation plan. 

The reduction or elimination of adjustable benefits, such as those 
outlined in table 3, were also significant and controversial in some 
cases. Officials of several of the plans that we contacted told us 
that the reduction or elimination of early retirement benefits for 
participants working in physically demanding occupations would be 
particularly difficult for some workers. As one official explained, 
working longer can be a grim scenario for older workers who have a 
hard time bearing the physical demands of labor, such as in a paper 
mill, for example. At the same time, some plans also eliminated or 
imposed limitations on disability retirement, so that, as officials of 
one plan noted, even workers who have developed physical limitations 
will have to either continue to work, or retire on substantially 
reduced benefits.[Footnote 30] Representatives of one plan said that 
there was considerable resistance from workers to the cuts in early 
retirement benefits. The officials explained, however, that these 
benefits had been established in the early 1990s when the plan was 
very well funded and that these promises had to be withdrawn in light 
of the plan's current poor financial picture. 

Table 3: Selected Examples and Impact of Adjustable Benefits 
Reductions: 

Adjustable benefit: Early retirement subsidy; 
Examples of adjustable benefit reductions: Increase in the early 
retirement penalty if a worker retired before age 65; 
Impact on participants: Before rehabilitation plan, a 55-year old 
retiree could have obtained 90 percent of retirement benefit, but only 
about 45 percent thereafter. 

Adjustable benefit: Disability retirement; 
Examples of adjustable benefit reductions: Elimination of disability 
benefit for those not classified as disabled for purposes of the 
Social Security disability program; 
Impact on participants: Worker would have to be totally disabled for 
work in order to receive a retirement benefit instead of disabled for 
current job only, such as physically demanding construction work. 

Adjustable benefit: 60-month and 120-month guarantees; 
Examples of adjustable benefit reductions: Elimination of guaranteed 
payment periods for full pension benefit to a designated beneficiary 
if a participant died within 60 months (5 years) or 120 months (10 
years) after retirement, depending on the applicable plan; 
Impact on participants: Possible substantial reduction in retirement 
benefits to designated beneficiary of retiree. 

Adjustable benefit: Elimination of subsidy for "pop-up" benefit; 
Examples of adjustable benefit reductions: Elimination of subsidy for 
"pop-up" benefit that would increase a participant's benefit that had 
been reduced to pay for surviving spouse protection, if the spouse pre-
deceases the participant; 
Impact on participants: Possible substantial reduction in retirement 
benefits to retirees whose spouses pre-decease them. 

Source: Selected rehabilitation plans and communications with pension 
plan officials. 

[End of table] 

Benefit reductions can affect employers as well as plan participants. 
For example, representatives of one construction industry plan told us 
that the reduced benefits outlined in the rehabilitation plan had 
reduced their ability to recruit and train new apprentices. These 
representatives explained that the prospect of earning only $50 of 
monthly retirement benefit per year of work--which after a 30-year 
career would result in only $1,500 payment per month in retirement--is 
not very appealing to prospective employees. While this does present a 
barrier to recruitment, a plan representative told us it is mitigated 
by an attractive hourly wage of $31.40, and the fact that many of the 
younger workers today are thankful for a paycheck in the current 
economic environment. 

Measures Directed at Withdrawing Employers: 

Some rehabilitation plans also included provisions designed to protect 
the plan from employer withdrawals. For example, as table 4 outlines, 
two of the eight critical status plans we contacted impose much more 
severe benefit reductions on employees of firms that subsequently 
choose to withdraw from the plan. According to one of the 
rehabilitation plans, maintaining the contribution base of the pension 
plan is essential to the success of the rehabilitation plans and hence 
for plan participants and their families. Officials of this pension 
plan said that the pension plan cannot survive if it continues to lose 
contributing employers, and penalizing their employees is one way of 
discouraging withdrawals. 

Table 4: Examples of Benefit Cuts to Be Applied to Employees of 
Withdrawing Employers but Not to Those of Employers Remaining in the 
Plan: 

Benefit cuts: 

Plan A: 
* No eligibility for disability pension or early retirement subsidy; 
* No availability of optional forms of pension, such as 120-month 
guarantee of payments to the beneficiary of a deceased participant; 
* Elimination of pre-retirement death benefit. 

Plan B: All adjustable benefits eliminated, including; 
* Any right to receive a retirement benefit before age 65; 
* All disability benefits for those not yet receiving them; 
* Pre-retirement death benefits, with one exception[A]; 
* Post retirement death benefits that are not part of an annuity. 

Source: Selected rehabilitation plans: 

[A] Elimination of the pre-retirement death benefit excludes the 
required surviving spouse annuity. 

[End of table] 

About 25 Percent of Critical Status Plans Surveyed Face Eventual 
Insolvency: 

The Segal survey of critical status plans indicates that while most 
plans aimed to eventually emerge from critical status, a significant 
number reported that they do not and instead project eventual 
insolvency. As figure 5 illustrates, of the 107 plans surveyed, about 
67 expect to emerge from critical status within the statutory time 
frames of either 10 to 13 years, and 12 others in an extended 
rehabilitation period. However, 28 of the surveyed plans had 
determined, as the authors of the survey noted, that no realistic 
combination of contribution increases and benefit reductions would 
enable them to emerge from critical status, and that their best 
approach is to forestall insolvency for as long as possible. Among 
these plans, the average number of years to expected insolvency was 
12, with some expecting insolvency in less than 5 years and others not 
for more than 30 years. The majority of these plans expected 
insolvency in 15 or fewer years. 

Figure 5: Plans' Expectations about Emergence from Critical Status: 

[Refer to PDF for image: horizontal bar graph] 

Number of plans: 

Within 10 to 13 years: 67; 
14 to 20 years: 7; 
More than 20 years: 5; 
No emergence (Seek to forestall insolvency): 28. 

Source: GAO representation of data compiled by Segal Company 

[End of figure] 

Among the plans we contacted, four expected to eventually become 
insolvent. In general, officials of these plans told us that a 
combination of massive investment losses and deterioration in 
contribution bases were primary causes of their financial 
difficulties. For example, officials of one plan cited the closure of 
paper mills from which the plan previously derived a substantial share 
of contributions as a cause of the plan's financial distress. 
Officials of these plans explained that their analyses concluded that 
no feasible combination of contribution increases or benefit 
reductions could lead them back to a healthy level of funding. Several 
officials indicated that an effort to do so would likely accelerate 
the demise of the plan. For example, our review of plan documents 
revealed that the actuary of one fund determined that mathematically 
the fund would be able to emerge from critical status if contribution 
rates were increased by 24 percent annually for each of the next 10 
years, ultimately increasing to a rate that would be about 859 percent 
of the then-current contribution rate. The trustees of this plan 
determined that such a proposal would be rejected by representatives 
of employers and workers, and would likely lead to negotiated 
withdrawals by plan employers. This, in turn, could result in 
insolvency of the plan, possibly as early as 2019. Instead, this plan 
opted for measures that officials believed are most likely to result 
in continued participation in the fund, yet which nonetheless are 
projected to forestall insolvency until about 2029. Similarly, 
according to officials of another plan, plan trustees concluded that 
the significant contribution increases necessary to avoid insolvency 
were more than employers in that geographic area could bear. In 
addition, the plan considered the impact of funding the necessary 
contribution increases through reductions to base pay. The plan 
determined that this also would not be feasible because of the rising 
cost of living facing these employees and their families. 
Consequently, the plan trustees adopted a rehabilitation plan that 
forestalls insolvency until about 2025. 

Plans' Concerns for the Future: 

Officials of plans that we contacted expressed a number of concerns 
about the future, including concerns about financial market returns, 
the overall economy, and the stability of contributing employers. For 
example, officials of one plan that expected to emerge from critical 
status within the next 10 years said that this could be impeded if 
investment returns were below expectations, and especially if another 
collapse in the financial markets occurs. Officials of the seven other 
critical status plans we contacted echoed this concern, and several 
mentioned that overall economic conditions affect hours worked and 
hence overall contributions. For example, officials of a plan covering 
construction industry workers expressed concerns that because of the 
economic downturn, the reduction in demand for infrastructure and 
construction maintenance work has greatly reduced the number of active 
workers in the plan. 

Finally, officials of several plans expressed concerns about 
attracting and retaining contributing employers. An official of a safe 
status or "green-zone" plan, for example, said that it is essential 
that the plan continue to attract new employers and that the ability 
to do so is a key basis for the plan's overall financial health. An 
official of a critical status plan that is attempting to forestall 
insolvency told us that it is very concerned about the financial well-
being of its remaining contributing employers and that plan insolvency 
could be hastened if one of these employers were to fail or otherwise 
cease making contributions. As PBGC officials and a construction 
industry organization noted, because the contribution base of 
multiemployer plans can overlap, financial stress in one plan has the 
potential to spill over to other plans. If, for example, the burden of 
increased contributions in one plan causes a large employer economic 
distress, it may impair its ability to remain competitive as well as 
make sufficient contributions to other plans. As shown in figure 6, 
this contagion effect could negatively affect the funded status of 
other plans. 

Figure 6: Illustration of the Manner by Which Financial Distress in 
Multiemployer Plans May Spread to Other Employers and Plans: 

[Refer to PDF for image: illustration] 

Step 1: 
Trigger event creates or exacerbates under-funding: 
* Employer bankruptcy; 
* Employer withdraws from plan; 
* Poor investment returns; 
* Decline in work hours lowers contribution base. 

Step 2: 
Unfunded vested benefits increase. 

Step 3: 
Increased contributions and/or withdrawal liability raises financial 
stress on employers. 

Which can cause: 
Negative feedback effect: 
Increased liabilities can cause some employers to fail, further 
stressing the other employers. 

And also cause: 
Contagion effect: 
The stress can also spread to other plans that share the same 
contributing employers, and that stress can spread to still other 
plans. 

Source: GAO analysis of documentation and interviews with 
representatives of plans, employers, and PBGC. 

[End of figure] 

If the events of coming years are more favorable than the assumptions 
on which rehabilitation plans are based, some plans may emerge from 
critical status earlier than planned, and some may be able to avoid 
insolvency. However, the opposite is true as well--if future events 
are less favorable than assumed, contributing employers and plan 
participants may have to make additional sacrifices or additional 
plans could face insolvency. Our discussions with eight critical 
status and two endangered status plans show that while some plans 
believed they had flexibility to make further adjustments, others did 
not. For example, officials of one plan trying to avoid insolvency 
said that even the contribution increases included in the funding 
improvement plan will be very difficult to bear for employers and 
workers, and further concessions are not realistic. An official of a 
large national plan said that the ability of employers and 
participants to absorb more sacrifices varied considerably among the 
plan's 900 participating groups, but that in general, additional 
concessions would be very difficult to accept. They said that it would 
almost certainly erode the plan's contribution base, which would mean 
a slow progression towards insolvency. 

PBGC Provides Financial Assistance to a Greater Number of Plans Each 
Year, Endangering the Multiemployer Program and Guaranteed Retiree 
Benefits: 

PBGC's financial assistance to multiemployer plans has increased 
significantly in recent years, and projected plan insolvencies may 
exhaust PBGC's multiemployer insurance fund. In fact, PBGC expects 
that, under current law, based on plans currently booked as 
liabilities (current and future probable plan insolvencies), the 
multiemployer insurance program is likely to become insolvent within 
the next 10 to 15 years, although the exact timing is uncertain and 
depends on key factors, such as investment returns and the timing of 
individual plan insolvencies. Additionally, PBGC estimates that if the 
projected insolvencies of either of two large multiemployer plans were 
to occur, the insurance fund would be completely exhausted within 2 to 
3 years. While retirees of insolvent plans generally receive reduced 
monthly pension payments under the PBGC pension guarantee, this amount 
would be further reduced to an extremely small fraction of what PBGC 
guarantees, or nothing, if the multiemployer insurance fund were to be 
exhausted. 

Total PBGC Financial Assistance to Plans Increased More Rapidly in 
Recent Years, and Current and Projected Plan Insolvencies Will Exhaust 
the Insurance Fund: 

Increases in PBGC Loans and Other Financial Assistance: 

As more multiemployer plans have become insolvent, the total amount of 
financial assistance PBGC has provided has increased markedly in 
recent years. Overall, for fiscal year 2012, PBGC provided $95 million 
in total financial assistance to help 49 insolvent plans cover pension 
benefits for about 51,000 plan participants. Generally, since 2001, 
the number of multiemployer plans needing financial assistance has 
steadily increased, as has the total amount of assistance PBGC has 
provided each year, slowing the increase in PBGC's multiemployer 
insurance program funds. Moreover, as figure 7 indicates, the number 
of plans needing PBGC's help has increased significantly in recent 
years, from 33 plans in fiscal year 2006 to 49 plans in fiscal year 
2012. Likewise, the amount of annual PBGC assistance to plans has 
increased from about $70.1 million in fiscal year 2006 to about $95 
million in fiscal year 2012 (a decrease in assistance, due to fewer 
plan closeouts, compared with about $115 million in fiscal year 2011). 
From fiscal years 2005 to 2006 alone, annual PBGC assistance increased 
from about $13.8 million to more than $70 million. 

Figure 7: Multiemployer Plans Receiving PBGC Financial Assistance and 
Amounts Received, Fiscal Years 2001 through 2012: 

[Refer to PDF for image: combined vertical bar and line graph] 

Fiscal year: 2001; 
Number of plans: 22; 
Amount received: $4.5 million. 

Fiscal year: 2002; 
Number of plans: 23; 
Amount received: $4.9 million. 

Fiscal year: 2003; 
Number of plans: 24; 
Amount received: $5.0 million. 

Fiscal year: 2004; 
Number of plans: 27; 
Amount received: $10.1 million. 

Fiscal year: 2005; 
Number of plans: 29; 
Amount received: $13.8 million. 

Fiscal year: 2006; 
Number of plans: 33; 
Amount received: $70.1 million. 

Fiscal year: 2007; 
Number of plans: 36; 
Amount received: $71.9 million. 

Fiscal year: 2008; 
Number of plans: 42; 
Amount received: $84.6 million. 

Fiscal year: 2009; 
Number of plans: 43; 
Amount received: $85.6 million. 

Fiscal year: 2010; 
Number of plans: 50; 
Amount received: $97.0 million. 

Fiscal year: 2011; 
Number of plans: 49; 
Amount received: $115.0 million. 

Fiscal year: 2012; 
Number of plans: 49; 
Amount received: $95.0 million. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Loans to insolvent plans comprise the majority of financial assistance 
that PBGC has provided to multiemployer plans.[Footnote 31] As figure 
8 illustrates, based on available data from fiscal year 2011, loans to 
insolvent plans totaled $85.5 million and accounted for nearly 75 
percent of total PBGC financial assistance. However, the loans are not 
likely to be repaid because the plans are insolvent. To date, only one 
plan has ever repaid a PBGC loan. In addition to providing loans to 
insolvent plans, PBGC provided $13.7 million in fiscal year 2011 to 
help support two plan partitions, which enabled those plans to carve 
out the benefit liabilities attributable to "orphaned" employees whose 
employers filed for bankruptcy, while keeping the remainders of the 
plans in operation.[Footnote 32] Once a plan is partitioned, PBGC 
assumes the liability for paying benefits to the orphaned 
participants. Additionally, PBGC provided $15.1 million in fiscal year 
2011 to help plan sponsors close out five plans, which occurs when 
plans either merge with other multiemployer plans or purchase 
annuities from private-sector insurers for their beneficiaries. 
[Footnote 33] Plans considering a merger must provide notice to PBGC 
and may request a compliance determination; PBGC officials said they 
carefully consider each merger to ensure that the merger would not 
result in a weaker combined plan than the separately constituted 
plans.[Footnote 34] 

Figure 8: PBGC's Financial Assistance to Multiemployer Plans, by Type 
and Amount, Fiscal Year 2011: 

[Refer to PDF for image: pie-chart] 

Loans to insolvent plans: 75%; $85.5 million; 
Partitions: 12%; $13.7 million; 
Closeouts/Mergers: 13%; $15.1 million. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Potential Future Liabilities for PBGC: 

PBGC monitors the financial condition of multiemployer plans to 
identify plans that are at risk of becoming insolvent and that may 
require its financial assistance from the multiemployer insurance 
program. Based on this monitoring, PBGC maintains a contingency list 
of plans that are likely to become insolvent and make a claim to 
PBGC's multiemployer insurance program. PBGC classifies plans on its 
contingency list according to the plans' risk of insolvency.[Footnote 
35] PBGC also assesses the effect that insolvencies among the plans on 
the contingency list would have on the multiemployer insurance fund. 
Table 5 outlines the various classifications and definitions based on 
risk. 

Table 5: Classifications of Plans on PBGC's Contingency List: 

Classification: Probable (Current); 
Definition: A plan that is known to be insolvent and has received or 
will begin receiving financial assistance from PBGC; 
FY 2012 Liability[A]: $1.4 billion. 

Classification: Probable (Terminated Future); 
Definition: A terminated plan that may still have assets, but current 
assets and future collectible payments are projected to be 
insufficient to cover plan benefits plus expenses; 
FY 2012 Liability[A]: $1.7 billion. 

Classification: Probable (Ongoing Future); 
Definition: An ongoing plan with a projected date of insolvency within 
10 years; 
FY 2012 Liability[A]: $3.9 billion. 

Classification: Reasonably Possible; 
Definition: An ongoing plan with a projected date of insolvency 
between 10 and 20 years in the future; 
FY 2012 Liability[A]: $27.0 billion. 

Source: PBGC. 

[A] Liability represents the present value of PBGC's potential 
liability to these plans. 

[End of table] 

Both the number of multiemployer plans placed on PBGC's contingency 
list and the amount of PBGC's potential financial assistance 
obligations to those plans have increased steadily over time, with the 
greatest increases recorded in recent years. According to PBGC data, 
the number of plans where insolvency is classified as "probable"--
plans that are already insolvent or are projected to become insolvent 
within 10 years--increased from 90 plans in fiscal year 2008 to 148 
plans in fiscal year 2012. Similarly, the number of plans where 
insolvency is classified as "reasonably possible"--plans that are 
projected to become insolvent 10 to 20 years in the future--increased 
from 1 in fiscal year 2008 to 13 in fiscal year 2012. 

Although the increase in the number of multiemployer plans on PBGC's 
contingency list has risen sharply, the present value of PBGC's 
potential liability to those plans has increased by an even greater 
factor.[Footnote 36] For example, as illustrated in figure 9, the 
present value of PBGC's liability associated with "probable" plans 
increased from $1.8 billion in fiscal year 2008 to $7.0 billion in 
fiscal year 2012. By contrast, for fiscal year 2012, PBGC's 
multiemployer insurance fund only had $1.8 billion in total assets, 
resulting in net liability of $5.2 billion, as reported in PBGC's 2012 
annual report. 

Figure 9: Liability from Probable Multiemployer Plan Insolvencies on 
PBGC's Contingency List, Fiscal Years 2000 through 2012: 

[Refer to PDF for image: vertical bar graph] 

Fiscal year: 2000; 
Total Assets in Multiemployer Insurance Fund: $0.7 billion; 
Liability from total probables: $0.4 billion. 

Fiscal year: 2001; 
Total Assets in Multiemployer Insurance Fund: $0.8 billion; 
Liability from total probables: $0.7 billion. 

Fiscal year: 2002; 
Total Assets in Multiemployer Insurance Fund: $0.9 billion; 
Liability from total probables: $0.8 billion. 

Fiscal year: 2003; 
Total Assets in Multiemployer Insurance Fund: $1.0 billion; 
Liability from total probables: $1.3 billion. 

Fiscal year: 2004; 
Total Assets in Multiemployer Insurance Fund: $1.1 billion; 
Liability from total probables: $1.3 billion. 

Fiscal year: 2005; 
Total Assets in Multiemployer Insurance Fund: $1.2 billion; 
Liability from total probables: $1.5 billion. 

Fiscal year: 2006; 
Total Assets in Multiemployer Insurance Fund: $1.2 billion; 
Liability from total probables: $1.9 billion. 

Fiscal year: 2007; 
Total Assets in Multiemployer Insurance Fund: $1.2 billion; 
Liability from total probables: $2.1 billion. 

Fiscal year: 2008; 
Total Assets in Multiemployer Insurance Fund: $1.3 billion; 
Liability from total probables: $1.8 billion. 

Fiscal year: 2009; 
Total Assets in Multiemployer Insurance Fund: $1.5 billion; 
Liability from total probables: $2.3 billion. 

Fiscal year: 2010; 
Total Assets in Multiemployer Insurance Fund: $1.6 billion; 
Liability from total probables: $3.0 billion. 

Fiscal year: 2011; 
Total Assets in Multiemployer Insurance Fund: $1.7 billion; 
Liability from total probables: $4.5 billion. 

Fiscal year: 2012; 
Total Assets in Multiemployer Insurance Fund: $1.8 billion; 
Liability from total probables: $7.0 billion. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Although PBGC's cash flow is currently positive--because premiums and 
investment returns on multiemployer insurance fund assets exceed 
benefit payments and other assistance--PBGC expects plan insolvencies 
to more than double by 2017, placing greater demands on the 
multiemployer insurance fund and further weakening PBGC's overall 
financial position.[Footnote 37] 

Potential Exhaustion of Multiemployer Insurance Fund: 

PBGC expects that the pension liabilities associated with current and 
future plan insolvencies will exhaust the multiemployer insurance 
fund. Under one projection using conservative (i.e., somewhat 
pessimistic) assumptions for budgeting purposes, PBGC officials 
reported that the agency's projected financial assistance payments for 
plan insolvencies that have already occurred or are considered 
probable in the next 10 years would exhaust the multiemployer 
insurance fund in or about 2023.[Footnote 38] PBGC officials said that 
the precise timing of program insolvency is difficult to predict due 
to uncertainty about key assumptions, such as investment returns and 
the timing of individual plan insolvencies. Based on a range of 
estimates provided by multiple projections, PBGC officials said the 
multiemployer insurance program is likely to become insolvent within 
the next 10 to 15 years. Furthermore, exhaustion of the insurance fund 
may occur sooner because the financial health of two large 
multiemployer plans has deteriorated. According to PBGC officials, the 
two large plans for which insolvency is "reasonably possible," have 
projected insolvency 10 to 20 years in the future. PBGC estimates 
that, for fiscal year 2012, the liability from these two plans 
accounted for $26 billion of the $27 billion in liability of plans in 
the "reasonably possible" category. Taken in combination, the number 
of retirees and beneficiaries of these two plans would represent about 
a six-fold increase in the number of people receiving guarantee 
payments in 2012. PBGC officials said that the insolvency of either of 
these two large plans would exhaust the insurance fund in 2 to 3 years. 

Benefits of Many Retirees Are Reduced under PBGC Guarantees, and May 
Be Further Reduced If PBGC Multiemployer Insurance Program Becomes 
Insolvent: 

Generally, retirees who are participants in insolvent plans receive 
reduced pension benefits under PBGC's statutory pension guarantee 
formula. In most cases, PBGC's pension guarantee (see figure 10) does 
not offer full coverage of the monthly pension benefits that a retiree 
of an insolvent plan has actually earned. When a multiemployer plan 
becomes insolvent and relies on PBGC loans to pay for benefit payments 
to plan retirees, retirees will most likely see a reduction in their 
monthly pension benefits.[Footnote 39] PBGC uses a formula that 
calculates the maximum PBGC benefit guarantee based on the amount of a 
plan participant's pension benefit accrual rate and years of credit 
service earned. For example, if a retiree has earned 30 years of 
credit service, the maximum coverage under the PBGC guarantee is about 
$1,073 per month, which yields an annual pension benefit of $12,870. 

Figure 10: Hypothetical Illustration of Guaranteed Benefit Levels 
under PBGC's Multiemployer Insurance Program: 

[Refer to PDF for image: stacked horizontal bar graph] 

Earned monthly benefit: $250: 

Years of service: 10; 
Actual benefit: $215; 
Percentage of earned benefit received under PBGC guarantee: 86%; 
Years of service: 20; 
Actual benefit: $243; 
Percentage of earned benefit received under PBGC guarantee: 97%; 
Years of service: 30; 
Actual benefit: $250; 
Percentage of earned benefit received under PBGC guarantee: 100%; 
Years of service: 35; 
Actual benefit: $250; 
Percentage of earned benefit received under PBGC guarantee: 100%. 

Earned monthly benefit: $500: 

Years of service: 10; 
Actual benefit: $358; 
Percentage of earned benefit received under PBGC guarantee: 72%; 
Years of service: 20; 
Actual benefit: $430; 
Percentage of earned benefit received under PBGC guarantee: 86%; 
Years of service: 30; 
Actual benefit: $458; 
Percentage of earned benefit received under PBGC guarantee: 92%; 
Years of service: 35; 
Actual benefit: $471; 
Percentage of earned benefit received under PBGC guarantee: 94%. 

Earned monthly benefit: $750: 

Years of service: 10; 
Actual benefit: $358; 
Percentage of earned benefit received under PBGC guarantee: 48%; 
Years of service: 20; 
Actual benefit: $618; 
Percentage of earned benefit received under PBGC guarantee: 82%; 
Years of service: 30; 
Actual benefit: $645; 
Percentage of earned benefit received under PBGC guarantee: 86%; 
Years of service: 35; 
Actual benefit: $659; 
Percentage of earned benefit received under PBGC guarantee: 88%. 

Earned monthly benefit: $1,000: 

Years of service: 10; 
Actual benefit: $358; 
Percentage of earned benefit received under PBGC guarantee: 36%; 
Years of service: 20; 
Actual benefit: $715; 
Percentage of earned benefit received under PBGC guarantee: 72%; 
Years of service: 30; 
Actual benefit: $833; 
Percentage of earned benefit received under PBGC guarantee: 83%; 
Years of service: 35; 
Actual benefit: $846; 
Percentage of earned benefit received under PBGC guarantee: 85%. 

Earned monthly benefit: $2,000: 

Years of service: 10; 
Actual benefit: $358; 
Percentage of earned benefit received under PBGC guarantee: 18%; 
Years of service: 20; 
Actual benefit: $715; 
Percentage of earned benefit received under PBGC guarantee: 36%; 
Years of service: 30; 
Actual benefit: $1,073; 
Percentage of earned benefit received under PBGC guarantee: 54%; 
Years of service: 35; 
Actual benefit: $1,251; 
Percentage of earned benefit received under PBGC guarantee: 63%. 

Earned monthly benefit: $3,000: 

Years of service: 10; 
Actual benefit: $358; 
Percentage of earned benefit received under PBGC guarantee: 12%; 
Years of service: 20; 
Actual benefit: $715; 
Percentage of earned benefit received under PBGC guarantee: 24%; 
Years of service: 30; 
Actual benefit: $,1073; 
Percentage of earned benefit received under PBGC guarantee: 36%; 
Years of service: 35; 
Actual benefit: $1,251; 
Percentage of earned benefit received under PBGC guarantee: 42%. 

Source: GAO analysis of PBGC data. 

Note: Although the PBGC maximum monthly benefit based on a 30-year 
working career is about $1,073, as this chart shows, a greater benefit 
can be earned if a worker retires after a longer career. 

[End of figure] 

Generally, retirees receiving the highest pensions experience the 
steepest cuts when their plans become insolvent and their benefits are 
limited by the pension guarantees. According to PBGC, in 2009, the 
average monthly pension benefit received by retirees in all 
multiemployer plans was $821.[Footnote 40] However, as shown by PBGC 
in a hypothetical illustration of benefit distributions (see figure 
11), the line that spans the bar chart indicates that the range of 
pension benefits varies widely across retirees, and, with $692 as the 
median pension, about half of the plan's retirees will experience 15 
percent or greater reductions in their pensions under the PBGC 
guarantee. Additionally, under this illustration, one out of five 
retirees will experience 50 percent or greater reductions in their 
pensions under the PBGC guarantee. Ultimately, regardless of how long 
a retiree has worked and the amount of monthly benefits earned, any 
reduction in pension benefits--no matter the amount--may have 
significant effects on retirees' living standards. 

Figure 11: Hypothetical Illustration of the Effects of Guaranteed 
Monthly Pension Benefit Levels under PBGC's Multiemployer Insurance 
Program: 

[Refer to PDF for image: combined stacked vertical bar and line graph] 

Participants’ earned monthly benefit: $250; 
Number of participants: 5,303; 
Guaranteed monthly benefit: $124; 
Nonguaranteed monthly benefit: $4. 

Participants’ earned monthly benefit: $500; 
Number of participants: 4,867; 
Guaranteed monthly benefit: $324; 
Nonguaranteed monthly benefit: $34. 

Participants’ earned monthly benefit: $750; 
Number of participants: 3,437; 
Guaranteed monthly benefit: $518; 
Nonguaranteed monthly benefit: $96. 

Participants’ earned monthly benefit: $1,000; 
Number of participants: 2,484; 
Guaranteed monthly benefit: $682; 
Nonguaranteed monthly benefit: $161. 

Participants’ earned monthly benefit: $1,250; 
Number of participants: 1,433; 
Guaranteed monthly benefit: $820; 
Nonguaranteed monthly benefit: $258. 

Participants’ earned monthly benefit: $1,500; 
Number of participants: 818; 
Guaranteed monthly benefit: $919; 
Nonguaranteed monthly benefit: $431. 

Participants’ earned monthly benefit: $1,750; 
Number of participants: 994; 
Guaranteed monthly benefit: $972; 
Nonguaranteed monthly benefit: $649. 

Participants’ earned monthly benefit: $2,000; 
Number of participants: 572; 
Guaranteed monthly benefit: $1,025; 
Nonguaranteed monthly benefit: $829. 

Participants’ earned monthly benefit: $2,250; 
Number of participants: 1,761; 
Guaranteed monthly benefit: $1,048; 
Nonguaranteed monthly benefit: $1,020. 

Participants’ earned monthly benefit: $2,500; 
Number of participants: 545; 
Guaranteed monthly benefit: $1,048; 
Nonguaranteed monthly benefit: $1,331. 

Participants’ earned monthly benefit: $2,750; 
Number of participants: 1,658; 
Guaranteed monthly benefit: $1,041; 
Nonguaranteed monthly benefit: $1,525. 

Participants’ earned monthly benefit: $3,000; 
Number of participants: 714; 
Guaranteed monthly benefit: $1,097; 
Nonguaranteed monthly benefit: $1,773. 

Participants’ earned monthly benefit: $3,250; 
Number of participants: 1,244; 
Guaranteed monthly benefit: $1,119; 
Nonguaranteed monthly benefit: $1,928. 

Participants’ earned monthly benefit: $3,500; 
Number of participants: 182; 
Guaranteed monthly benefit: $1,215; 
Nonguaranteed monthly benefit: $2,132. 

Participants’ earned monthly benefit: $3,750; 
Number of participants: 119; 
Guaranteed monthly benefit: $1,299; 
Nonguaranteed monthly benefit: $2,231. 

Participants’ earned monthly benefit: $4,000; 
Number of participants: 11; 
Guaranteed monthly benefit: $1,404; 
Nonguaranteed monthly benefit: $2,442. 

Participants’ earned monthly benefit: $4,250; 
Number of participants: 1; 
Guaranteed monthly benefit: $1,616; 
Nonguaranteed monthly benefit: $2,431. 

Source: GAO analysis of PBGC data. 

Note: According to PBGC, the figure provides a comparison of the 
relative frequency of different benefit levels to the portion of the 
benefit that is covered by the PBGC multiemployer program guarantee. 
The figure summarizes information on participants already retired 
under a large hypothetical multiemployer plan that has relatively 
generous benefits. Benefit amounts are represented by the bars while 
the number of participants receiving benefit amounts in a given 
grouping is indicated by the purple line. The height of each bar is 
the average benefit amount in the grouping. The bottom half of each 
bar indicates the portion of pensions guaranteed by PBGC, and the top 
half of each bar indicates the portion of pensions not guaranteed by 
PBGC. 

[End of figure] 

According to PBGC, in the event that the multiemployer insurance fund 
is exhausted, affected participants then relying on the PBGC pension 
guarantee would receive an extremely small fraction of their already-
reduced guarantees or, potentially, nothing. According to PBGC 
officials, once the insurance fund's cash balance is depleted, the 
agency would have to rely solely on the annual insurance premium 
receipts, which totaled $92 million for fiscal year 2012. The precise 
effect that the insolvency of the multiemployer insurance fund would 
have on retirees receiving the PBGC guaranteed benefit depends on a 
number of factors--primarily the number of guaranteed benefit 
recipients and PBGC's annual premium income at that time. The impact 
would, however, likely be severe. For example, if the insurance fund 
were to be drained by the insolvency of one very large and troubled 
plan, under one scenario, we estimate that the benefits paid by PBGC 
would be reduced to less than 10 percent of the PBGC guarantee level. 
In this scenario, a retiree who once received a monthly pension of 
$2,000 and whose pension was reduced to $1,251 under the PBGC 
guarantee, would see the monthly pension income further reduced to 
less than $125, or less than $1,500 per year. Additional plan 
insolvencies would further depress already drastically reduced income 
levels. Our contacts with plan officials and other stakeholders also 
suggested that the exhaustion of the PBGC multiemployer insurance fund 
would have effects well beyond direct financial impacts. For example, 
officials of another plan said that the exhaustion of the insurance 
fund could bring about the loss of public confidence in the 
multiemployer plan system's ability to provide retirement security for 
plan participants and their beneficiaries. 

Key Options to Reduce Liabilities and Change Plan Designs Could Help 
Improve Financial Stability, but Pose Trade-offs: 

Experts and stakeholders we interviewed cited two key policy options 
to avoid the insolvencies of severely underfunded plans and the PBGC 
multiemployer insurance fund, and a number of other options for longer 
term reform of the multiemployer system (see figure 12). To address 
the impending insolvency crisis, they proposed allowing severely 
troubled plans to reduce accrued benefits, including benefits of 
retirees, and providing PBGC with additional resources to prevent 
insolvencies that might otherwise threaten the fund. Longer term 
options would provide plans with flexibilities and resources to help 
attain financial stability in the future. These include encouraging 
the adoption of flexible benefit designs and reforming withdrawal 
liability policies.[Footnote 41] 

Figure 12: Key Federal Policy Options and Possible Effects on Key 
Stakeholders: 

[Refer to PDF for image: illustrated table] 

Steps to address impending insolvencies of severely underfunded plans: 
Allow plans to reduce accrued benefits; 
Employers: 
* May alleviate need for further contribution increases; 
Active participants: 
* Accrued benefits may be reduced[A]; 
* May alleviate need for further reduction in accrual rate; 
Retirees: 
* Accrued benefits may be reduced[A]; 
Federal government: 
* No direct effect[B]. 

Steps to address impending insolvencies of severely underfunded plans: 
Financial assistance; 
Employers: 
* May alleviate need for further contribution increases; plan costs 
may rise if assistance is funded through an increase in premiums; 
Active participants: 
* May alleviate need for further reduction in accrual rate; 
Retirees: 
* Possibly offset significant reductions in accrued benefits; 
Federal government: 
* Costs of financing partitions or other financial assistant; costs 
would ne reduced to the extent that the assistance is funded through 
an increase in premiums[A]. 

Steps to help improve long-term financial stability: Flexible benefit 
plan design; 
Employers: 
* May stabilize the amount of employer contributions; 
Active participants: 
* May entail some marginal adjustments in benefit accruals[A]; 
Retirees: 
* May entail some marginal adjustments in benefits for future 
retirees[A]; 
Federal government: 
No direct effect[B]. 

Steps to help improve long-term financial stability: Changes to 
withdrawal liability policy; 
Employers: 
* Impact varies for various changes suggested[A]; 
Active participants: 
* Impact varies for various changes suggested[A]; 
Retirees: 
* Impact varies for various changes suggested[A]; 
Federal government: 
* No direct effect[B]. 

Steps to help improve long-term financial stability: Promotion of 
mergers and alliances; 
Employers: 
* Could lower costs and should help alleviate need for further 
contribution increases; 
Active participants: 
* May alleviate need for further reductions in accrual rate; 
Retirees: 
* No direct effect[B]. 
Federal government: 
* Cost of PBGC financial assistance may be partially offset by helping 
plans avoid insolvency[A]. 

Source: GAO analysis of documentation and interviews with experts and 
stakeholders. 

[A] Reason groups/entities bear the majority of impact from that 
policy option. 

[B] We recognize there may also be secondary effects from these policy 
options. For example, reducing accrued benefits may result in a 
greater use of and reliance on Medicaid and other federal benefits. An 
indirect effect of some of these policy options could be to reduce 
PBGC's exposure to potential liabilities. 

[End of figure] 

Allowing Plans to Reduce Accrued Benefits Could Help Severely 
Underfunded Plans Avert Insolvency, but Some Experts Said Severity of 
Cuts May Warrant Federal Assistance: 

Allow Plans Facing Insolvency to Reduce Accrued Benefits: 

Various experts and plan representatives stressed the necessity of 
modifying ERISA's anti-cutback rule to allow severely distressed plans 
to reduce the accrued benefits of active participants as well as 
retirees.[Footnote 42] They noted that this flexibility is essential 
because 1) the most severely distressed plans will be unable to avoid 
insolvency using traditional methods--increasing employer 
contributions and/or reducing future benefit accruals or adjustable 
benefits--and 2) benefit reductions will occur in any case and will be 
more severe in the event of plan insolvency, especially in the event 
of the insolvency of PBGC's multiemployer insurance fund. As described 
in the first section of this report, the most severely distressed 
plans we contacted have already adjusted contributions and benefits 
and several stated that further adjustments would accelerate plan 
insolvency. In particular, the demographics of many multiemployer 
plans limit their ability to reduce liabilities through contribution 
increases or reductions in future benefit accruals because they are 
typically based on hours worked. For example, the majority of 
participants in one of the largest multiemployer plans have already 
retired or are inactive and no longer contributing to the plan--as of 
2012, the plan had about 4.86 retired or otherwise inactive 
participants for every active worker. In light of the sacrifices 
already made by active participants--some of whom are absorbing the 
cost of significant contributions to support benefit payments at a 
level they will likely never see for themselves--some stakeholders 
noted that adjustments of retiree benefits would be equitable. 
Moreover, experts, as well as employer and plan representatives also 
noted that allowing plans to reduce accrued benefits now could avoid 
more severe reductions in the future. For example, representatives 
from an association of actuaries and from a large plan noted that for 
some plans, the alternative to reductions in accrued benefits is 
eventual plan insolvency, which would result in the much lower benefit 
level guaranteed by PBGC compared to the current benefits paid and, 
possibly, little to no benefit at all if PBGC's multiemployer 
insurance fund became insolvent. Finally, some experts and a plan 
representative stressed the urgency of obtaining such flexibility 
because the longer the delay, the greater the eventual required 
benefit reductions. 

Nonetheless, allowing plans the flexibility to reduce accrued benefits 
for current workers and retirees would significantly compromise one of 
the founding principles of ERISA and could impose significant hardship 
on some retirees. While some plan representatives and other 
stakeholders told us that a very modest benefit reduction would be 
sufficient to avoid insolvency, others noted that reductions would be 
very painful for retirees who worked for many years and planned their 
retirements around a promised benefit.[Footnote 43] Representatives of 
one of these plans referred to appeal letters to the plan that had 
been submitted by participants and/or their spouses, noting that older 
workers or retirees can be in some financially difficult situations, 
and cuts to accrued benefits would deepen and increase the number of 
such hardships. Some also noted that while younger retirees may be 
able to obtain employment to supplement income, older retirees, 
especially in physically demanding industries like mining and 
construction would likely not have that option. Finally, some 
stakeholders indicated that the flexibility to reduce accrued benefits 
would harm the multiemployer system by undermining the credibility of 
multiemployer plans and diminishing their ability to attract and 
retain employers and participants. 

Plan representatives and experts we contacted proposed a number of 
considerations and limitations that could mitigate some concerns with 
allowing plans to reduce accrued benefits. As described in table 6, 
these measures include eligibility criteria and options for oversight, 
along with other key features. For example, given the sacrifice it 
would impose on participants, several experts and plan representatives 
said that allowing reductions in accrued benefits should only be 
considered as a last resort for plans headed for insolvency. 

Table 6: Key Features of Proposals to Allow Severely Underfunded Plans 
to Reduce Accrued Benefits: 

Eligibility criteria: 
NCCMP Commission proposals: 
* Actuarial determination would be needed to show that benefit 
reductions avert plan insolvency; 
Plan representatives and industry experts proposals: 
* Plans should demonstrate the financial necessity of benefit 
reductions, e.g., certification that plan is headed for insolvency or 
a cash flow test. 

Nature and extent of reductions: 
NCCMP Commission proposals: 
* Accrued benefits may be reduced at most to 110% of the PBGC 
guarantee; 
Plan representatives and industry experts proposals: 
* Reductions in accrued benefits should be limited to a level tied to 
the PBGC guarantee (suggested level varied from 100% to 125% of the 
PBGC guarantee). 

Implementation: 
NCCMP Commission proposals: 
* Benefit reductions would be determined by plan trustees in concert 
with the collective bargaining process; 
* Any future benefit increases would be accompanied by a comparable 
restoration of accrued benefits that were reduced; 
Plan representatives and industry experts proposals: 
* Plan trustees are best placed to decide how benefit cuts should be 
implemented; 
* Protections for vulnerable populations should be considered (e.g., 
oldest or disabled participants, those with lower benefits). 

Oversight: 
NCCMP Commission proposals: 
* PBGC could review proposed cuts to ensure established criteria are 
met (e.g., benefit reductions are equitably distributed and 
protections are in place for most vulnerable populations); 
Plan representatives and industry experts proposals: 
* PBGC, Labor, or IRS could perform oversight. 

Source: GAO analysis of interviews and documentation from NCCMP and 
interviews with plan representatives and industry experts. In addition 
to the NCCMP effort, a representative from an employer in the 
transportation industry said they are working with other employers in 
that industry to develop a proposal to address multiemployer plan 
funding challenges, but it was still in progress at the time this 
report was written. 

[End of table] 

Even with these protections and considerations, the flexibility to 
reduce accrued benefits would not occur without considerable 
sacrifice, and may not be sufficient to help some plans avoid 
insolvency. Several plan representatives and experts said the 
suggested benchmark for reducing accrued benefits--PBGC's guarantee 
level of $12,870 on an annual basis for 30 years of service--is 
relatively low and could result in steep benefit cuts. For example, 
given the magnitude of financial challenges facing some severely 
underfunded plans, accrued benefits may be reduced by one-third or 
more of their original value. Moreover, in the case of at least one 
plan, PBGC officials said that reductions to the maximum guaranteed 
level may still not represent sufficient savings to avert insolvency. 
For example, representatives of one large plan told us that while 
reducing accrued benefits might be an option for some plans, it was 
not an option for their plan because the benefits were already quite 
modest--average retirement benefits in 2010 were about $600 per month. 
Further, plan representatives said it would be unconscionable to 
reduce benefits for a retiree with a work-related illness, such as a 
respiratory ailment, who may be barely surviving on current benefit 
levels. 

Financial Assistance to Prevent Insolvency: 

According to several experts, in an effort to save plans and conserve 
PBGC assets in the long term, PBGC could provide financial assistance 
to qualifying plans headed for insolvency through a partition. If a 
plan qualifies and its application is approved by PBGC, the partition 
population includes only orphaned participants--those whose employer 
left the plan due to bankruptcy--and their benefits are reduced to the 
guaranteed level.[Footnote 44] According to industry experts, 
partitions would allow plans with a substantial share of orphaned 
liabilities to avoid further benefit reductions for active 
participants and other beneficiaries. By removing the burden of the 
legacy costs associated with orphaned participants, the plan would be 
in a better position to adequately fund benefit obligations with 
ongoing contributions. In addition, one expert said that partitions 
could reduce the total liability for PBGC because extending the 
solvency of the plan means that fewer participants would rely on 
benefit payments from the PBGC than if the whole plan were to become 
insolvent. 

While partitions may prevent qualifying plans from becoming insolvent, 
neither PBGC's current partitioning authority nor its financial 
resources are sufficient to address the impending insolvency of large, 
severely underfunded plans. In its entire history, PBGC has performed 
partitions for only two plans.[Footnote 45] According to PBGC 
officials, plan representatives, and experts, there are a number of 
reasons why partitions have not been more widely used: 

* The magnitude of potential reductions for orphaned participants has 
dissuaded some plans from applying for help. Payments for the 
partitioned population will be reduced to the PBGC guarantee level, 
which could be a sizable reduction in some cases. 

* PBGC does not have sufficient resources to cover orphaned 
liabilities of large severely underfunded plans. 

* Plans may not meet the four statutory criteria to be eligible for a 
partition. For example, a plan must demonstrate that it is headed for 
insolvency due to a reduction in contributions due to employer 
bankruptcies, which numerous plan representatives and experts said may 
exclude plans in need of assistance. Some plan representatives said 
that many of their contributing employers are small businesses that do 
not have the wherewithal to go through formal bankruptcy proceedings, 
but instead close without paying their full share of liabilities. In 
other cases, contributing employers may have left when the plan was 
adequately funded, but, as a result of the market crash in 2008, the 
funded status deteriorated. Consequently, the plan is not able to 
collect any ongoing contributions from those employers to offset the 
poor investment returns, but the plan is still responsible for paying 
the full amount of vested benefits for their workers. 

While the reasons employers leave a plan may vary, their departure can 
result in significant legacy costs that experts said impair the 
ability of the plan to remain solvent or recover from funding 
shortfalls. For example, according to officials from one of the 
largest plans, about 40 percent of benefit payments go to orphaned 
participants and current employer contributions amounted to only about 
25 percent of total annual benefit payments as of 2009. To address 
this issue, several experts said that partitions should be made more 
widely available so that, for example, orphaned liabilities could 
include any participants whose contributing employer left the plan 
without paying their full share of unfunded vested benefits. However, 
to cover the cost of these benefits, several experts noted that PBGC 
would need additional funding--the agency does not have nearly 
sufficient resources to pay even the reduced benefit levels for 
potential partition populations from some large plans. 

As an example, representatives of one of the largest plans for which 
insolvency is reasonably possible in the mining industry indicated 
they may not be eligible for assistance through a partition because 
the plan was sufficiently funded until the 2008 financial crisis. In 
the absence of a partition, some members of Congress have proposed 
financial assistance using an existing separate source of funds 
established from reclamation fees paid by coal companies for abandoned 
coal mines.[Footnote 46] According to plan representatives, this fund 
currently provides money to pay for health benefits of three related 
plans, which have not used the full amount of those funds. The 
proposal would transfer any remaining funds that are not needed for 
health benefits to improve the solvency of the pension plan.[Footnote 
47] The representatives also noted that this financial assistance is 
essential and the only way the plan can avoid insolvency. Pension 
benefits for this plan are relatively low--retirees received an 
average pension of about $600 a month in 2010, which limits the plan's 
ability to improve its funded status even if reductions to accrued 
benefits were allowed. 

Numerous industry experts and plan representatives emphasized the 
importance of providing timely assistance to severely underfunded 
plans, but some experts also cited drawbacks of providing additional 
financial assistance beyond PBGC's multiemployer insurance fund. 
Regarding advantages, several experts and plan representatives said 
providing additional financial assistance sooner rather than later 
could prevent entire plans from going insolvent and reduce the number 
of participants relying on guaranteed payments from PBGC in the long 
term. Beyond the scope of an individual plan, representatives from a 
construction industry group said additional financial assistance could 
also prevent more widespread negative effects. Because employers 
across various industries contribute to some of the large severely 
underfunded multiemployer plans, as well as other plans, the continued 
decline of such a plan could trigger a contagion effect. Contributing 
employers may face large liabilities (e.g., increased contributions, 
increased withdrawal liability) that could prevent them from 
fulfilling obligations to other currently well-funded plans and some 
employers may be forced out of business. Moreover, a plan 
representative and an expert said additional financial assistance is 
necessary to prevent the insolvency of the multiemployer insurance 
program, which, as described in the previous section, would leave 
thousands of participants with a small fraction of their vested 
pension benefits. However, other experts cited drawbacks for providing 
additional financial assistance. In particular, some experts said that 
a partition may not be a permanent fix for the plan. For example, if 
the on-going portion of the plan continues to lose employers, it may 
still become insolvent and require financial assistance from PBGC. In 
addition, some experts expressed concern about the size of the burden 
federal financial assistance could potentially place on taxpayers. 
[Footnote 48] 

Considering the resources that may be needed to provide financial 
assistance to troubled plans, PBGC and others have identified 
increased premiums as a potential source of additional revenue for 
PBGC.[Footnote 49] According to projections in a recent PBGC report, 
doubling the insurance premium from the current level of $12 per 
participant to $24 per participant would reduce the likelihood of PBGC 
insurance fund insolvency in 2022 from about 37 percent to about 22 
percent.[Footnote 50] The analysis also found that a tenfold increase 
to $120 per participant would virtually eliminate the likelihood of 
multiemployer insurance fund insolvency by 2022, although the analysis 
did not look beyond that timeframe.[Footnote 51] 

However, some stakeholders we spoke with noted that increased premiums 
also have limitations and drawbacks. Some stakeholders said further 
premium increases alone were not a feasible solution because they 
would be insufficient to solve PBGC's long-term funding shortfall and 
would further stress employers in severely underfunded plans who have 
already borne considerable contribution increases. According to a PBGC 
analysis, even a ten-fold increase in the current premium would not 
prevent significant growth in the agency's deficit. Under this 
analysis, PBGC estimates that the FY2012 deficit of $5.2 billion would 
still nearly triple, amounting to about $15 billion in 2022. Moreover, 
it is unclear what impact such premium increases would have on plans 
of varying financial health, especially plans seeking to delay 
eventual insolvency. PBGC officials acknowledged that, although 
premiums are generally not a significant percentage of plan costs, the 
most severely underfunded plans may not be able to afford any 
increases. PBGC officials also said that, given the range of financial 
circumstances across plans, a premium structure that would ensure 
affordable and appropriate premiums for all plans could help address 
this concern. In prior work, we assessed changing the premium 
structure for PBGC's single-employer program to allow premiums to vary 
based on risk.[Footnote 52] However, we have not assessed the 
implications or implementation of increased premiums or a risk-based 
premium structure for PBGC's multiemployer program. Given the 
distinctive features of the multiemployer plan design and program 
described earlier in this report, the development of a risk-based 
premium structure for multiemployer plans would entail unique 
considerations and require further analysis. 

Changes to Plan Design and Other Options Could Address Challenges of 
Withdrawal Liability and Improve Long-Term Financial Stability: 

Addressing the Problems Associated with Withdrawal Liability Policies: 

ERISA requires that employers wishing to withdraw from a multiemployer 
plan pay for their share of the plan's unfunded liabilities. As 
explained in the following text box, this requirement for withdrawal 
liability payments is intended to prevent employers from walking away 
from liabilities they have created, and, thus, help protect plan 
participants and other employers. However, despite the necessity of 
such a safeguard, plan representatives and other industry experts said 
changes are needed to address key challenges related to current 
provisions regarding withdrawal liability. 

Text box: 

Withdrawal Liability: 
In the event an employer seeks to leave a multiemployer plan and the 
plan has a funding shortfall, the employer is liable for its share of 
unfunded plan benefits, known as withdrawal liability. A plan can 
choose from several formulas established in the law for determining 
the amount of unfunded vested benefits allocable to a withdrawing 
employer and the employer's share of that liability.[A] Under three of 
these formulas, the employer's proportional share is based on the 
employer's share of contributions over a specified period.[B] In 
addition, the plan can apply for approval from PBGC to use variations 
on these methods. Liabilities that cannot be collected from a 
withdrawing employer, for example, one in bankruptcy, are to be 
"rolled over" and eventually funded by the plan's remaining employers--
frequently referred to as orphaned liabilities. As we previously 
reported, this means that an employer's pension liabilities can become 
a function of the financial health of other employer plan sponsors.[C] 
These additional sources of potential liability can be difficult to 
predict, increasing employers' level of uncertainty and risk. However, 
while the total amount of withdrawal liability is based on the 
unfunded vested benefits for the plan as a whole, a particular 
employer's annual payments are strictly based on its own contributions 
and are generally subject to a 20-year cap.[D] 

Source: GAO analysis of ERISA and PBGC documents and prior GAO reports. 

[A] Vested benefits are nonforfeitable benefits for which the 
participant has satisfied the conditions of entitlement. Unfunded 
vested benefits are the difference between the present value of a 
plan's vested benefits and the value of plan assets, based on 
reasonable actuarial methods and assumptions selected by the plan. (In 
the case of a mass withdrawal, PBGC specifies the methods and 
assumptions to be used). 

[B] Under a fourth method, an employer's withdrawal liability is based 
on the benefits and assets attributable to service with the employer 
(and a proportional share of unattributable amounts). 

[C] GAO-04-423, p. 23. 

[D] In cases of a mass withdrawal whereby the plan is terminated when 
all remaining employers exit the plan, the 20-year cap is eliminated. 

[End of text box] 

Current federal withdrawal liability policies give rise to three main 
problems, according to stakeholders and experts. First, plans often 
collect far less than the full value of liabilities owed to the plan. 
In the event of an employer bankruptcy, several experts said plan 
sponsors often collect little or no withdrawal liability payments. For 
example, several experts explained that in the recent Hostess Brands 
bankruptcy, the firm--a contributing employer to many plans--is likely 
to pay very little of its withdrawal liability obligations. One 
service provider said this bankruptcy doubled the unfunded liabilities 
attributable to remaining employers in some plans. Separately, the 
method of calculating withdrawal liability payments may not capture an 
employer's full share of unfunded liabilities because a plan's 
withdrawal liability obligation is based on its prior contributions 
rather than on attributed liabilities, and is also subject to a 20-
year cap.[Footnote 53] In particular, some stakeholders said the 20-
year cap on withdrawal liability payments limits the amount of money 
collected by plans. If the amount of the employer's prior 
contributions is small relative to the size of their total withdrawal 
liability, the annual payments may not be sufficient to pay off their 
total withdrawal liability over the 20-year period. 

Second, existing withdrawal liability rules deter new employers from 
joining a plan with existing unfunded liabilities. Plan 
representatives said attracting new employers is essential to the long-
term health of the plan, but an employer group said the existence of 
potential withdrawal liability strongly deters prospective employers 
who may otherwise want to join. Moreover, fear of greater withdrawal 
liability in the future may encourage current contributing employers 
to leave the plan. For example, in late 2007, UPS paid about $6 
billion to withdraw from one of the largest multiemployer plans. 

Third, the presence of withdrawal liability can negatively affect an 
employer's credit rating and ability to obtain loans for their 
business. For example, representatives from one large employer said 
their total withdrawal liability exceeds the net worth of their 
company and this has made it difficult for them to obtain loans and 
other financing, which might help revitalize their business. Table 7 
describes options to address these problems identified through our 
contacts with various stakeholders, including plan and employer 
representatives. 

Table 7: Options to Address Challenges Associated with Withdrawal 
Liability: 

Increase assets recovered by plan: 

Option: Improve status of plan in bankruptcy proceedings; 
Benefits: Plan would be better positioned to collect a higher share of 
the liabilities owed by the bankrupt employer; 
Tradeoffs/Limits on Effectiveness: Amount of withdrawal liability 
collected may still be far short of total unfunded liabilities. 

Option: Eliminate 20-year cap on withdrawal liability payments; 
Benefits: Plan may be able to collect a greater share of liabilities 
owed by a withdrawing employer; 
Tradeoffs/Limits on Effectiveness: 
* Unclear how many employers would be able to continue making payments 
beyond 20 years; 
* Increased amount of withdrawal liability a plan can collect may also 
deter employers from joining the plan. 

Reduce deterrent effect on contributing employers: 

Option: Exclude increased contributions required by funding 
improvement or rehabilitation plans from withdrawal liability 
calculations; 
Benefits: Plan may improve its funded status by eliminating a 
disincentive for employers to increase contributions; 
Tradeoffs/Limits on Effectiveness: Plan sacrifices the amount of 
withdrawal liability it can collect. 

Option: Clarify that withdrawal liability will not be assessed to 
employers that voluntarily remain in the plans; 
Benefits: 
* Mitigate impact of potential withdrawal liability on employer's 
credit rating and ability to obtain loans; 
* Encourage employers to remain in the plan; 
Tradeoffs/Limits on Effectiveness: 
Because this is a clarification of current law, no tradeoffs were 
identified. 

Option: Design and manage plan to minimize or eliminate withdrawal 
liability; 
Benefits: Without withdrawal liability, a plan will be better able to 
attract new employers and expand its contribution base; 
Tradeoffs/Limits on Effectiveness: 
* Plan may need to lower benefit accrual rate and/or increase 
contributions to ensure plan is adequately funded, such as with a 
flexible benefit design (see next section); 
* Does not address legacy costs so this strategy may only help plans 
prospectively. 

Option: Protect newly joining employers by placing them in a separate 
"pool" in which they only accrue liability prospectively, and do not 
assume liabilities of existing employers; 
employers from the "old" pool may move to the new pool if they pay 
withdrawal liability; 
Benefits: 
* Permissible under current law; 
* Tool for plan to encourage new employers to join the plan and 
healthy employers to continue to participate; 
* Withdrawal liability payments to move to the new pool increases plan 
assets; 
Tradeoffs/Limits on Effectiveness: 
* Some employers may not be able to afford paying withdrawal liability 
to move to the new pool; 
* Employers in the new pool could still be faced with unfunded 
liabilities from the old pool in the event of a mass withdrawal. 

Source: GAO analysis of documentation and interviews with plan 
representatives, industry experts, and NCCMP. 

[End of table] 

A comprehensive remedy to the problems arising from withdrawal 
liability is particularly elusive because a solution to one issue can 
exacerbate another. For example, eliminating the current 20-year cap 
may help allow plans to collect withdrawal liability payments until 
the full amount has been paid. However, increasing the amount of 
withdrawal liability that plans can collect may also discourage new 
employers from participating in a plan because it increases the 
potential withdrawal liability they could be required to pay. On the 
other hand, options that could reduce the deterrent effect on new 
employers--such as the proposal to omit contributions required by 
funding improvement or rehabilitation plans from withdrawal liability 
calculations--could reduce a plan's ability to collect sufficient 
withdrawal liability. 

Facilitate Adoption of Flexible Defined Benefit Plan Design: 

Numerous plan representatives, experts, and the NCCMP Commission 
recommend the adoption of a more flexible DB model to avoid a 
repetition of the current challenges facing multiemployer plans. While 
the specific plan design can vary, in general, this model allows 
trustees to adjust benefits based on key factors--such as the plan's 
funded status, investment returns, or plan demographics--to keep the 
plan well-funded. Importantly, it reduces the risk that contributing 
employers would face contribution increases if the plan experiences 
poor investment returns or other adverse events. Investment risk is 
thus primarily shared by participants and the plan is designed to 
avoid incurring any withdrawal liability. Overall, the trustees of the 
plan would have greater flexibility than under a traditional DB plan 
to adjust benefits to keep the plan well-funded. See table 8 for a 
comparison of two alternative flexible DB plan designs, although other 
models could also be used. In addition, the NCCMP Commission's 
proposal would also give more flexibility for traditional DB plans by 
allowing these plans to adjust the normal retirement age to harmonize 
with Social Security's normal retirement age.[Footnote 54] 

Table 8: Options for a Flexible DB Plan to Address Risks Facing 
Multiemployer Plans: 

Flexible DB option: Cheiron Variable DB model; 
Key features: 
* Benefit at retirement is the greater of the: 
1. floor defined benefit (e.g., career average pay formula based on an 
assumed rate of return of 5%) or; 
2. variable benefit accrued when investment returns exceed floor rate 
(e.g., greater than 5%); 
* Returns in excess of a cap (e.g., 10%) are used to establish a 
contingency reserve to mitigate effect of market downturns on the 
plan's funded status; 
* Plan uses a relatively conservative investment strategy in line with 
floor rate of return; 
* At retirement, the greater of the two benefits for a participant is 
converted into an annuity, which is purchased from a private insurer 
or managed by the plan using a conservative investment strategy; 
* Contingency reserve fund and conservative investment strategy 
designed to minimize risk of withdrawal liability. 

Flexible DB option: NCCMP Target Benefit model[A]; 
Key features: 
* Contributions are designed to attain a certain benefit level based 
on various assumptions, including investment rate of return; 
* More conservative funding standards than current system; 
* In the event of a funding shortfall, certain past and future 
benefits earned under the new model can be adjusted; 
* No withdrawal liability; 
* No PBGC coverage. 

Source: GAO analysis based on interviews with industry experts and 
documentation from Cheiron and NCCMP. 

[A] NCCMP's proposal highlights support for the Target Benefit model, 
as well as the Cheiron model, but does not endorse any specific model 
as exclusive. 

[End of table] 

Notably, the Cheiron proposal would also use more conservative 
approaches to investment and funding policy because it uses a 
relatively lower assumed rate of return and a contingency reserve 
fund. The Cheiron proposal calls for a more conservative asset 
allocation and, in addition to sharing some of the investment risk 
with participants through the flexible benefit design, would also 
reduce the overall amount of investment risk through the more 
conservative asset allocation. In addition, the Cheiron model would 
use a contingency reserve fund that could provide a cushion against 
unfavorable investment or demographic experience. 

The design of a flexible DB plan offers several key benefits, which 
some stakeholders said are essential to the long-term survival of the 
multiemployer system. In particular, several stakeholders cited 
limiting employer liability as a key benefit. Representatives of 
several employers said it is imperative to limit their liability to 
enable them to be competitive against competitors. By minimizing risks 
to employers, a flexible DB model may strengthen employers' commitment 
to the plan and reduce incentives for them to leave. Similarly, 
reducing risk may also help attract new employers to these plans, 
which may improve a plan's demographics and help it stay well-funded 
and viable in the long term. Additionally, a group of employer 
representatives said that a flexible DB plan, such as the one 
developed by Cheiron, in conjunction with the United Food and 
Commercial Workers (UFCW) International Union, provides trustees more 
tools to prudently manage the plan to keep it well-funded and able to 
pay promised benefits even when faced with adverse events, such as 
poor investment returns or demographic shifts. Moreover, some 
stakeholders said that a flexible DB plan reduces risk while also 
avoiding challenges associated with defined contribution (DC) plans. 
Specifically, representatives of a construction industry group said a 
flexible DB plan would still offer pooled and professionally managed 
investments, along with risk sharing among participants, which can 
mitigate some of the individual risks faced by participants in DC 
plans, such as investment risk and longevity risk.[Footnote 55] Given 
the potential long-term benefits of a flexible DB model, some experts 
said regulatory agencies could do more to help plans adopt a design 
with these features. For example, one expert said that PBGC could hold 
a conference on best practices in plan design. In addition, this 
expert said that PBGC could charge such plans lower premiums 
commensurate with their lower risk to encourage adoption of these plan 
design features; however, PBGC lacks the legal authority to do so. 
[Footnote 56] 

Some plan representatives and experts also noted that a flexible DB 
model entails tradeoffs. In particular, representatives from an 
actuarial firm and from an industry group said that while this 
approach shows promise for addressing prospective challenges, it does 
not help resolve problems for plans that already have financial 
shortfalls. Union and employer representatives said that plans may 
first need to address existing shortfalls before they could adopt a 
flexible DB model. Thus, new design options are unlikely to help large 
plans that are already severely underfunded. Further, in the flexible 
benefit models described in table 8, investment risk is primarily 
borne by participants. Representatives from an actuarial firm also 
said that this model may be relatively expensive when comparing the 
amount of contributions needed to attain a certain level of accrued 
benefits. For example, in order to minimize the risk of underfunding, 
a flexible DB plan may use a relatively low assumed rate of return--
and, correspondingly, a more conservative investment strategy--than is 
more commonly used by multiemployer plans. Over the long term, this 
may result in a lower level of accrued benefit. However, 
representatives of one actuarial firm said that higher assumed rates 
of return used by some multiemployer plans may be too high and could 
entail a greater risk of the plan becoming underfunded. And, as recent 
events show, participants already assume a lot of risk in the event a 
plan becomes severely underfunded. As a result, a flexible benefit 
model that reduces risk might provide a somewhat lower promised 
benefit, but one that is more secure. 

Encourage Mergers and Alliances: 

Facilitating more plan mergers or allowing plans to form alliances may 
also help address financial challenges facing multiemployer plans, 
according to some plan representatives and industry experts. In a 
merger, two or more plans are combined into a single plan, including 
both plan assets and administration. Several stakeholders said that 
this consolidation helps plans--especially smaller plans--achieve more 
favorable economies of scale to reduce costs. For example, in a 
merger, plans can reduce costs by consolidating administrative 
services, such as annual audits and legal services. In some cases, 
PBGC provides financial assistance to facilitate a merger by paying a 
plan that is insolvent or nearing insolvency a portion of the present 
value of PBGC's net liability for that plan, which serves as an 
incentive for a well-funded plan to take on the assets and liabilities 
of a less well-funded plan. PBGC officials said that they are careful 
to provide financial assistance only in the case of mergers expected 
to be successful and, thus, avoid paying financial assistance twice to 
the same plan. While PBGC has helped to facilitate some mergers, 
several plan representatives and a representative from an actuarial 
firm said more plans could merge if PBGC provided additional financial 
assistance. Alternatively, other stakeholders said similar cost-saving 
benefits from consolidation could be achieved by allowing plans to 
form alliances. In contrast to a merger, alliances allow plans to 
combine administrative and investment management services, but retain 
separate liabilities and funding accounts. Consequently, in an 
alliance, each plan would retain its own liabilities and withdrawal 
liability obligations would not be shared across plans. 

Along with cost savings from consolidating administrative services, 
plan representatives and industry experts said mergers and alliances 
can offer other important benefits. In particular, a merger or 
alliance would provide plans a larger asset pool that can also help 
plans reduce investment management fees. According to a representative 
from an actuarial firm, combined with administrative cost savings, 
consolidating investment management services can significantly reduce 
costs for small plans and may save some from insolvency. For example, 
some of their small plan clients pay between 30 and 40 percent of 
contributions towards administrative and investment management 
expenses while a larger plan would pay closer to 5 percent. However, 
another expert said cost savings for some plans may be negligible 
depending on the plan's circumstances. For example, if a plan is 
already sufficiently large and efficiently managed, cost savings from 
merging with another plan may be relatively small. In addition, 
several stakeholders said that by helping plans avoid insolvency, PBGC 
may also benefit from plan mergers or alliances because the 
participants of these plans would continue to receive benefits from 
the plan rather than becoming insolvent and relying on benefit 
payments from PBGC. Consequently, the cost PBGC incurs to facilitate 
such arrangements may be more than offset by preventing the plan from 
becoming insolvent.[Footnote 57] 

While mergers can provide cost-savings and other benefits, plans face 
barriers to implementing them. For example, representatives from one 
of the largest plans said that due to the relatively large size of 
their plan and the amount of their funding shortfall, a merger is not 
an option for them. Several stakeholders said a merger between a plan 
that is relatively well-funded and a financially weaker plan poses 
concerns for plan trustees who have a fiduciary duty to act in the 
best interests of their plan's participants. One employer 
representative said that a merger poses risks to the healthier plan 
and may not be in the best interests of those participants. To address 
potential risks to the healthier plan, some stakeholders said PBGC 
should be given greater resources to facilitate more mergers. In 
addition, some employer representatives said plans that undertake 
mergers could be afforded legal protection under a safe harbor to 
further alleviate concerns over fiduciary responsibility. While 
alliances may avoid some of these concerns--they would not require 
plans to harmonize their funding status as each plan retains its own 
liabilities--such arrangements are not currently permitted and would 
therefore require a change in law according to NCCMP. 

Conclusions: 

Despite unfavorable economic conditions, most multiemployer plans are 
currently in adequate financial condition and may remain so for many 
years. However, a number of plans, including some very large plans, 
are facing very severe financial difficulties. Many of these plans 
reported that no realistic combination of contribution increases or 
allowable benefit reductions--options available under current law to 
address their financial condition--will enable them to emerge from 
critical status. As a result, without Congressional action, the plans 
face the likelihood of eventual insolvency. While the multiemployer 
system was designed to limit PBGC's exposure by having employers serve 
as principal guarantors, PBGC remains the guarantor of last resort. 
However, given their current financial challenges, neither the 
troubled multiemployer plans nor PBGC currently have the flexibility 
or financial resources to fully mitigate the effects of anticipated 
insolvencies. Should a critical mass of plan insolvencies drain the 
PBGC multiemployer insurance fund, PBGC will not be able to pay either 
current or future retirees more than a very small fraction of the 
benefit they were promised. Consequently, a substantial, and in some 
cases catastrophic, loss of income in old age looms as a real 
possibility for the hundreds of thousands of workers and retirees 
depending on these plans. 

Congressional action is needed to avoid this scenario, and 
stakeholders suggested a number of key policy options. For example, 
various stakeholders suggested that, as a last resort to avert 
insolvency, Congress could enact legislation permitting plans--subject 
to certain limitations, protections, and oversight--to reduce accrued 
benefits of both working participants and retirees. In addition, some 
stakeholders suggested that Congress could give PBGC the authority and 
resources to assist the most severely underfunded plans. Stakeholders 
acknowledged that each of these options poses tradeoffs. Providing 
PBGC with additional resources, as well as other more direct financial 
assistance to plans, would create yet another demand on an already 
strained federal budget. Similarly, reducing accrued benefits for 
active workers, and especially for those already in retirement, could 
result in significant reductions in income for a group that may have 
limited income alternatives and may be too infirm to return to the 
labor force. Such an option would also significantly compromise one of 
the key founding principles of ERISA--that accrued benefits cannot be 
reduced--essentially rupturing a promise to workers and retirees who 
have labored for many years, often in dangerous occupations, and in 
some of the nation's most vital industries. 

The scope and severity of the challenges outlined by stakeholders 
suggest that a broad, comprehensive response is needed and Congress 
faces difficult choices in responding to these challenges. However, as 
the recent tri-agency federal report on multiemployer plans noted, 
unless timely action is taken to provide additional tools for the 
multiemployer plan trustees to stabilize the financial conditions of 
their plans, more costly and intrusive measures may later be 
necessary. Nevertheless, this situation can also be viewed as an 
opportunity both to protect the benefits of hundreds of thousands of 
older Americans and stabilize a pension system that has worked fairly 
well for decades. Without a comprehensive approach, efforts to improve 
the long-term financial condition of the multiemployer system may not 
be effective. 

Matters for Congressional Consideration: 

Given the serious challenges facing PBGC's multiemployer insurance 
fund and critically underfunded multiemployer plans, and to prevent 
the significant adverse effects of PBGC insolvency on workers and 
retirees, Congress should consider comprehensive and balanced 
structural reforms to reinforce and stabilize the multiemployer 
system. In doing so, Congress should consider the relative burdens, as 
identified by key stakeholders, that each reform option would impose 
on the competing interests of employers, plans, workers and retirees, 
PBGC, and taxpayers. 

Agency Comments: 

We provided a draft of this report to the Department of Labor, the 
Department of the Treasury, and the PBGC for review and comment. We 
received formal written comments from the PBGC, which generally agreed 
with our findings and analysis. During the review period, PBGC 
officials raised the potential role that increased multiemployer 
insurance program premiums could play in strengthening the program, 
and hence in helping to ensure that participants in insolvent plans 
received some financial protection in the long term. In addition, the 
issue of PBGC premiums was raised repeatedly during a March 5, 2013 
hearing held by the House Subcommittee on Health, Employment, Labor 
and Pensions, Committee on Education and the Workforce. In light of 
the level of interest on this issue, we included a brief discussion of 
the matter of premiums in the final version of our report. PBGC, 
Labor, and Treasury also provided technical comments which we 
incorporated as appropriate. PBGC's formal comments are reproduced in 
appendix II. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from its issue date. At that time, we will send copies of this report 
to relevant congressional committees, PBGC, the Secretary of Labor, 
the Secretary of the Treasury, and other interested parties. In 
addition, the report will be made available at no charge on the GAO 
Web site at [hyperlink, http://www.gao.gov]. 

If you have any questions about this report, please contact Charles 
Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report are 
found in appendix III. 

Sincerely yours, 

Signed by: 

Charles A. Jeszeck: 
Director: 
Education, Workforce, and Income Security: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to answer the following research questions: 

1) What actions have multiemployer plans in the weakest financial 
condition taken in recent years to improve their long-term financial 
position? 

2) To what extent have plans relied on PBGC assistance since 2009, and 
what is known about the prospective financial condition of the 
multiemployer plan insurance program? 

3) What options are available to address PBGC's impending funding 
crisis and enhance the program's future financial stability? 

We sought to answer the first question in two primary steps. First, we 
obtained data on the results of a survey of critical status plans 
performed by The Segal Company, a large actuarial firm that has a 
client base consisting of about 25 percent of all multiemployer plans, 
representing about 30 percent of all multiemployer plan participants. 
As figure 13 below illustrates, the industry distribution of Segal's 
client base substantially parallels that of the broader multiemployer 
universe. Included as an addendum to Segal's annual survey of plan 
funded status, the survey instrument requested information about the 
nature and size of contribution increases and benefit reductions, 
whether plans expected to emerge from the critical zone within 
statutory time frames, and the estimated number of years until 
emergence from the critical zone or, for plans not expecting to 
emerge, the number of years to plan insolvency. The information 
pertaining to each of the 107 critical plans in the survey was 
completed by Segal's professional actuaries responsible for those 
clients. The survey was initiated in December 2010, and responses were 
received through February 2011. Through a review of the methodology 
underlying the survey, and discussions with a Segal representative 
knowledgeable about the survey, we determined that the results were 
reliable and useful for our research. Second, we supplemented this 
data with in-depth interviews with representatives of 13 multiemployer 
plans--8 were in critical status, 2 in endangered or seriously 
endangered status, and 3 in neither critical nor endangered status. We 
selected the plans to ensure that we included a range of plan sizes, 
industries, geographical areas, and funding status. Plans selected 
ranged in size from about 2,000 participants to more than 531,000 
participants and represented a variety of industries including those 
featuring some of the largest concentrations of multiemployer plans--
construction, manufacturing, and transportation. Before speaking with 
plan officials, we reviewed available data, including rehabilitation 
or funding improvement plans, and other relevant documents. Our in-
depth discussions with plan representatives covered various issues, 
including plans' use of and views regarding funding relief, the nature 
and size of the contribution increases and benefit reductions, and the 
probable impact of contribution increases and benefit reductions on 
employers and plan participants. 

Figure 13: Comparison of the Segal Client Base and Multiemployer 
Universe, by Major Industry: 

[Refer to PDF for image: vertical bar graph] 

Percentage of plans: 

Construction: 
Segal: 55.8%; 
Multiemployer universe: 55.4%. 

Transportation: 
Segal: 10.7%; 
Multiemployer universe: 10.1%. 

Retail trade: 
Segal: 3.8%; 
Multiemployer universe: 5.9%. 

Manufacturing: 
Segal: 5.6%; 
Multiemployer universe: 11.6 

Arts and entertainment: 
Segal: 3.8%; 
Multiemployer universe: 2.4%. 

All others: 
Segal: 20.4%; 
Multiemployer universe: 14.7%. 

Source: GAO representation of Segal Company and PBGC data. 

[End of figure] 

To answer the second question, we interviewed officials and analyzed 
data from PBGC, including recent PBGC annual reports and data books. 
We also developed several data requests for PBGC that were tailored to 
this objective, and reviewed information provided by PBGC in response. 
For example, we obtained data on the amount of PBGC's annual 
assistance to plans due to plan insolvencies, plan partitions, and 
assistance granted for other reasons, such as plan mergers or 
closures. We also obtained and analyzed updated data regarding PBGC's 
overall financial position and the size of its long-term deficits. 
Specifically, we obtained data on the liabilities attributable to 
plans on PBGC's list of plans that are insolvent or considered likely 
to become insolvent in the next 10 years, as well as those thought 
likely to become insolvent in the next 10 to 20 years. To better 
understand the consequences of plan insolvency on retirees, we 
interviewed relevant PBGC officials and requested data regarding the 
impact of insolvency on retirees of various wage levels and tenures. 
Finally, we discussed the impact of potential PBGC insolvency in our 
discussions with multiemployer plan officials. 

To answer the third objective, we distinguished between options that 
would address the more immediate funding crisis facing plans headed 
toward insolvency and options that may enhance the long-run stability 
of the multiemployer system for plans that may not be headed for 
insolvency, but, nevertheless, face financial challenges. We assessed 
the tradeoffs of various options for current workers, retirees, and 
employers, as well as the federal government. To identify and assess 
available options, we interviewed a wide range of pension experts--
including academics, actuaries, attorneys, plan trustees and 
administrators, employers and trade associations, unions, advocacy 
organizations, government officials, and other relevant stakeholders. 
We also reviewed relevant research and documentation, including a 
proposal by the National Coordinating Committee for Multiemployer 
Plans (NCCMP) and research by other industry experts. 

As appropriate for each of our objectives, we reviewed existing 
literature and relevant federal laws and regulations. 

We conducted this performance audit from March 2012 through March 2013 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Comments from the Pension Benefit Guaranty Corporation: 

PBGC: 

March 15, 2013: 

Charles A. Jeszeck: 
Director, Education, Workforce, and Income Security Issues: 
U.S. Government Accountability Office:
Washington, DC 20438: 

Re: Impending Multiemployer Plan Insolvencies and PBGC Challenges: 

Dear Mr. Jeszeck: 

Thank you for your helpful report on multiemployer plans and on the 
challenges facing PBGC in supporting them. We are grateful for the 
opportunity to work with GAO and to comment on the draft. The House 
Committee on Education and the Workforce has undertaken a review of 
these issues and your report will be an important contribution. 

Self-Help Actions Already Taken by Multiemployer Plans: 

The report documents the steps plans have taken to recover from the 
market declines of the past decade, as well as other challenges. 
Importantly, it notes that "despite unfavorable economic conditions, 
most multiemployer plans are currently in adequate financial condition 
and may remain so for many years." 

Nonetheless, your report makes clear that a minority of severely 
underfunded multiemployer pension plans remain distressed and that, 
absent further changes, they and the PBGC multiemployer insurance fund 
will become insolvent. GAO's report adds to the growing expressions of 
concern about severely distressed plans, as described recently in the 
ERISA agencies' Pension Protection Act report to Congress[Footnote 1] 
and the report of a leading coalition of stakeholders in the 
multiemployer community.[Footnote 2] 

The GAO report provides a helpful discussion of a range of federal 
policy options, including increased flexibility for multiemployer plan 
trustees to manage the financial condition of their plans, as well as 
partition and merger proposals that would involve financial support 
from PBGC. 

How PBGC's Financial Condition Affects PBGC's Ability to Protect 
Multiemployer Plans: 

Some stakeholders have proposed that PBGC help save plans by providing 
financial assistance through partitions or to facilitate mergers. The 
report explains that PBGC's currently limited authorities and 
financial resources preclude the agency from helping plans in these 
ways. 

In fact, PBGC's current resources are insufficient even to maintain 
its existing multiemployer program over time. The GAO report states 
that current and projected plan insolvencies will themselves result in 
the insolvency of PBGC's multiemployer insurance program by about 2023. 

PBGC does not dispute this characterization, which is consistent with 
several different projection methodologies. 

Options to Address PBCC's Impending Funding Crisis: 

It is for these reasons that we are particularly interested in GAO's 
views as to the options available to restore PBGC's finances. GAO 
reports that it is has both analyzed PBGC's finances and surveyed a 
range of experts. Although the draft report was silent on options for 
addressing PBGC's short- and long-term financial challenges, we 
understand these will be explained in the final report. 

PBGC would benefit from GAO's experience and judgment as to what 
options might be considered. Your examination of these issues will 
also undoubtedly be useful to the House Education and Workforce 
Committee. As you will recall, at the recent subcommittee hearing, 
Chairman Kline specifically asked what premiums would be necessary to 
allow PBGC to continue paying benefits. 

We welcome GAO's continued exploration of these important issues and 
look forward to continued collaboration. We hope the result will be to 
preserve the multiemployer plans on which hundreds of thousands of 
small businesses and millions of people depend. 

Sincerely, 

Signed by: 

Joshua Gotbaum: 
Director: 

Footnotes: 

[1] Multiemployer pension Plans [hyperlink, 
http://pbgc.gov/documents/pbgc-report-multiemployer-pension-plans.pdf] 

[2] Solutions not Bailouts [hyperlink, http://lib-
cdn.s3.amazon.com/279/59/b/39/1/Solutions_Not_Bailouts.pdf] 

[End of section] 

Appendix III: GAO Contacts and Acknowledgments: 

GAO Contact: 

Charles A. Jeszeck, Director, (202) 512-7215 or jeszeckc@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, David Lehrer (Assistant 
Director), Michael Hartnett, Sharon Hermes, and Kun-Fang Lee made key 
contributions to this report. 

In addition, support was provided by Frank Todisco, GAO Chief Actuary, 
James Bennett, David Chrisinger, Julianne Cutts, Jessica Gray, Theresa 
Lo, Ashley McCall, Sheila McCoy, and Walter Vance. 

[End of section] 

Footnotes: 

[1] GAO, Private Pensions: Changes Needed to Better Protect 
Multiemployer Pension Benefits, [hyperlink, 
http://www.gao.gov/products/GAO-11-79] (Washington, D.C.: October 
2010). 

[2] PBGC is on GAO's High Risk List. For more information, see GAO, 
High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011). 

[3] U.S. Department of Labor, U.S. Department of the Treasury, Pension 
Benefit Guaranty Corporation, Multiemployer Pension Plans: Report to 
Congress Required by the Pension Protection Act of 2006 (Washington, 
D.C.; January 2013). Additional substantive information on this issue 
is contained in two PBGC reports also published recently. These are 
PBGC Insurance of Multiemployer Pension Plans: Report to Congress 
Required by the Employee Retirement Income Security Act of 1974, as 
amended, Pension Benefit Guaranty Corporation, Washington D.C., 
January 2013 and FY 2012 PBGC Exposure Report, Pension Benefit 
Guaranty Corporation. 

[4] "Endangered," "seriously endangered," and "critical" statuses are 
designations created by the Pension Protection Act of 2006 and are 
defined later in this report. 

[5] NCCMP is an organization representing multiemployer plans and 
practitioners. In August 2011, NCCMP convened a commission to review 
and propose options for addressing challenges facing multiemployer 
plans. NCCMP's report "Solutions not Bailouts: A Comprehensive Plan 
from Business and Labor to Safeguard Multiemployer Retirement Plan 
Security, Protect Taxpayers and Spur Economic Growth" was released in 
February 2013. The commission members include representatives from 
plans, employers, and unions. Participating industries include 
construction, trucking, retail food, entertainment, machinists, 
mining, bakery and confectionary, and service. We also spoke with a 
wide range of plan representatives, including executive staff and both 
union and employer trustees. 

[6] Multiemployer pension plans are commonly associated with parallel 
multiemployer funds providing medical coverage and other welfare-type 
benefits. 

[7] 29 U.S.C. § 1001 nt. 

[8] 29 U.S.C. § 1322a. The multiemployer insurance program is 
maintained separately from another PBGC fund, which insures the 
benefits of single-employer pension plans. Among other things, the 
Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), made 
employers liable for their share of unfunded plan benefits when they 
withdraw from a plan, unless relieved by special provisions, and 
strengthened certain funding requirements. Pub. L. No. 96-364, §§ 
104(2) and 304, 94 Stat. 1208, 1217 and 1293-94. 

[9] The Moving Ahead for Progress in the 21ST Century Act (Map-21) 
increased the premium by $3 per participant for 2013 and provided that 
after 2013, the multiemployer plan premium will continue to be indexed 
for increases in the annual rate of growth in the national average 
wage. Pub. L. No. 112-41, § 40222, 126 Stat. 405, 852 (2012). 

[10] For participants of plans that became insolvent after December 
21, 2000, annual benefits paid by plans receiving PBGC loans are the 
product of a participant's years of service multiplied by 1) 100 
percent of the first $11 of the monthly benefit accrual rate, and 2) 
75 percent of the next $33 of the accrual rate. For someone with 30 
years of service, the guaranteed annual benefit limit is $12,870. In 
contrast, PBGC's single-employer program guarantees full benefits up 
to a maximum of $57,477.24 per year at age 65 for plans that terminate 
in 2013. 

[11] Pub. L. No. 109-280, 120 Stat. 780. 

[12] While endangered or critical plans are in a funding improvement 
or rehabilitation period, they must report annually on whether 
scheduled progress has been made under the plan in their Form 5500 
filings. 

[13] Subject to certain exceptions, once an individual's benefit is 
vested (or earned), the vested benefit cannot be cut back through a 
plan amendment. 26 U.S.C. § 411(d)(6) and 29 U.S.C. § 1054(g). 

[14] 26 U.S.C. § 432(e)(8). Certain specific conditions apply to the 
ability to "adjust" these benefits. 

[15] Because employer contributions to multiemployer plans are 
generally based on hours worked, the high unemployment rates that 
accompany an economic recession also reduce plan revenue and 
negatively affect plan funding levels. 

[16] Pub. L. No. 110-458, 122 Stat. 5092. 

[17] WRERA relief measures extended seriously endangered plans' 
funding improvement period from 15 to 18 years. 

[18] Pub. L. No. 111-192, 124 Stat. 1280. To meet PRA's solvency test, 
a plan must demonstrate that it has sufficient assets to timely pay 
expected benefits and anticipated expenditures over the period of time 
when PRA relief measures would take effect. 

[19] Such "asset smoothing" is an actuarial technique used to focus 
decision making on the long term, and avoid disruptive reactions to 
short term fluctuations in asset values. Just as this technique 
prevents assets from being fully marked down after a severe market 
decline, it prevents assets from being fully marked up following a 
rally in asset values, though only if the technique is followed 
consistently. 

[20] Although WRERA funding relief measures allowed plans to 
temporarily freeze their funding status at the prior year's level, 
actuarial certifications were required to reflect a plan's zone status 
without regard to the application of WRERA relief. However, PRA 
funding relief was permitted to be reflected in a plan's actuarial 
certification, and so PRA funding relief had an effect on the zone 
status of many plans in 2010 and 2011. 

[21] Unless otherwise noted, data pertaining to actions that critical 
status plans have taken to emerge from critical status are based on a 
2011 survey conducted by the Segal Company, a large actuarial firm 
that provides consulting services to multiemployer plans that account 
for about 25 percent of multiemployer plans and about 30 percent of 
multiemployer plan participants. See appendix I for more details on 
this data and overall methodology. The same data was the basis of a 
2011 report, Multiemployer Plans Respond to the Financial Crisis, 
Judith F. Mazo and Eli Greenblum, Pension Research Council Working 
Paper PRC WP2011-15, September 2011. 

[22] The survey defined the "preferred schedule" as the schedule of 
contribution increases and benefits reductions that plan trustees 
intend to be most desirable or which has become the dominant schedule 
through collective bargaining. According to PPA, the default schedule 
is the schedule to be imposed on bargaining parties if they fail to 
agree on the preferred schedule or another provided by plan trustees. 

[23] Multiemployer Plans Respond to the Financial Crisis, Pension 
Research Council. 

[24] Unless otherwise noted, discussion of contribution increases and 
benefit cuts in the remainder of this section refers to those outlined 
in the preferred schedule of the rehabilitation plan. 

[25] The 2013 tri-agency report found a similar pattern, reporting 
that summaries of rehabilitation plans in Form 5500 filings indicate 
that schedules adopted by many bargaining parties required 
contribution rate increases of 7 percent or more for an extended 
period. Multiemployer Pension Plans: Report to Congress Required by 
the Pension Protection Act of 2006. 

[26] Workers accrue retirement benefits according to benefit formulas 
that vary widely depending on the plan. For example, a participant may 
earn a flat dollar amount for each year of service, or a percentage of 
the contributions required for a worker's covered service. According 
to the Employee Benefit Research Institute, most multiemployer plans 
base benefits on length of service and not on their wage or salary 
level. 

[27] This data is roughly comparable to data reported in the 2013 tri-
agency report, Multiemployer Pension Plans: Report to Congress 
Required by the Pension Protection Act of 2006. This report found that 
of 378 plans self-certifying as critical status in 2010, 96 reduced 
only adjustable benefits, 42 reduced only future benefits, and 53 did 
both. 

[28] As PBGC officials noted, the impact of these reductions depend on 
how many types of adjustable benefits were reduced as well as the 
number of participants affected. 

[29] Construction Employers DOL-EBSA/PBGC/Treasury Pension Report, 
Construction Employers for Responsible Pension Reform, December 22, 
2011. An industry consortium prepared this report for the 3 federal 
agencies as the agencies prepared a report for Congress mandated by 
the PPA. 

[30] Two plans reduced or eliminated disability retirement benefits 
for workers who are not disabled according to the criteria used by the 
Social Security Administration. As a result, instead of being disabled 
only for his or her current occupation in order to qualify for a 
disability retirement, the worker will have to obtain certification of 
disability under the Social Security program, which further requires a 
determination that a worker cannot adjust to other work due to his or 
her medical condition. 

[31] Under Title IV of ERISA, a plan may be considered insolvent if it 
does not have enough assets to pay the PBGC-guaranteed benefits for a 
full plan year. An insolvent plan continues operations, and PBGC 
provides necessary financial assistance for payment of benefits at 
statutorily guaranteed levels and for reasonable administrative 
expenses. The amounts of financial assistance for plan partitions and 
mergers and closeouts fluctuate from year to year, so the amount of 
assistance for a particular fiscal year is not an indication of trends 
or amounts of assistance in prior years. 

[32] A plan partition is a statutory mechanism by which a 
multiemployer plan can carve out--or partition--the plan liabilities 
attributable to "orphaned" employees of employers who have filed for 
bankruptcy. According to PBGC, orphaned participants may also include 
participants whose employers withdrew from a plan without filing 
bankruptcy. However, this group of participants would not be eligible 
for partitioning. 

[33] According to PBGC officials, financial assistance to help plans 
close out is available only in limited circumstances: (1) if a plan's 
net PBGC liability is generally under $5 million, PBGC provides 
financial assistance to allow the plan to purchase insurance 
annuities, and (2) if a plan is expected to become insolvent within 10 
years, PBGC may provide financial assistance to allow the plan to 
merge with another plan. 

[34] A plan merger typically involves a plan with a lower assets-to-
liability ratio and a plan with a higher assets-to-liability ratio. 
According to PBGC, plan closeouts help PBGC reduce plan administrative 
costs. 

[35] To determine which multiemployer plans belong in each of the 
contingency categories, PBGC uses a screening process that measures 
the financial health of plans based on a number of variables that 
include, among others: (1) the ratio of active participants (those for 
whom employers are continuing to make contributions) to other 
participants (those for whom plans are making or will soon make 
benefit payments), (2) the ratio of assets to the present value of 
vested benefits accrued by participants, and (3) the ratio of 
contributions to benefit payments. 

[36] PBGC determines the present value by using certain assumptions 
about interest rates, among other things, to adjust the amount of 
future benefit payments to reflect the time value of money (by 
discounting) and the probability of payment (by means of decrements, 
such as for death or retirement). 

[37] PBGC's primary sources of cash inflow are from insurance premiums 
paid by multiemployer plans and subsequent investment earnings from 
those premiums. Cash outflows primarily comprise financial assistance 
to insolvent and near-insolvent plans. 

[38] PBGC projects potential insolvency dates using varying 
methodological approaches and assumptions about the future and 
assuming no changes in law. According to PBGC officials, the 2023 
insolvency date is based on a deterministic projection of financial 
assistance payments for plans booked as liabilities on PBGC's 
financial statements as of September 30, 2012, using conservative 
assumptions, including for rates of return on plan assets and 
immediate and continued reductions in active participant counts and 
employer contributions in ongoing plans. PBGC's FY2012 Exposure Report 
uses the ME-PIMS stochastic model, which is based on a sample of all 
plans in the multiemployer universe, including a sample of booked 
liabilities, and a separate set of assumptions. This model projects a 
52 percent chance of program insolvency by 2023, which rises to about 
85 percent by 2028. For other purposes, PBGC officials said they use a 
cash flow projection methodology based on financial assistance 
payments for all booked plans and for projected future booked plans 
(using mean values resulting from a stochastic projection). PBGC 
officials said that no matter which method is used, estimated program 
insolvency dates are relatively close. 

[39] The guaranteed benefit amount is a function of the participant's 
accrual rate, and is calculated as the participant's monthly benefit 
amount divided by his or her years of service. PBGC's multiemployer 
program guarantees 100 percent of the first $11 per month per year of 
service plus 75 percent of the next $33, or $35.75 maximum per month 
per year of service. 29 U.S.C. § 1322a(c). 

[40] The average monthly benefit was determined by dividing benefits 
paid under all plans by the number of retired participants under all 
plans. However, the average is somewhat inflated because benefits paid 
during the year include lump-sum payments (mostly $5,000 or less). 
Additionally, the average monthly benefit received in 2009 is slightly 
higher for plans in the transportation industry ($1,120), where an 
annual benefit can reach $30,000 or more for a plan participant with 
30 years of service. On the other hand, the average monthly benefit is 
lower ($642) for plans in the retail trade and service industries. 

[41] The NCCMP's February 2013 report also offered a series of 
recommendations that address some of the proposals discussed in this 
section. In addition, it also includes a series of recommended 
technical refinements to the PPA that were beyond the scope of this 
report. For example, the report advocates that plans that reasonably 
expect to enter critical status in the next five plan years be 
permitted to enter critical status in the current plan year. 

[42] 26 U.S.C. § 411(d)(6) and 29 U.S.C. § 1054(g). 

[43] For example, several stakeholders told us some plans could avoid 
insolvency by eliminating an additional monthly benefit payment known 
as a "13TH check." According to representatives from one plan, these 
additional benefits were added during the strong equities market of 
the 1990s in order to avoid additional tax liabilities due to 
overfunding and, to the extent the additional benefits are part of the 
accrued benefit, the plan does not have the flexibility to rescind 
this benefit under current law. 

[44] 29 U.S.C. § 1413 specifies the following criteria a plan must 
meet to qualify for a partition: 1) a substantial reduction in the 
amount of aggregate contributions under the plan has resulted or will 
result from a case or proceeding under title 11 United States Code 
(Bankruptcy) with respect to an employer, 2) plan is likely to become 
insolvent, 3) contributions will have to be increased significantly in 
reorganization to meet the minimum contribution requirement and 
prevent insolvency, and 4) partition would significantly reduce the 
likelihood that the plan will become insolvent. 

[45] In addition to an earlier partition of the Council 30 of the 
Retail, Wholesale, and Department Stores Union plan, PBGC partitioned 
the Chicago Truck Drivers Union Pension Plan in 2010. In each case, 
rather than administering the plan directly, PBGC provides sufficient 
funding to the plan to pay the orphaned beneficiaries guaranteed 
benefits, along with relevant administrative expenses. 

[46] H.R. 5479, 111TH Cong. (2010). Other sources of federal 
assistance may also be considered. For example, prior proposed 
legislation included a provision for diverting funds from PBGC's 
single-employer program to provide assistance to multiemployer plans. 
S. 3157, 111TH Cong. (2010). However, as we have previously reported, 
PBGC's single-employer program also faces significant long run 
financial challenges and the program has been on GAO's high risk list 
since 2003. See GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-11-278] (Washington, D.C.: February 
2011), 150-153 and Pension Benefit Guaranty Corporation: Single-
Employer Pension Insurance Program Faces Significant Long-Term Risks, 
[hyperlink, http://www.gao.gov/products/GAO-04-90] (Washington, D.C.: 
October 29, 2003). 

[47] Coal Accountability and Retired Employee Act of 2010 (CARE Act), 
H.R. 5479. 

[48] For example, according to representatives from one large severely 
underfunded plan, total vested benefits attributable to participants 
whose employer left the plan without paying their full share of 
withdrawal liability was $2.7 billion as of 2009. The plan's total 
vested benefits amounted to $6.7 billion in 2009. 

[49] While this report was submitted for agency comments, the House 
Subcommittee on Health, Employment, Labor and Pensions held a hearing 
on challenges facing multiemployer plans on March 5, 2013 where the 
issue of further raising premiums was discussed. Starting in 2013, 
premiums paid by multiemployer plans increased from $9 per participant 
to $12 per participant and are indexed thereafter. Premiums for 
multiemployer plans are considerably lower than for single-employer 
plans commensurate with the lower benefit guarantee for multiemployer 
plans. In addition, unlike with single-employer plans, contributing 
employers in multiemployer plans act as the principal guarantor while 
PBGC is the guarantor of last resort. 

[50] PBGC Insurance of Multiemployer Pension Plans: Report to Congress 
Required by the Employee Retirement Income Security Act of 1974, as 
amended, Pension Benefit Guaranty Corporation, Washington D.C., 
January 2013. 

[51] In their report, PBGC neither proposed nor recommended the 
adoption of increased premiums for the multiemployer program. 

[52] In 2012, we reported on challenges facing PBGC's single-employer 
program and its premium structure and recommended that Congress 
consider authorizing a redesign of PBGC's premium structure to more 
fully reflect the risk posed by plans and sponsors to the agency. For 
more information, see: GAO, Pension Benefit Guaranty Corporation: 
Redesigned Premium Structure Could Better Align Rates with Risk from 
Plan Sponsors, [hyperlink, http://www.gao.gov/products/GAO-13-58] 
(Washington, D.C.: November 2012). 

[53] Except in cases of a mass withdrawal, withdrawal liability 
payments are subject to a 20-year cap. Thus, even if the annual 
payments made, which are based on the employer's previous contribution 
level, for the 20-year period are insufficient to cover the cost of 
the employer's withdrawal liability, they are not obligated to pay the 
remainder of the amount of unfunded vested benefits. 

[54] NCCMP's proposal would allow plans this flexibility subject to 
limitations. For example, increases in a plan's normal retirement age 
would not apply to current retirees or participants who are within 10 
years of the existing normal retirement age. 

[55] We have previously reported on some of the challenges workers 
face in accumulating sufficient retirement savings in DC plans. See, 
for example: GAO, 401(k) Plans: Policy Changes Could Reduce the Long-
term Effects of Leakage on Workers' Retirement Savings, [hyperlink, 
http://www.gao.gov/products/GAO-09-715] (Washington, D.C.: August 
2009); Private Pensions: Alternative Approaches Could Address 
Retirement Risks Faced by Workers but Pose Trade-offs, [hyperlink, 
http://www.gao.gov/products/GAO-09-642] (Washington, D.C.: July 2009); 
and Retirement Income: Ensuring Income throughout Retirement Requires 
Difficult Choices, [hyperlink, http://www.gao.gov/products/GAO-11-400] 
(Washington, D.C.: June 2011). 

[56] For information on challenges facing PBGC's single-employer 
program and its premium structure, see: GAO, Pension Benefit Guaranty 
Corporation: Redesigned Premium Structure Could Better Align Rates 
with Risk from Plan Sponsors, [hyperlink, 
http://www.gao.gov/products/GAO-13-58] (Washington, D.C.: November 
2012). 

[57] In fiscal year 2011, PBGC provided $15.1 million to help plan 
sponsors close out or merge five plans. 

[End of section] 

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