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entitled 'Private Pensions: Multiemployer Plans Face Short-and Long-
Term Challenges' which was released on March 26, 2004.

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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

March 2004:

Private Pensions:

Multiemployer Plans Face Short-and Long-Term Challenges:

GAO-04-423:

GAO Highlights:

Highlights of GAO-GAO-04-423, a report to congressional requesters 

Why GAO Did This Study:

Multiemployer-defined benefit pension plans, which are created by 
collective bargaining agreements covering more than one employer and 
generally operated under the joint trusteeship of labor and 
management, provide coverage to over 9.7 million of the 44 million 
participants insured by the Pension Benefit Guaranty Corporation 
(PBGC). The recent termination of several large single-employer plans—
plans sponsored by individual firms—has led to millions of dollars in 
benefit losses for thousands of workers and left PBGC, their public 
insurer, an $11.2 billion deficit as of September 30, 2003. The 
serious difficulties experienced by these single-employer plans have 
prompted questions about the health of multiemployer plans. This 
report provides the following information on multiemployer pension 
plans: (1) Trends in funding and worker participation, (2) PBGC's role 
regarding the plans’ financial solvency, and (3) potential challenges 
to the plans’ long-term prospects. GAO is making no recommendations.

What GAO Found:

Following 2 decades of relative financial stability, multiemployer 
plans as a group appear to have suffered recent and significant 
funding losses, while long-term declines in participation and new plan 
formation continue unabated. At the close of the 1990s, the majority 
of multiemployer plans reported assets exceeding 90 percent of total 
liabilities. Recently, however, stock market declines, coupled with 
low interest rates and poor economic conditions, appear to have 
reduced assets and increased liabilities for many plans. PBGC reported 
an accumulated net deficit of $261 million for its multiemployer 
program in 2003, the first since 1981. Meanwhile, since 1980, the 
number of plans has declined from over 2,200 to fewer than 1,700 
plans, and there has been a long-term decline in the total number of 
active workers.

PBGC monitors those multiemployer plans, which may, in PBGC’s view, 
present a risk of financial insolvency. PBGC also provides technical 
and financial assistance to troubled plans and guarantees a minimum 
level of benefits to participants in insolvent plans. PBGC annually 
reviews the financial condition of plans to determine its potential 
insurance liability. Although the agency does not trustee the 
administration of insolvent multiemployer plans as it does with single-
employer plans, it does offer them technical assistance and loans. 
PBGC loans have been rare, with loans to only 33 plans, totaling $167 
million since 1980.

Several factors pose challenges to the long-term prospects of the 
multiemployer system. Some are inherent to the multiemployer 
regulatory framework, such as the greater perceived financial risk and 
reduced flexibility for employers compared to other plan designs, and 
suggest that fewer employers will find such plans attractive. Also, 
the long-term decline of collective bargaining results in fewer new 
participants to expand or create new plans. Other factors threaten all 
defined benefit plans, including multiemployer plans: the growing 
trend among employers to choose defined contribution plans; the 
increasing life expectancy of workers, which raises the cost of plans; 
and continuing increases in employer health insurance costs, which 
compete with pensions for employer funding.


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[End of section]

Contents:

Letter:

Results in Brief:

Background:

The Financial Stability of Multiemployer Plans Has Likely Weakened 
Recently, While Long-term Declines in the Number of Plans and 
Participants Continue:

PBGC Monitors Multiemployer Plans for Financial Problems, Provides 
Technical and Financial Assistance, and Guarantees a Minimum Level of 
Benefits:

A Number of Factors Challenge the Long-term Prospects of the 
Multiemployer Defined Benefit System:

Concluding Observations:

Agency Comments:

Figures:

Figure 1: Aggregate Net Funding Position of PBGC-Insured DB Pension 
Plans, 1980-2001:

Figure 2: Distribution of PBGC-Insured DB Pension Plans by Number of 
Plan Participants, 2003:

Figure 3: Distribution of Participants of PBGC-Insured DB Pension Plans 
by Plan Size, 2003:

Figure 4: PBGC Multiemployer Program Assets, Liabilities, and Net 
Position, 1980-2003:

Figure 5: PBGC-Insured Active Participants as a Percentage of Private 
Sector Wage and Salary Workers, 1980-2001:

Figure 6: Number of Active Participants per Retiree, 1980-2001:

Figure 7: Number of PBGC-Insured DB Plans, 1986-2003:

Abbreviations:

DB: defined benefit:

DC: defined contribution:

ERISA: Employee Retirement Income Security Act:

IRC: Internal Revenue Code:

IRS: Internal Revenue Service:

MPPAA: Multiemployer Pension Plan Amendments Act:

NLRA: National Labor Relations Act:

PBGC: Pension Benefit Guaranty Corporation:

United States General Accounting Office:

Washington, DC 20548:

March 26, 2004:

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

The Honorable Sam Johnson: 
Chairman: 
Subcommittee on Employer-Employee Relations: 
Committee on Education and the Workforce: 
House of Representatives:

Multiemployer pension plans, which are created by collective bargaining 
agreements covering more than one employer and generally operate under 
the joint trusteeship of labor and management, comprise an important 
segment of the nation's private employer pension system. These defined 
benefit (DB) pension plans--plans promising a benefit that is generally 
based on an employee's years of service and either a flat dollar amount 
or the employee's salary--cover over 9.7 million participants, 
representing about 22 percent of all workers and retirees insured by 
the Pension Benefit Guaranty Corporation (PBGC). The recent collapse 
and termination of several large single-employer plans--where 
individual employers are responsible for funding and administering the 
plan--have resulted in millions of dollars in benefit losses for 
thousands of workers and left PBGC, their public insurer, an $11.2 
billion deficit as of September 30, 2003. The serious difficulties 
experienced by these single-employer plans have prompted questions 
about the health of the nation's multiemployer-defined benefit plans.

Given the high financial stakes involved for both the employers and the 
millions of workers and retirees participating in multiemployer pension 
plans, you asked us to describe (1) trends in funding and worker 
participation in these plans; (2) PBGC's role regarding the plans' 
financial solvency; and (3) potential challenges to the plans' long-
term prospects.

To determine the trends in the funded status of multiemployer-defined 
benefit plans, we analyzed Form 5500 disclosure statements and PBGC 
data. The Form 5500, which plans must file with the U. S. Department of 
Labor, is an important source of financial and other plan information 
on private pension plans collected on a regular basis.[Footnote 1] Form 
5500 provides important pension information, such as the number of plan 
participants and data on the financial condition of plans. However, the 
most recent Form 5500 data are from 2001, making it difficult to 
accurately discern recent trends. Although some data obtained from PBGC 
may be more recent, much of it is based on the Form 5500. This lack of 
comprehensive data makes it difficult to depict recent developments, 
particularly with regard to plan funding.

To determine PBGC's role regarding the financial stability of 
multiemployer plans, we reviewed the requirements under the Employee 
Retirement Income Security Act (ERISA) and the Multiemployer Pension 
Plan Amendments Act (MPPAA) of 1980. We reviewed PBGC procedures for 
identifying at-risk plans and for taking action to assist plans, 
discussed these actions with agency officials, and obtained statistics 
on PBGC multiemployer activities since 1980. To identify the major 
challenges to the future prospects of multiemployer plans, we reviewed 
pension literature and interviewed representatives in government, 
industry, and labor involved with such plans. We conducted our work 
from April 2003 through January 2004 in accordance with generally 
accepted government auditing standards.

Results in Brief:

After 2 decades of financial stability, many multiemployer plans appear 
to have suffered recent and significant funding losses; meanwhile, 
long-term declines continue in terms of new plan formation and worker 
participation. At the close of the 1990s, the majority of multiemployer 
plans had reported assets exceeding 90 percent of total liabilities, 
with average funding rising to 105 percent in 2000. However, subsequent 
stock market declines, coupled with low interest rates and poor 
economic conditions have likely reduced the assets and increased 
liabilities for many multiemployer plans. Comprehensive funding data 
are not available to depict recent developments, but significant signs 
of funding weakness exist. In its 2003 Annual Report, PBGC estimated 
that underfunded multiemployer plans now face an aggregate unfunded 
liability reaching $100 billion. While most multiemployer plans 
continue to provide benefits to retirees at unreduced levels, the 
agency has increased its forecast of the number of plans that will 
likely need financial assistance from 56 plans in 2001 to 62 in 2003. 
PBGC also reported that its multiemployer program had an accumulated 
net deficit of $261 million at the end of 2003, the program's first 
deficit since 1981. Private survey data corroborate this trend, with 
one survey by an actuarial consulting firm showing a decline in the 
percentage of fully funded client plans from 83 percent in 2001 to 67 
percent in 2002. Meanwhile, multiemployer plans have continued their 
steady, long-term decline in numbers and worker participation. The 
number of plans has dropped by a quarter since 1980 to fewer than 
1,700, and only 5 new plans have been formed since 1992. The number of 
workers covered by multiemployer plans has also fallen by 1.4 million 
since 1980, with the percentage of the private sector labor force 
covered by multiemployer plans declining from 7.7 percent in 1980 to 
4.1 percent in 2001.

PBGC monitors those multiemployer plans, which may, in PBGC's view, 
present a risk of financial insolvency. PBGC also provides technical 
and financial assistance to troubled plans and guarantees a minimum 
level of benefits to participants in insolvent plans. For example, PBGC 
annually reviews the financial condition of multiemployer plans to 
identify those that may have potential financial problems in the near 
future. Agency officials told us that troubled plans often solicit 
PBGC's technical assistance. Occasionally, plan officials ask PBGC to 
serve as a facilitator where the agency works with all the parties 
associated with the troubled plan to improve its financial status. 
Examples of such assistance by PBGC include facilitating the merger of 
several troubled plans into one stronger plan and the "orderly 
shutdown" of plans, allowing the affected employers to continue to 
operate and pay benefits until all liabilities are paid. Unlike its 
role in the single-employer program, where PBGC trustees weak plans and 
pays benefits directly to participants, PBGC does not take over the 
administration of multiemployer plans, but instead provides financial 
assistance in the form of loans when plans become insolvent and are 
unable to pay benefits at PBGC-guaranteed levels. Such financial 
assistance is comparatively rare; PBGC has made loans to only 33 
multiemployer plans totaling $167 million since 1980, compared with 296 
trusteed terminations of single-employer plans and PBGC benefit 
payments of over $4 billion in 2002-2003 alone. PBGC officials believe 
that the low frequency of PBGC financial assistance to multiemployer 
plans is likely due to features of the multiemployer insurance 
regulatory framework: (1) employers share the risk for providing 
benefits to all participants in the plan and not just their own 
employees and (2) benefit guarantees are set at a lower level for the 
multiemployer insurance program compared with the guarantees provided 
by the single-employer program. According to agency officials, these 
features encourage the affected parties to collaborate constructively 
to address a plan's financial difficulties.

A number of factors challenge the long-term prospects of the 
multiemployer plan system. Some are inherent to multiemployer plan 
design and regulatory framework, which employers may perceive as 
financially riskier and less flexible than other types of pension 
plans. For example, compared with single-employer plan, an employer 
participating in multiemployer plan cannot as easily adjust plan 
contributions in response to the firm's own financial circumstances. 
This is because contribution rates are often fixed for periods of time 
by the provisions of the collective bargaining agreement. Also, 
multiemployer sponsors may face the risk of additional costs if one or 
more sponsors are unable to fund their share of plan-vested benefits. 
The long-term decline of collective bargaining is another factor 
adversely affecting multiemployer plan growth, in that fewer employers 
and workers are available to provide opportunities for new plans to be 
created or existing ones to expand. As of 2003, union membership, a 
proxy for collective bargaining coverage, accounted for less than 9 
percent of the private sector labor force and has been steadily 
declining since 1953. Finally, experts have identified other factors 
challenging the future prospects for defined benefit plans generally, 
including multiemployer plans. These factors include the growing trend 
among employers to choose defined contribution (DC) plans;[Footnote 2] 
the increasing life expectancy of American workers, which will increase 
benefit costs; and continuing increases in health insurance costs, 
which will affect overall compensation costs, including pensions, for 
employers.

Background:

Multiemployer plans are established pursuant to collectively bargained 
pension agreements negotiated between labor unions representing 
employees and two or more employers and are generally jointly 
administered by trustees from both labor and management.[Footnote 3] 
Multiemployer plans typically cover groups of workers in such 
industries as trucking, building and construction, and retail food 
sales. These plans provide participants limited benefit portability in 
that they allow workers the continued accrual of defined benefit 
pension rights when they change jobs, if their new employer is also a 
sponsor of the same plan. This arrangement can be particularly 
advantageous in industries like construction, where job change within a 
single industry is frequent over the course of a career. Multiemployer 
plans are distinct from single-employer plans, which are established 
and maintained by only one employer and where the plans may or may not 
be collectively bargained. Multiemployer plans also differ from so 
called multiple-employer plans that are not generally established 
through collective bargaining agreements and where many such plans have 
separate funding accounts for each employer.

Since the enactment of the National Labor Relations Act 
(NLRA),[Footnote 4] in 1935, collective bargaining has been the primary 
means by which workers can negotiate, through unions, the terms of 
their pension plan. In 1935, NLRA required employers to bargain with 
union representatives over wages and other conditions of employment, 
and subsequent court decisions established that employee benefit plans 
could be among those conditions. The Taft Hartley Act amended NLRA to 
establish terms for negotiating such employee benefits and placed 
certain restrictions on the operation of any plan resulting from those 
negotiations. For example, employer contributions cannot be made to a 
union or its representative but must be made to a trust that has an 
equal balance of union and employer representation.[Footnote 5]

Since its enactment in 1974, multiemployer defined benefit pensions 
have been regulated by the Employee Retirement Income Security Act 
(ERISA), which Congress passed to protect the interests of participants 
and beneficiaries covered by private sector employee benefit plans. 
Title IV of ERISA created PBGC as a U. S. Government corporation to 
insure the pensions of participants and beneficiaries in private 
sector-defined benefit plans. In 1980, Congress enacted the 
Multiemployer Pension Plan Amendments Act (MPPAA) of 1980 to protect 
the pensions of participants in multiemployer plans by establishing a 
separate PBGC multiemployer plan insurance program and by requiring any 
employer wanting to withdraw from a multiemployer plan to be liable for 
its share of the plan's unfunded liability. This amount is based upon a 
proportional share of the plans' unfunded vested benefits.[Footnote 6] 
Liabilities that cannot be collected from a withdrawn employer are 
"rolled over" and must eventually be funded by the plans remaining 
employers.

PBGC operates distinct insurance programs, for multiemployer plans and 
single-employer plans, which have separate insurance funds, different 
benefit guarantee rules, and different insurance coverage rules. The 
two insurance programs and PBGC's operations are financed through 
premiums paid annually by plan sponsors, investment returns on PBGC 
assets, assets acquired from terminated single employer plans, and by 
recoveries from employers responsible for underfunded terminated single 
employer plans.[Footnote 7] Premium revenue totaled about $973 million 
in 2003, of which $948 million was paid into the single-employer 
program and $25 million paid to the multiemployer program.[Footnote 8]

Over the last few years, the finances of PBGC's single-employer 
insurance program have taken a severe turn for the worse. Although the 
program registered a $9.7 billion accumulated surplus as recently as 
2000, it reported a $11.2 billion accumulated deficit for fiscal year 
2003, primarily brought on by the termination of a number of large 
underfunded pension plans. Several underlying factors contributed to 
the severity of the plans' underfunded condition at termination, 
including a sharp decline in the stock market, which reduced plan asset 
values, and a general decline in interest rates, which increased the 
cost of terminating defined benefit pension plans.[Footnote 9] Because 
of its accumulated deficit, the significant risk that other large 
underfunded plans might terminate and other structural factors, we 
designated PBGC's single-employer pension insurance program as a "high 
risk" program and added it to the list of agencies and major programs 
that we believe need urgent attention.[Footnote 10]

In general, the same ERISA funding rules apply to both single and 
multiemployer defined benefit pension plans. However, there are some 
important differences. For example, while single-employer plan sponsors 
can adjust their pension contributions to meet their needs, within the 
overall set of ERISA and Internal Revenue Code (IRC) rules, individual 
employers in multiemployer plans cannot as easily adjust their plan 
contributions. For multiemployer plans, contribution levels are usually 
negotiated through the collective bargaining process and are fixed for 
the term of the collective bargaining agreement, typically 2 to 3 
years. Benefit levels are generally also fixed by the contract or by 
the plan trustees. Employer contributions to multiemployer plans are 
typically made on a set dollar amount per hour of covered work. For 
many multiemployer plans, contributions are directly tied to the total 
number of hours worked, and thus, to the number of active plan 
participants. With other things being equal, the reduced employment of 
active participants will result in lower contributions and reduced plan 
funding.[Footnote 11]

The U. S. employer-sponsored pension system has historically been an 
important component of total retirement income, providing roughly 18 
percent of aggregate retirement income in 2000. However, millions of 
workers continue to face the prospect of retirement with no income from 
an employer-sponsored pension. The percentage of the workforce with 
pension coverage has been near 50 percent since the 1970s. Lower-income 
workers, part-time employees, employees of small businesses, and 
younger workers typically have lower rates of pension coverage. 
Retirees with pension incomes are more likely to avoid poverty. For 
example, 21 percent of retired persons without pension incomes had 
incomes below the federal poverty level, compared with 3 percent with 
pension incomes.[Footnote 12] Of those workers covered by a pension, 
such coverage is increasingly being provided by defined contribution 
pension plans. Surveys have reported a worker preference for defined 
contribution plans, with employers citing worker preference for 
transparency of plan value and improved benefit portability. As of 
1998, the most recent published data available, 27 percent of the 
private sector labor force was covered by a DC plan, as their primary 
pension plan, up from 7 percent in 1979.

The Financial Stability of Multiemployer Plans Has Likely Weakened 
Recently, While Long-term Declines in the Number of Plans and 
Participants Continue:

While multiemployer plan funding has exhibited considerable stability 
over the past 2 decades, available data suggest that many plans have 
recently experienced significant funding declines. Since 1980, 
aggregate multiemployer plan funding has been stable, with the majority 
of plans funded above 90 percent of total liabilities and average 
funding at 105 percent by 2000. Recently, however, it appears that a 
combination of stock market declines coupled with low interest rates 
and poor economic conditions have reduced the assets and increased the 
liabilities of many multiemployer plans. In PBGC's 2003 Annual Report, 
the agency estimated that total underfunding of underfunded 
multiemployer plans reached $100 billion by year-end, from $21 billion 
in 2000, and that its multiemployer program had recorded a year-end 
2003 deficit of $261 million, the first deficit in more than 20 years. 
While most multiemployer plans continue to provide benefits to retirees 
at unreduced levels, the agency has also increased its forecast of the 
number of plans that will likely need financial assistance, from 56 
plans in 2001 to 62 plans in 2003. Private survey data are consistent 
with this trend, with one survey by an actuarial consulting firm 
showing the percentage of fully funded client plans declining from 83 
percent in 2001 to 67 percent in 2002. In addition, long-standing 
declines in the number of plans and worker participation continue. The 
number of insured multiemployer plans has dropped by a quarter since 
1980 to fewer than 1,700 plans in 2003, the latest data available. 
Although in 2001, multiemployer plans in the aggregate covered 4.7 
million active participants, representing about a fifth of all defined 
benefit plan participants, this number has dropped by 1.4 million since 
1980.

Multiemployer Plan Funding Remained Stable during the 1980s and 1990s:

Aggregate funding for multiemployer pension plans remained stable 
during the 1980s and 1990s. By 2000, the majority of multiemployer 
plans reported assets exceeding 90 percent of total liabilities, with 
the average plan funded at 105 percent of liabilities. As shown in 
figure 1, the aggregate net funding of multiemployer plans grew from a 
deficit of about $12 billion in 1980 to a surplus of nearly $17 billion 
in 2000. From 1980 to 2000, multiemployer plan assets grew at an annual 
average rate of 11.7 percent, to about $330 billion, exceeding the 
average 10.5 percent annual percentage growth rate of single-employer 
plan assets. During the same time period, liabilities for multiemployer 
and single-employer pensions grew at an average annual rate of about 
10.2 percent and 9.9 percent, respectively.

Figure 1: Aggregate Net Funding Position of PBGC-Insured DB Pension 
Plans, 1980-2001:

[See PDF for image]

[End of figure]

A number of factors appear to have contributed to the funding stability 
of multiemployer plans, including:

Investment Strategy--Historically, multiemployer plans appear to have 
invested more conservatively than their single-employer counterparts. 
Although comprehensive data are not available, some pension experts 
have suggested that defined benefit plans in the aggregate are more 
than 60 percent invested in equities,[Footnote 13] which are associated 
with greater risk and volatility than many fixed-income securities. 
Experts have stated that, in contrast, equity holdings generally 
comprise 55 percent or less of the assets of most multiemployer 
plans.[Footnote 14]

Contribution Rates--Unlike single-employer plans, multiemployer plan 
funds receive steady contributions from employers because those amounts 
generally have been set through multiyear collective bargaining 
contracts. Participating employers, therefore, have less flexibility to 
vary their contributions in response to changes in firm performance, 
economic conditions, and other factors. This regular contribution 
income is in addition to any investment return and helps multiemployer 
plans offset any declines in investment returns.

Risk Pooling--The pooling of risk inherent in multiemployer pension 
plans may also have buffered them against financial shocks and 
recessions since the contributions to the plans are less immediately 
affected by the economic performance of individual employer plan 
sponsors. Multiemployer pension plans typically continue to operate 
long after any individual employer goes out of business because the 
remaining employers in the plan are jointly liable for funding the 
benefits of all vested participants.

Greater Average Plan Size--The stability of multiemployer plans may 
also be due in part to their size. Large plans (1,000 or more 
participants) constitute a greater proportion of multiemployer plans 
than of single-employer plans. (See figs. 2 and 3.) While 55 percent of 
multiemployer plans are large, only 13 percent of single-employer plans 
are large and 73 percent of single-employer plans have had fewer than 
250 participants, as shown in figure 2. However, distribution of 
participants by plan size for multiemployer and single-employer plans 
is more comparable, with over 90 percent of both multiemployer and 
single-employer participants in large plans, as shown in figure 3.

Figure 2: Distribution of PBGC-Insured DB Pension Plans by Number of 
Plan Participants, 2003:

[See PDF for image]

[End of figure]

Figure 3: Distribution of Participants of PBGC-Insured DB Pension Plans 
by Plan Size, 2003:

[See PDF for image]

[End of figure]

Limited Data Suggest the Funded Status of Multiemployer Plans Has 
Declined Since 2000:

Although data limitations preclude any comprehensive assessment, 
available evidence suggests that since 2000, many multiemployer plans 
have recently experienced significant reductions in their funded 
status. PBGC estimated in its 2003 Annual Report that the aggregate 
deficit of underfunded multiemployer plans had reached $100 billion by 
year-end, up from a $21 billion deficit at the start of 2000. In 
addition, PBGC reported its own multiemployer insurance program deficit 
of $261 million for fiscal year 2003, the first deficit since 1981 and 
its largest ever. (See fig. 4.) While most multiemployer plans continue 
to provide benefits to retirees at unreduced levels, PBGC has also 
reported that the deficit was primarily caused by new and substantial 
probable losses, increasing the number of plans it classifies as likely 
requiring financial assistance in the near future from 58 plans with 
expected liabilities of $775 million in 2002 to 62 plans with expected 
liabilities of $1.25 billion in 2003.[Footnote 15]

Private survey data and anecdotal evidence are consistent with this 
assessment of multiemployer funding losses. One survey by an actuarial 
consulting firm showed that the percentage of its multiemployer client 
plans that were fully funded declined from 83 percent in 2001 to 67 
percent in 2002.[Footnote 16] Other, more anecdotal evidence suggests 
increased difficulties for multiemployer plans. Discussions with plan 
administrators have indicated that there has been an increase in the 
number of plans with financial difficulties in recent years, with some 
plans reducing or temporarily freezing the future accruals of 
participants. In addition, IRS officials recently reported an increase 
in the small number of multiemployer plans (less than 1 percent of all 
multiemployer plans) requesting tax-specific waivers that would provide 
plans relief from current funding shortfall requirements.

Figure 4: PBGC Multiemployer Program Assets, Liabilities, and Net 
Position, 1980-2003:

[See PDF for image]

[End of figure]

As with single-employer plans, falling interest rates coincident with 
stock market declines and generally weak economic conditions have 
contributed to the funding difficulties of many multiemployer plans. 
The decline in interest rates in recent years has increased pension 
plan liabilities for DB plans in general, because their liability for 
future promised benefits increases when computed using a lower interest 
rate. At the same time, declining stock markets decreased the value of 
any equities held in multiemployer plan portfolios to meet those 
obligations. Finally, because multiemployer plan contributions are 
usually based on the number of hours worked by active participants, any 
reduction in their employment will reduce employer contributions to the 
plan.

Multiemployer Plans Are Experiencing Long-term Declines in Plan 
Formation and Worker Participation:

Over the past 2 decades, the multiemployer system has experienced a 
steady decline in the number of plans and in the number of active 
participants. In 1980, there were 2,244 plans and by 2003 the number 
had fallen to 1,631, a decline of about 27 percent. While a portion of 
the decline in the number of plans can be explained by consolidations 
through mergers, few new plans have been formed, only 5, in fact, since 
1992. Meanwhile, the number of active multiemployer plan participants 
has declined both in relative and absolute terms. By 2001, only about 
4.1 percent of the private sector workforce was comprised of active 
participants in multiemployer pension plans, down from 7.7 percent in 
1980 (see fig. 5), with the total number of active participants 
decreasing from about 6.1 million to about 4.7 million.[Footnote 17]

Figure 5: PBGC-Insured Active Participants as a Percentage of Private 
Sector Wage and Salary Workers, 1980-2001:

[See PDF for image]

[End of figure]

Finally, as the number of active participants has declined, the number 
of retirees increased--from about 1.4 million to 2.8 million, and this 
increase had led to a decline in the ratio of active (working) 
participants to retirees in multiemployer plans. By 2001, there were 
about 1.7 active participants for every retiree, compared with 4.3 in 
1980. (See fig. 6.) While the trend is also evident among single-
employer plans, the decline in the ratio of active workers to retirees 
affects multiemployer funding more directly because employer 
contributions are tied to active employment.

Figure 6: Number of Active Participants per Retiree, 1980-2001:

[See PDF for image]

[End of figure]

PBGC Monitors Multiemployer Plans for Financial Problems, Provides 
Technical and Financial Assistance, and Guarantees a Minimum Level of 
Benefits:

PBGC's role regarding multiemployer plans includes monitoring plans for 
financial problems, providing technical and financial assistance to 
troubled plans, and guaranteeing a minimum level of benefits to 
participants in insolvent plans. For example, PBGC annually reviews the 
financial condition of multiemployer plans to identify those that may 
have potential financial problems in the near future. Agency officials 
told us that troubled plans often solicit their technical assistance 
since under the multiemployer framework, affected parties have a vested 
interest in a plan's survival. Occasionally, PBGC is asked to serve as 
a facilitator where the agency works with all the parties associated 
with the troubled plan to improve its financial status. Examples of 
such assistance by PBGC include facilitating the merger of troubled 
plans into one stronger plan and the "orderly shutdown" of plans, 
allowing the affected employers to continue to operate and pay benefits 
until all liabilities are paid. Unlike its role in the single-employer 
program where PBGC trustees weak plans and pays benefits directly to 
participants, PBGC does not take over the administration of 
multiemployer plans, but instead, upon application, provides financial 
assistance in the form of loans when plans become insolvent and are 
unable to pay benefits at PBGC-guaranteed levels. Such financial 
assistance is infrequent; for example, PBGC has made loans totaling 
$167 million to 33 multiemployer plans since 1980 compared with 296 
trusteed terminations of single-employer plans and PBGC benefit 
payments of over $4 billion in 2002-2003 alone. PBGC officials believe 
that the low frequency of PBGC financial assistance to multiemployer 
plans is likely due to specific features of the multiemployer insurance 
regulatory framework: (1) the employers sponsoring the plan share the 
risk for providing benefits to all participants in the plan and (2) 
benefit guarantees are set at a lower level for the multiemployer 
insurance program compared with the guarantees provided by the single-
employer program. Agency officials say that together these features 
encourage the affected parties to collaborate on their own to address 
the plan's financial difficulties.

PBGC's Role of Monitoring Plans and Identifying Those at Risk Is 
Similar for Its Single-Employer and Multiemployer Programs:

Several of PBGC's functions regarding its multiemployer program and its 
single-employer program are similar. For example, under both programs 
PBGC monitors the financial condition of all plans to identify those 
that are at-risk of requiring financial assistance. The agency 
maintains a database of financial information about such plans that 
draws its data from both PBGC premium filings and the Form 
5500.[Footnote 18] Using an automated screening process[Footnote 19] 
that measures each plan against funding and financial standards, the 
agency determines which plans may be at risk of termination or 
insolvency. For both, PBGC also annually identifies plans that it 
considers probable or reasonably possible liabilities and enumerates 
their aggregate unfunded liabilities in the agency's annual financial 
statements for each program.[Footnote 20]

PBGC Provides Technical Assistance to Troubled Plans and Loans to 
Insolvent Ones:

The type of assistance PBGC provides to troubled plans through its 
multiemployer program is shaped to a degree by the program's definition 
of the "insurable event." PBGC insures against multiemployer plan 
insolvency. A multiemployer plan is insolvent when its available 
resources are not sufficient to pay the level of benefits at PBGC's 
multiemployer guaranteed level for 1 year. In such cases, PBGC will 
provide the needed financial assistance in the form of a loan. If the 
plan recovers from insolvency, it must begin repaying the loan on a 
commercially reasonable schedule in accordance with regulations. Under 
MPPAA, unlike its authority towards single-employer plans, PBGC does 
not takeover or otherwise assume responsibility for the liabilities of 
a financially troubled multiemployer plan.[Footnote 21]

PBGC sometimes provides technical assistance to help multiemployer plan 
administrators improve their funding status or for help on other 
issues. Plan administrators may contact PBGC's customer service 
representatives at designated offices to obtain assistance on such 
matters as premiums, plan terminations, and general legal questions 
related to PBGC. Agency officials told us that on a few occasions PBGC 
has worked with plan administrators to facilitate plan mergers, 
"orderly shutdowns," and other arrangements to protect plan 
participants' benefits. For example, in 1997, PBGC worked with the 
failing Local 675 Operating Engineers Pension Fund and the Operating 
Engineers Central Pension Fund to effect a merger of the two 
plans.[Footnote 22] However, PBGC officials also told us that the 
majority of mergers are crafted by private sector parties and have no 
substantial PBGC involvement.

PBGC has also on occasion assisted in the orderly shutdown of plans. 
For example, agency officials told us that, in 2001, they helped 
facilitate the shutdown of the severely underfunded Buffalo Carpenters' 
Pension Fund. PBGC has the authority to approve certain plan rules 
governing withdrawal liability payments [Footnote 23] and did so in 
this case approving the plan's request to lower its annual payments, 
which made it possible for the employers to remain in business and pay 
benefits until all liabilities were paid.[Footnote 24]

In those cases where a multiemployer plan cannot pay guaranteed 
benefits, PBGC provides financial assistance in the form of a loan to 
allow the plan to continue to pay benefits at the level guaranteed by 
PBGC. A multiemployer plan need not be terminated to qualify for PBGC 
loans, but must be insolvent and is allowed to reduce or suspend 
payment of that portion of the benefit that exceeds the PBGC guarantee 
level. The number of loans and amount of financial assistance from PBGC 
to multiemployer plans has been small in comparison to the benefits 
paid out under its single-employer program. Since 1980, the agency has 
provided loans to 33 plans totaling $167 million. In 2003, PBGC 
provided $5 million in loans to 24 multiemployer plans.[Footnote 25] 
This compares with 296 trusteed terminations of single-employer plans 
and PBGC benefit payments of over $4 billion to single-employer plan 
beneficiaries in 2002 and 2003 alone.[Footnote 26]

PBGC officials say that this lower frequency of financial assistance is 
primarily due to key features of the multiemployer regulatory 
framework. First, in comparison to that governing the single-employer 
program, the regulatory framework governing multiemployer plans places 
greater financial risks on employers and workers and relatively less on 
PBGC. For example, in the event of the bankruptcy of an employer in a 
multiemployer plan, the remaining employers in the plan remain 
responsible for funding all plan benefits. Under the single-employer 
program, a comparable employer bankruptcy could leave PBGC responsible 
for any plan liabilities up to the PBGC-guaranteed level. In addition, 
the law provides a disincentive for employers seeking to withdraw from 
an underfunded plan by imposing a withdrawal liability based on its 
share of the plan's unfunded vested benefits.[Footnote 27] Another key 
feature is that multiemployer plan participants also bear greater risk 
than their single-employer counterparts because PBGC guarantees 
benefits for multiemployer pensioners at a much lower dollar amount 
than for single-employer pensioners: about $13,000 for 30 years of 
service for the former compared with about $44,000 annually per retiree 
at age 65 for the latter.[Footnote 28] PBGC officials explained that 
this greater financial risk on employers and lower guaranteed benefit 
level for participants in practice creates incentives for employers, 
participants, and their collective bargaining representatives to avoid 
insolvency and to collaborate in trying to find solutions to the plan's 
financial difficulties.

The smaller size of PBGC's multiemployer program might also contribute 
to the lower frequency of assistance. The multiemployer program's $1 
billion in assets and $1.3 billion in liabilities accounts for a 
relatively small portion of PBGC's total assets and liabilities, 
representing less than 3 percent of the total. Further, the 
multiemployer program covers just 22 percent of all defined benefit 
plan participants. There are also many fewer plans in the multiemployer 
program, about 1,700, as compared with about 30,000 single-employer 
plans. Other things equal, there are fewer opportunities for potential 
PBGC assistance to multiemployer plans than to single-employer 
plans.[Footnote 29]

A Number of Factors Challenge the Long-term Prospects of the 
Multiemployer Defined Benefit System:

A number of factors pose challenges to the long-term prospects of the 
multiemployer pension plan system. Some of these factors are specific 
to the features and nature of multiemployer plans, including a 
regulatory framework that some employers may perceive as financially 
riskier and less flexible than those covering other types of pension 
plans. For example, compared with a single-employer plan, an employer 
covered by a multiemployer plan cannot easily adjust annual plan 
contributions in response to the firm's own financial circumstances. 
Collective bargaining itself, a necessary aspect of the multiemployer 
plan model and another factor affecting plans' prospects, has also been 
in long-term decline, suggesting fewer future opportunities for new 
plans to be created or existing ones to expand. As of 2003, union 
membership, a proxy for collective bargaining coverage, accounted for 
less than 9 percent of the private sector labor force and has been 
steadily declining since 1953. Experts have identified other challenges 
to the future prospects of defined benefit plans generally, including 
multiemployer plans. These include the growing trend among employers to 
choose defined contribution plans over DB plans, including 
multiemployer plans, the continued growing life expectancy of American 
workers, resulting in participants spending more years in retirement, 
thus increasing benefit costs, and increases in employer-provided 
health insurance costs, which are increasing employers' total 
compensation costs generally, making them less willing or able to 
increase elements of compensation, like wages or pensions.

Certain Features of the Current Regulatory Framework and the Decline of 
Collective Bargaining May Discourage Future Plan Growth:

Some factors that raise questions about the long-term viability of 
multiemployer plans are specific to certain features of multiemployer 
plans themselves, including features of the regulatory framework that 
some employers may well perceive as less flexible and financially 
riskier than the features of other types of pension plans. For example, 
an employer covered by a multiemployer pension plan typically does not 
have the funding flexibility of a comparable employer sponsoring a 
single-employer plan. In many instances, the employer covered by the 
multiemployer plan cannot as easily adjust annual plan contributions in 
response to the firm's own financial circumstances. This is because 
contribution rates are often fixed for periods of time by the 
provisions of the collective bargaining agreement. Employers that value 
such flexibility might be less inclined to participate in a 
multiemployer plan. Employers in multiemployer plans may also face 
greater financial risks than those in other forms of pension plans. For 
example, an employer sponsor of a multiemployer plan that wishes to 
withdraw from the plan is liable for its share of pension plan benefits 
not covered by plan assets upon withdrawal from the plan, rather than 
when the plan terminates.[Footnote 30] Employers in plans with unfunded 
vested benefits face an immediate withdrawal liability that can be 
costly, while employers in fully funded plans face the potential of 
costly withdrawal liability if the plan becomes underfunded in the 
future.[Footnote 31] Thus, an employer's pension liabilities become a 
function not only of the employer's own performance but also the 
financial health of other employer plan sponsors. These additional 
sources of potential liability can be difficult to predict, increasing 
employers' level of uncertainty and risk. Some employers may hesitate 
to accept such risks if they can sponsor other plans that do not have 
them, such as 401(k) type defined contribution plans.[Footnote 32]

The future growth of multiemployer plans is also predicated on the 
future growth prospects of collective bargaining. Collective bargaining 
is an inherent feature of the multiemployer plan model. Collective 
bargaining, however, has been declining in the United States since the 
early 1950s. Currently, union membership, a proxy for collective 
bargaining coverage, accounts for less than 9 percent of the private 
sector labor force. In 1980, union membership accounted for about 19 
percent of the civilian workforce and about 27 percent of the civilian 
workforce in 1953.

Multiemployer Plans Are Limited by the Same Factors Affecting All 
Defined Benefit Plans:

Pension experts have suggested a variety of challenges faced by today's 
defined benefit pension plans, including multiemployer plans.[Footnote 
33] These include the continued general shift away from DB plans to 
defined contribution plans, and the increased longevity of the U.S. 
population, which translates into a lengthier and more costly 
retirement. In addition, the continued escalation of employer health 
insurance costs has placed pressure on the compensation costs of 
employers, including pensions.

Employers have tended to move away from DB plans and towards DC plans 
since the mid 1980s. The number of PBGC-insured defined benefit plans 
declined from 97,683 in 1980 to 31,135 in 2002. (See fig. 7.) The 
number of defined contribution plans sponsored by private employers 
nearly doubled from 340,805 in 1980 to 673,626 in 1998.[Footnote 34] 
Along with this continuing trend to sponsoring DC plans, there has also 
been a shift in the mix of plans that private sector workers 
participate. Labor reports that the percentage of private sector 
workers who participated in a primary DB plan has decreased from 38 
percent in 1980 to 21 percent by 1998, while the percentage of such 
workers who participated in a primary DC plan has increased from 8 to 
27 percent during this same period. Moreover, these same data show 
that, by 1998, the majority of active participants (workers 
participating in their employer's plan) were in DC plans, whereas 
nearly 20 years earlier the majority of participants were in DB 
plans.[Footnote 35] Experts have suggested a variety of explanations 
for this shift, including the greater risk borne by employers with DB 
plans, greater administrative costs and more onerous regulatory 
requirements, and that employees more easily understand and favor DC 
plans. These experts have also noted considerable employee demand for 
plans that state benefits in the form of an account balance and 
emphasize portability of benefits, such as is offered by 401(k) type 
defined contribution pension plans.

Figure 7: Number of PBGC-Insured DB Plans, 1986-2003:

[See PDF for image]

[End of figure]

The increased life expectancy of workers also has important 
implications for defined benefit plan funding, including multiemployer 
plans. The average life expectancy of males at birth has increased from 
66.6 in 1960 to 74.3 in 2000, with females at birth experiencing a rise 
of 6.6 years from 73.1 to 79.7 over the same period. As general life 
expectancy has increased in the United States, there has also been an 
increase in the number of years spent in retirement. PBGC has noted 
that improvements in life expectancy have extended the average amount 
of time spent by workers in retirement from 11.5 years in 1950 to 18 
years for the average male worker as of 2003. This increased duration 
of retirement has placed pressure on employers with defined benefit 
plans to increase their contributions to match this increase in benefit 
liabilities. This problem can be further exacerbated for those 
multiemployer plans with a shrinking pool of active workers because 
plan contributions are generally paid on a per work-hour basis, and 
thus employers may have to increase contributions for each hour worked 
by the remaining active participants to fund any liability increase.

Increasing health insurance costs are another factor affecting the 
long-term prospects of pensions, including multiemployer pensions. 
Recent increases in employer provided health insurance costs are 
accounting for a rising share of total compensation, increasing 
pressure on employers' ability to maintain wages and other benefits, 
including pensions. Bureau of Labor Statistics data show that the cost 
of employer provided health insurance has risen steadily in recent 
years, rising from 5.4 percent of total compensation in 1999 to 6.5 
percent as of the third quarter of 2003. A private survey of employers 
found that employer-sponsored health insurance costs rose about 14 
percent between the spring of 2002 and the spring of 2003, the third 
consecutive year of double digit acceleration and the highest premium 
increase since 1990.[Footnote 36] Plan administrators and employer and 
union representatives that we talked with identified the rising costs 
of employer provided health insurance as a key problem facing plans, as 
employers are increasingly forced to choose between maintaining current 
levels of pension or medical benefits.

Concluding Observations:

Although available evidence suggests that multiemployer plans are not 
experiencing anywhere near the magnitude of the problems that have 
recently afflicted the single-employer plans, there is cause for 
concern. Most significant is PBGC's estimate of $100 billion in 
unfunded multiemployer plan liabilities that are being borne 
collectively by employer sponsors and plan participants. Compared to 
the single-employer program, PBGC does not face the same level of 
exposure from this liability at this time. This is because, as PBGC 
officials have noted, the current regulatory framework governing 
multiemployer plans redistributes financial risk towards employers and 
workers and away from the government and potentially the taxpayer. 
Employers face withdrawal and other liabilities that can be 
significant, while workers face the prospect of receiving guaranteed 
benefits far lower and with benefit reduction at levels well below the 
guaranteed limits than those provided by PBGC's single-employer 
program, should their plan become insolvent. Together, not only do 
these features limit the exposure to PBGC and the taxpayer, they create 
important incentives for all interested parties to resolve difficult 
financial situations that could otherwise result in plan termination.

However, the declines in interest rates and equities markets, and weak 
economic conditions in the early 2000s, have increased the financial 
stress on both individual multiemployer plans and the multiemployer 
framework generally. Proposals to address this stress should be 
carefully designed and considered for their longer-term consequences. 
For example, proposals to shift plan liabilities to PBGC by making it 
easier for employers to exit multiemployer plans could help a few 
employers or participants but erode the existing incentives that 
encourage interested parties to independently face up to their 
financial challenges. In particular, placing additional liabilities on 
PBGC could ultimately have serious potential consequences for the 
taxpayer, given that with only about $25 million in annual income, a 
trust fund of less than $1 billion, and a current deficit of $261 
million, PBGC's multiemployer program has very limited resources to 
handle a major plan insolvency that could run into billions of dollars.

The current congressional efforts to provide funding relief are at 
least in part in response to the difficult conditions experienced by 
many plans in recent years. However, these efforts are also occurring 
in the context of the broader, long-term decline in private sector 
defined benefit plans, including multiemployer plans, and the attendant 
rise of defined contribution plans, with their emphasis on greater 
individual responsibility for providing for a secure retirement. Such a 
transition could lead to greater individual control and reward for 
prudent investment and planning. However, if managed poorly, it could 
lead to adverse distributional effects for some workers and retirees, 
including a greater risk of a poverty level income in retirement. Under 
this transition view, the more fundamental issues concern how to 
minimize the potentially serious, negative effects of the transition, 
while balancing risks and costs for employers, workers, and retirees, 
and the public. These important policy concerns make Congress's current 
focus on pension reform both timely and appropriate.

Agency Comments:

We provided a draft of this report to Labor, Treasury, and PBGC. The 
agencies provided technical comments, which we incorporated as 
appropriate.

We are sending copies of this report to the Secretary of Labor, the 
Secretary of the Treasury, and the Executive Director of the Pension 
Benefit Guaranty Corporation; appropriate congressional committees; 
and other interested parties. We will also make copies available to 
others on request. In addition, the report will be available at no 
charge on GAO's Web site at http://www.gao.gov.

If you have any questions concerning this report, please contact me at 
(202) 512-5932. Other major contributors include Joseph Applebaum, Orin 
B. Atwater, Susan Bernstein, Kenneth J. Bombara, Tim Fairbanks, Charles 
Jeszeck, Gene Kuehneman, Raun Lazier, and Roger J. Thomas.

Barbara D. Bovbjerg 
Director, Education, Workforce and Income Security Issues:

FOOTNOTES

[1] See U.S. General Accounting Office, Pension and Welfare Benefit 
Administration: Opportunities Exist for Improving Management of the 
Enforcement Program, GAO-02-232 (Washington, D.C.: Mar. 3, 2002).

[2] In a defined contribution plan, benefits are based on the 
contributions to and investment returns on a participant's individual 
account, and the participant, rather than the employer, bears the 
investment risk. An example of a defined contribution plan would be a 
401(k) plan. PBGC does not insure defined contribution plans.

[3] Multiemployer plans as used throughout this report refer to defined 
benefit pension plans. Note that there are other, multiemployer 
agreements that cover programs such as health and other welfare 
benefits and defined contribution pension plans. 

[4] NLRA provides the basic framework governing private sector labor-
management relations. NLRA provides employees the right to form unions 
and bargain collectively and requires employers to recognize employee 
unions that demonstrate support from a majority of employees and to 
bargain in good faith. 

[5] 29U.S.C.§186(c)(5).

[6] Vested benefits are benefits that are no longer subject to risk of 
forfeiture. Unfunded vested benefits are the difference between the 
present value of a plan's vested benefits and the value of plan assets 
determined in accordance with ERISA, including claims of the plan for 
unpaid initial withdrawal liability and redetermination liability. 

[7] PBGC receives no funds from federal tax revenues, but it is 
authorized under ERISA to borrow up to $100 million from the federal 
treasury if it has inadequate resources to meet its responsibilities. 

[8] Single-employer plans pay PBGC an annual flat-rate premium of $19 
per participant per year for pension insurance coverage. Plans that are 
underfunded, generally also have to pay PBGC an additional annual 
variable rate premium of $9 per $1,000 of underfunding for the 
additional exposure they create for the insurance program. In contrast, 
the only premium for multiemployer plans is a flat $2.60 per 
participant per year. 

[9] See U.S. General Accounting Office, Pension Benefit Guaranty 
Corporation: Single-Employer Insurance Program Faces Significant Long-
Term Risks, GAO-04-90 (Washington, D.C.: Oct. 29, 2003). The 
relationship between plan liabilities and interest rates is similar to 
how bond prices respond to interest rate changes. As interest rates 
decrease, the estimated value of a pension liability increase as would 
the price of a bond. Although the value of bonds held for investment 
increases as interest rates fall, any new bond purchases will also have 
lower rates of return as measured by their yield to maturity. Thus, 
falling bond interest rates would normally increase the value of a 
plan's existing bond portfolio but decrease the bond portfolio's yield 
to maturity. 

[10] See U.S. General Accounting Office, Pension Benefit Guaranty 
Corporation Single-Employer Program: Long-term Vulnerabilities Warrant 
"High Risk" Designation, GAO-03-1050SP, (Washington, D.C.: July 23, 
2003). Congress is currently considering legislation that would provide 
funding relief to certain single-employer and multiemployer pension 
funds. 

[11] Note that for single-employer pension plans that are collectively 
bargained, the contract typically focuses on the level of benefits to 
be provided, rather than the employer's contributions. 

[12] See U.S. General Accounting Office, Pension Plans: Characteristics 
of Persons in the Labor Force Without Pension Coverage, GAO/HEHS-00-131 
(Washington, D.C.: Aug. 22, 2000).

[13] Testimony of J. Mark Iwry, former Benefits Tax Counsel, U.S. 
Department of the Treasury, before the House Committee on Education and 
the Workforce, October 29, 2003. 

[14] Testimony of John Leary, Esq., Partner, O'Donoghue and O'Donoghue, 
Washington, D.C, before the House Subcommittee on Employer-Employee 
Relations, June 4, 2003. 

[15] In 2002, of the 58 plans PBGC expected to need future financial 
assistance, 23 received assistance in that year. Similarly, in 2003, of 
the 62 plans PBGC expected to need future financial assistance, 24 
received assistance in that year.

[16] Segal Benefits, Compensation and HR Consulting, SEGAL Survey, 
Effects of "The Perfect Storm" Begin to Emerge: Erosion of the Funded 
Position of Multiemployer Pension Plans, Spring 2003.

[17] A similar decline was observed for active participants of single-
employer plans, with the total falling from 27.3 percent of the private 
sector labor force in 1980 to 15.5 by 2001.

[18] Form 5500 is a disclosure form that private sector employers with 
qualified pension plans are required to file with IRS, Labor's Employee 
Benefit Security Administration, and PBGC. IRS administers and enforces 
tax code provisions concerning private pension plans. Labor's Employee 
Benefit Security Administration enforces ERISA requirements regarding 
disclosure and other issues, and PBGC insures the benefits of 
participants in most private sector-defined benefit pension plans that 
are eligible for preferential tax treatment. 

[19] The screening process uses five ratios as indexes of plans' 
financial health. These ratios are (1) the ratio of active participants 
(those for whom plans are continuing to make contributions) to other 
participants, (2) the ratio of assets to the present value of vested 
benefits, (3) the ratio of plan assets to annual benefit payments, (4) 
the ratio of annual contributions to benefit distributions, and (5) the 
ratio of plan assets to the present value of retired participants' 
benefits. 

[20] PBGC also identifies plans as "Remotes-Watch List Plans." PBGC 
deems these plans as having a remote probability of future liability. 
"Watch List Plans" are a subgroup of remotes that PBGC deems to merit 
monitoring for movement to a higher risk classification. PBGC officials 
said they use generally accepted accounting principles in valuing and 
reporting these liabilities on PBGC financial statements. 

[21] In contrast, under its single-employer program, the insurable 
event can be a plan termination. In fact, PBGC can terminate a troubled 
plan and assume the plan's financial responsibilities before the plan 
is insolvent, paying benefits at the single-employer program guaranteed 
level directly to plan participants.

[22] According to PBGC records, the merger allowed Local 675 plan 
participants to receive the full amount of their earned benefits, which 
was about double their guaranteed benefits. The merger also enabled the 
employers in the plan to remain competitive and it reduced expected 
PBGC losses by $5 million. 

[23] Under 29 U.S.C.§ Section 1404, PBGC has authority to approve 
special plan rules that would change the amount of an employer's annual 
withdrawal liability payments. Withdrawal liability is the financial 
liability imposed on an employer that withdraws from multiemployer 
plan. Although there are a number of allowed methods for computing the 
liability, in essence, it consists of determining the employer share of 
liability for vested benefits so that the value of all employer 
liabilities when added to plan assets equals the total vested benefits. 


[24] PBGC has also helped plans to work out other types of 
arrangements. In 1994, PBGC helped work out an agreement with the 
Amalgamated Men's and Boy's Clothing Pension Fund to freeze worker 
benefit accruals while continuing to allow employers to make 
contributions to the plan. Officials told us that this made it possible 
for employers to (1) remain in business, (2) pay down their withdrawal 
liability over time, and (3) pay previously accrued benefits. Officials 
told us that without the agency's involvement, participants would not 
have received their full benefits, and the businesses might have 
failed. In addition, PBGC officials said that they would likely have 
had to provide a greater amount of financial assistance to the affected 
plans.

[25] Of the 33 plans that have ever received financial assistance 
(loans) to pay insured benefits, 24 received assistance in 2003, 7 
merged with other healthier plans, 1 purchased an annuity from a 
private sector insurance company and terminated, transferring benefit 
obligations to the insurance company and 1 plan returned to solvency 
and repaid the principal amount of PBGC financial assistance provided.

[26] The number of trusteed terminated plans is based on the fiscal 
year that PBGC trusteed the plans, rather than the fiscal year of the 
plan termination.

[27] Congress is currently considering a proposal that would revise the 
current requirements concerning withdrawal liability for certain plans, 
shifting some of those liabilities to PBGC.

[28] Under the single-employer program, the maximum guarantee for plans 
terminating in 2004 is $44,386.32 yearly ($3,698.77 monthly) for a 
single life annuity beginning at age 65. The maximum is adjusted 
downward for retirees younger than age 65. Under the multiemployer 
program, PBGC guarantees the first $11 of monthly accrual and 75 
percent of the next $33 of monthly accrual, for a maximum monthly 
accrual of $35.75 per month times the years of credited service. For a 
participant with 30 years of service under the plan, the maximum annual 
PBGC guaranteed benefit would be $12,870. Workers with less than 30 
years service would receive a lower maximum guaranteed benefit.

[29] See U.S. General Accounting Office, Pension Benefit Guaranty 
Corporation: Single Employer Pension Insurance Program Faces 
Significant Long-Term Risks, GAO-04-90 (Washington, D.C.: October 
2003).

[30] Special provisions establish specific withdrawal liability rules 
for some industries. For example, construction firms no longer 
operating in a geographic area are exempt from withdrawal liability.

[31] Also, employers may become liable for a portion of benefits 
accrued by employees of participating employers that become bankrupt.

[32] A 401(k) plan is one type of defined contribution plan that 
operates as a salary reduction arrangement under Section 401(k) of the 
Internal Revenue Code.

[33] Strengthening Pension Security: Examining the Health and Future of 
Defined Benefit Pension Plans, hearing before the Subcommittee on 
Employer-Employee Relations of the House Committee on Education and 
Workforce, (Washington D.C.: June 4, 2003).

[34] The most recent year for which the Department of Labor has issued 
its Private Pension Plan Bulletin: Abstract Of Form 5500 Annual 
Reports.

[35] See U.S. General Accounting Office, Private Pensions: Participants 
Need Information on Risks They Face in Managing Pension Assets at and 
during Retirement, GAO-03-810 (Washington, D.C.: July 2003). 

[36] Employer Health Benefits 2003 Annual Survey, The Kaiser Family 
Foundation and Health Research and Education Trust.

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