This is the accessible text file for GAO report number GAO-09-291 
entitled 'Defined Benefit Pensions: Survey Results of the Nation's 
Largest Private Defined Benefit Plan Sponsors' which was released on 
March 30, 2009. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

March 2009: 

Defined Benefit Pensions: 

Survey Results of the Nation's Largest Private Defined Benefit Plan 
Sponsors: 

GAO-09-291: 

GAO Highlights: 

Highlights of GAO-09-291, a report to congressional requesters. 

Why GAO Did This Study: 

The number of private defined benefit (DB) pension plans, an important 
source of retirement income for millions of Americans, has declined 
substantially over the past two decades. For example, about 92,000 
single-employer DB plans existed in 1990, compared to just under 29,000 
single-employer plans today. Although this decline has been 
concentrated among smaller plans, there is a widespread concern that 
large DB plans covering many participants have modified, reduced, or 
otherwise frozen plan benefits in recent years. GAO was asked to 
examine (1) what changes employers have made to their pension and 
benefit offerings, including to their defined contribution (DC) plans 
and health offerings over the last 10 years or so, and (2) what changes 
employers might make with respect to their pensions in the future, and 
how these changes might be influenced by changes in pension law and 
other factors. 

To gather information about overall changes in pension and health 
benefit offerings, GAO asked 94 of the nation’s largest DB plan 
sponsors to participate in a survey; 44 of these sponsors responded. 
These respondents represent about one-quarter of the total liabilities 
in the nation’s single-employer insured DB plan system as of 2004. The 
survey was largely completed prior to the current financial market 
difficulties of late 2008. 

What GAO Found: 

GAO’s survey of the largest sponsors of DB pension plans revealed that 
respondents have made a number of revisions to their retirement benefit 
offerings over the last 10 years or so. Generally speaking, they have 
changed benefit formulas; converted to hybrid plans (such plans are 
legally DB plans, but they contain certain features that resemble DC 
plans); or frozen some of their plans. Eighty-one percent of responding 
sponsors reported that they modified the formula for computing benefits 
for one or more of their DB plans. Among all plans reported by 
respondents, 28 percent of these (or 47 of 169) plans were under a plan 
freeze—an amendment to the plan to limit some or all future pension 
accruals for some or all plan participants. The vast majority of 
respondents (90 percent, or 38 of 42 respondents) reported on their 
401(k)-type DC plans. Regarding these DC plans, a majority of 
respondents reported either an increase or no change to the employer or 
employee contribution rates, with roughly equal responses to both 
categories. About 67 percent of (or 28 of 42) responding firms plan to 
implement or have already implemented an automatic enrollment feature 
to one or more of their DC plans. With respect to health care 
offerings, all of the (42) responding firms offered health care to 
their current workers. Eighty percent (or 33 of 41 respondents) offered 
a retiree health care plan to at least some current workers, although 
20 percent of (or 8 of 41) respondents reported that retiree health 
benefits were to be fully paid by retirees. Further, 46 percent of (or 
19 of 41) responding firms reported that it is no longer offered to 
employees hired after a certain date. 

At the time of the survey, most sponsors reported no plans to revise 
plan formulas, freeze or terminate plans, or convert to hybrid plans 
before 2012. When asked about the influence of recent legislation or 
changes to the rules for pension accounting and reporting, responding 
firms generally indicated these were not significant factors in their 
benefit decisions. Finally, a minority of sponsors said they would 
consider forming a new DB plan. Those sponsors that would consider 
forming a new plan might do so if there were reduced unpredictability 
or volatility in DB plan funding requirements and greater scope in 
accounting for DB plans on corporate balance sheets. The survey results 
suggest that the long-time stability of larger DB plans is now 
vulnerable to the broader trends of eroding retirement security. The 
current market turmoil appears likely to exacerbate this trend. 

View GAO-09-291 or key components. For more information, contact 
Barbara Bovbjerg at (202) 512-7215 or bovbjergb@gao.gov. 

[End of section] 

Contents: 

Letter: 

From January 1997 to the Time of the Survey Response, Large Sponsors of 
DB Plans Have Revised Their Benefit Offerings in Various Ways: 

At the Time of the Survey, Large DB Sponsors Anticipated Making Few 
Additional Changes to DB Plans: 

Conclusions: 

Agency Comments: 

Appendix I: Survey Results of the Nation's Largest Private DB Plan 
Sponsors: 

Appendix II: Scope and Methodology: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Abbreviations: 

DB: defined benefit: 

DC: defined contribution: 

CUSIP: Committee on Uniform Securities Identification Procedures: 

ERISA: Employee Retirement Income Security Act of 1974: 

EIN: Employee Identification Number: 

FAS: Financial Accounting Standard: 

FASB: Financial Accounting Standards Board: 

HRA: health reimbursement arrangement: 

HSA: health savings account: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

PBGC: Pension Benefit Guaranty Corporation: 

PPA: Pension Protection Act of 2006: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 30, 2009: 

The Honorable Charles E. Schumer: 
Vice Chairman: 
Joint Economic Committee: 
United States Senate: 

The Honorable Robert P. Casey, Jr. 
United States Senate: 

The number of private defined-benefit (DB) pension plans, an important 
source of retirement income for millions of Americans, has declined 
substantially over the past two decades[Footnote 1]. For example, about 
92,000 single-employer DB plans existed in 1990 compared to just under 
29,000 single-employer plans today. At the same time, the number of 
defined-contribution (DC) pension plans, such as 401(k)-type plans, has 
grown dramatically and resulted in a shift from DB plans to DC plans. 
For example, as of 2006, the Department of Labor estimates that there 
are 2.3 participants in a single-employer DC plan for each participant 
in a single-employer DB plan. One consequence of this shift from DB to 
DC plans is a shift of risk and responsibility to individual employees 
and away from the plan sponsors. In contrast to this overall trend, 
more large DB plans, or plans with more than 5,000 participants, exist 
today than did in 1990.[Footnote 2] Despite the relative resilience of 
these large plans, there is widespread concern that sponsors of these 
plans have frozen or otherwise modified plan benefits.[Footnote 3] 
Additionally, over the last few years, these plan sponsors have had to 
deal with a very dynamic environment for pensions--especially with 
respect to pension legislation, changes to pension-related accounting 
rules, and a now rapidly worsening financial environment. 

Employers have also been wrestling with higher health care costs and 
making a number of changes to health benefit offerings. For example, 
many employers that offer health benefits have required workers to pay 
a higher share of out-of-pocket costs, and some have recently 
introduced consumer-directed health plans, which trade lower premiums 
for significantly higher deductibles.[Footnote 4] Similar to coverage 
for active workers, an increasing share of retiree health benefits 
costs is being shifted to retirees and many employers have terminated 
benefits for future retirees--a trend that experts believe will 
continue. 

Plan sponsors have also had to react to changes in the legislation 
governing plan funding and sponsorship and in accounting rules 
determining how pension assets and liabilities should be publicly 
reported. The current financial market turmoil has also led to 
additional stress on many plan sponsors. For example, a benefit 
consulting group recently estimated that the recent stock downturn has 
left DB pension plans at the nation's largest companies underfunded by 
$409 billion--erasing an estimated $60 billion pension surplus at year- 
end 2007. On average, these large firms' pension assets were only able 
to cover 75 percent of their obligations, down from the estimated 104 
percent a year prior. 

To better understand what has happened in the last decade or so, and 
what may happen in the future to pension plans as indicated by the 
actions of large DB sponsors, you asked us to address: 

(1) what changes employers have made to their pension and benefit 
offerings, including to their DC plans and health offerings, over the 
last 10 years or so, and: 

(2) what changes employers might make with respect to their pensions in 
the future, and how these changes might be influenced by changes in 
pension law and other factors. 

To determine the status of sponsors' current benefit offerings, as well 
as possible prospective changes to pension offerings in the context of 
the current legal and regulatory environment, we developed, pretested, 
and administered an original survey of large DB plan sponsors. 
Additionally we analyzed and reviewed other employer studies and 
reviewed related literature. Appendix I contains revised slides that 
update the preliminary briefing information that we provided to your 
staff, as well as to officials from the Pension Benefit Guaranty 
Corporation (PBGC), the Department of Labor, and the Department of the 
Treasury in February 2009. 

To achieve our survey objectives, we developed and pretested a 
questionnaire that we sent to the largest DB pension sponsors from 
PBGC's 2004 Form 5500 Research Database. We further limited our study 
population to those sponsors that were also listed on either the 
Fortune 500 or Global 500 lists. We administered the survey to the 94 
largest sponsors (by total participants in all sponsored plans) for 
which we were able to obtain information for the firm representative 
who would be most knowledgeable on pension and benefits issues. While 
94 firms we identified for the survey do not represent a statistically 
generalizable sample of the roughly 23,500 total DB plan sponsors we 
identified in the Form 5500 Research Database, we estimate that these 
94 sponsors represented 50 percent of the total liabilities and 39 
percent of the total participants (active, retired, and separated- 
vested) in the PBGC insured single-employer DB system as of 2004. Given 
their relative significance, the 94 sponsors, by themselves, represent 
an important share of the DB system. Among the 44 plan sponsors that 
ultimately responded to the survey, we estimate that these sponsors 
represent 25 percent of the total liabilities and 19 percent in the 
single-employer DB system as of 2004 (see Appendix I, slide 5). 
Further, the responding sponsors represented a diversity of industries 
such as manufacturing; information; finance or insurance; and other 
various industries (see Appendix I, slide 7). Additionally, responding 
firms reported employing, on average, 75,000 employees in their U.S. 
operations in 2006. 

The survey was administered as a Web-based survey that was available 
for access from December 17, 2007, to October 31, 2008. The vast 
majority of respondents completed the survey at least a few months 
prior to the recent financial downturn. Our analysis is unlikely to 
capture any related trends. 

We initiated our audit work in April 2006. We issued results from our 
survey regarding frozen plans in July 2008.[Footnote 5] We completed 
our audit work for this report in March 2009 in accordance with all 
sections of GAO's Quality Assurance Framework that are relevant to our 
objectives. The framework requires that we plan and perform the 
engagement to obtain sufficient and appropriate evidence to meet our 
stated objectives and to discuss any limitations in our work. We 
believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions. 

See Appendix II for a more detailed discussion about our methodology. 

From January 1997 to the Time of the Survey Response, Large Sponsors of 
DB Plans Have Revised Their Benefit Offerings in Various Ways: 

Our survey of the largest sponsors of DB pension plans reveals that 
they have made a number of revisions to their benefit offerings over 
approximately the last 10 years or so. Generally, respondents reported 
that they revised benefit formulas, converted some plans to hybrid 
plans (such as cash balance plans),[Footnote 6] or froze some of their 
plans. For example, 81 percent[Footnote 7] of responding sponsors 
reported that they modified the formulas of one or more of their DB 
plans. 

Respondents were asked to report changes for plans or benefits that 
covered only nonbargaining employees, as well as to report on plans or 
benefits that covered bargaining unit employees. Fifty-eight percent 
[Footnote 8] of respondents who reported on plans for collective-
bargaining employees indicated they had generally increased the 
generosity of their DB plan formulas between January 1997 and the time 
of their response (see Appendix I, slide 12). In contrast, 48 percent 
[Footnote 9] of respondents reporting on plans for their nonbargaining 
employees had generally decreased the generosity of their DB plan 
formulas since 1997.[Footnote 10] "Unpredictability or volatility of DB 
plan funding requirements" was the key reason cited for having changed 
the benefit formulas of plans covering nonbargaining employees (see 
Appendix I, slide 14).[Footnote 11] "Global or domestic competitive 
pressures" in their industry was the key reason cited for the changes 
to the plans covering collectively bargained employees (see Appendix I, 
slide 13).[Footnote 12] With regard to plans for bargaining employees, 
however, a number of the sponsors who offered reasons for changes to 
bargaining unit plans also volunteered an additional reason for having 
modified their plans covering bargaining employees. Specifically, these 
sponsors wrote that inflation or a cost-of-living adjustment was a key 
reason for their increase to the formula. This suggests that such plans 
were flat-benefit plans[Footnote 13] that may have a benefit structure 
that was increased annually as part of a bargaining agreement. 

Meanwhile, sponsors were far more likely to report that they had 
converted a DB plan covering nonbargaining unit employees to a hybrid 
plan design than to have converted DB plans covering collectively 
bargained employees. For example, 52 percent[Footnote 14] of 
respondents who reported on plans for nonbargaining unit employees had 
converted one or more of their traditional plans to a cash balance or 
other hybrid arrangement (see Appendix I, slide 15). Many cited "trends 
in employee demographics" as the top reason for doing so (see Appendix 
I, slide 16). Among respondents who answered the cash balance 
conversion question for their collectively bargained plans, 21 
percent[Footnote 15] reported converting one or more of their 
traditional plans to a cash balance plan. 

Regarding plan freezes, 62 percent[Footnote 16] of the responding firms 
reported a freeze, or a plan amendment to limit some or all future 
pension accruals for some or all plan participants, for one or more of 
their plans (see Appendix I, slide 18). Looking at the respondent's 
plans in total, 8 percent of the plans[Footnote 17] were described as 
hard frozen, meaning that all current employees who participate in the 
plan receive no additional benefit accruals after the effective date of 
the freeze, and that employees hired after the freeze are ineligible to 
participate in the plan. Twenty percent[Footnote 18] of respondents' 
plans were described as being under a soft freeze, partial freeze, or 
"other" freeze.[Footnote 19] Although not statistically generalizable, 
the prevalence of freezes among the large sponsor plans in this survey 
is generally consistent with the prevalence of plan freezes found among 
large sponsors through a previous GAO survey that was statistically 
representative.[Footnote 20] 

The vast majority of respondents (90 percent)[Footnote 21] to our most 
recent survey also reported on their 401(k)-type DC plans. At the time 
of this survey, very few respondents reported having reduced employer 
or employee contribution rates for these plans. The vast majority 
reported either an increase or no change to the employer or employee 
contribution rates, with generally as many reporting increases to 
contributions as reporting no change (see Appendix I, slide 21). The 
differences reported in contributions by bargaining status of the 
covered employees were not pronounced. Many (67 percent)[Footnote 22] 
of responding firms plan to implement or have already implemented an 
automatic enrollment feature to one or more of their DC plans. 

According to an analysis by the Congressional Research Service, many DC 
plans require that workers voluntarily enroll and elect contribution 
levels, but a growing number of DC plans automatically enroll workers. 
Additionally, certain DC plans with an automatic enrollment feature may 
gradually escalate the amount of the workers' contributions on a 
recurring basis. However, the Pension Protection Act of 2006 (PPA) 
provided incentives to initiate automatic enrollment for those plan 
sponsors that may not have already adopted an automatic enrollment 
feature.[Footnote 23] Seventy-two percent[Footnote 24] of respondents 
reported that they were using or planning to use automatic enrollment 
for their 401(k) plans covering nonbargaining employees, while 46 
percent[Footnote 25] indicated that they were currently doing so or 
planning to do so for their plans covering collective-bargaining 
employees (see Appendix I, slide 22). The difference in automatic 
enrollment adoption by bargaining status may be due to the fact that 
nonbargaining employees may have greater dependence on DC benefits. 
That is, a few sponsors noted they currently automatically enroll 
employees who may no longer receive a DB plan. Alternatively, automatic 
enrollment policies for plans covering collective-bargaining employees 
may not yet have been adopted, as that plan feature may be subject to 
later bargaining. 

Health benefits are a large component of employer offered benefits. As 
changes to the employee benefits package may not be limited to 
pensions, we examined the provision of health benefits to active 
workers, as well as to current and future retirees. We asked firms to 
report selected nonwage compensation costs or postemployment benefit 
expenses for the year 2006 as a percentage of base pay. Averaging these 
costs among all those respondents reporting such costs, we found that 
health care comprised the single largest benefit cost. Active employee 
health plans and retiree health plans combined to represent 15 percent 
of base pay[Footnote 26] (see Appendix I, slide 24). DB and DC pension 
costs were also significant, representing about 14 percent of base pay. 
[Footnote 27] All of the respondents[Footnote 28] reporting on health 
benefits offered a health care plan to active employees and contributed 
to at least a portion of the cost. Additionally, all of these 
respondents provided health benefits to some current retirees, and 
nearly all were providing health benefits to retirees under the age of 
65 and to retirees aged 65 and older. Eighty percent[Footnote 29] of 
respondents offered retiree health benefits to at least some future 
retirees (current employees who could eventually become eligible for 
retiree benefits), although 20 percent[Footnote 30] of respondents 
offered retiree health benefits that were fully paid by the retiree. 
[Footnote 31] Further, it appears that, for new employees among the 
firms in our survey, a retiree health benefit may be an increasingly 
unlikely offering in the future, as 46 percent[Footnote 32] of 
responding firms reported that retiree health care was no longer to be 
offered to employees hired after a certain date (see Appendix I, slide 
25). 

We asked respondents to report on how an employer's share of providing 
retiree health benefits had changed over the last 10 years or so for 
current retirees. Results among respondents generally did not vary by 
the bargaining status of the covered employees (Appendix I, slide 27). 
However, 27 percent[Footnote 33] of respondents reporting on their 
retiree health benefits for plans covering nonbargaining retirees 
reported increasing an employer's share of costs, while only 13 percent 
[Footnote 34] of respondents reporting on their retiree health benefits 
for retirees from collective-bargaining units indicated such an 
increase. Among those respondents with health benefits covering 
nonbargained retirees, they listed "large increases in the cost of 
health insurance coverage for retirees" as a major reason for 
increasing an employer's share--not surprisingly. This top reason was 
the same for all of these respondents, as well as just those 
respondents reporting a decrease in the cost of an employer's share. 
[Footnote 35] Additionally, a number of respondents who mentioned 
"other" reasons for the decrease in costs for employers cited the 
implementation of predefined cost caps.[Footnote 36] 

Our survey also asked respondents to report on their changes to retiree 
health offerings for future retirees or current workers who may 
eventually qualify for postretirement health benefits. As noted 
earlier, 46 percent of respondents reported they currently offered no 
retiree health benefits to active employees (i.e., current workers) 
hired after a certain date. Reporting on changes for the last decade, 
54 percent[Footnote 37] of respondents describing their health plans 
for nonbargaining future retirees indicated that they had decreased or 
eliminated the firm's share of the cost of providing health benefits 
(see Appendix I, slide 30).[Footnote 38] A smaller percentage (41 
percent)[Footnote 39] of respondents reporting on their health benefits 
for collectively bargained future retirees indicated a decrease or 
elimination of benefits. The need to "match or maintain parity with 
competitor's benefits package" was the key reason for making the 
retiree health benefit change for future retirees among respondents 
reporting on their collective-bargaining employees (Appendix I, slide 
32). 

We asked respondents to report their total, future liability (i.e., 
present value in dollars) for retiree health as of 2004.[Footnote 40] 
As of the end of the 2004 plan year, 29 respondents reported a total 
retiree health liability of $68 billion. The retiree health liability 
reported by our survey respondents represents 40 percent of the $174 
billion in DB liabilities that we estimate for these respondents' DB 
plans as of 2004. According to our estimates, the DB liabilities for 
respondents reporting a retiree health liability were supported with 
$180 billion in assets as of 2004. We did not ask respondents about the 
assets underlying the reported $68 billion in retiree health 
liabilities. Nevertheless, these liabilities are unlikely to have much 
in the way of prefunding or supporting assets, due in large part to 
certain tax consequences.[Footnote 41] Although we did not ask sponsors 
about the relative sustainability of retiree health plans given the 
possible difference in the funding of these plans relative to DB plans, 
we did ask respondents to report the importance of offering a retiree 
health plan for purposes of firm recruitment and retention. 
Specifically, we asked about the importance of making a retiree health 
plan available relative to making a DB or DC pension plan available. 
Only a few respondents reported that offering DB or DC plans was less 
(or much less) important than offering a retiree health plan. 

At the Time of the Survey, Large DB Sponsors Anticipated Making Few 
Additional Changes to DB Plans: 

Responding before October 2008--before the increasingly severe 
downturns in the national economy--most survey respondents reported 
they had no plan to revise benefit formulas or freeze or terminate 
plans, or had any intention to convert to hybrid plans before 2012. 
Survey respondents were asked to consider how their firms might change 
specific employee benefit actions between 2007 and 2012 for all 
employees. The specific benefit actions they were asked about were a 
change in the formula for calculating the rates of benefit accrual 
provided by their DB plan, a freeze of at least one DB plan, the 
conversion of traditional DB plans to cash balance or other hybrid 
designs, and the termination of at least one DB plan. For each 
possibility, between 60 percent and 80 percent[Footnote 42] of 
respondents said their firm was not planning to make the prospective 
change (see appendix I, slide 34). 

When asked about how much they had been or were likely to be influenced 
by recent legislation or account rule changes, such as PPA or the 
adoption of Financial Accounting Standards Board (FASB) requirements to 
fully recognize obligations for postretirement plans in financial 
statements, responding firms generally indicated these were not 
significant factors in their decisions on benefit offerings. Despite 
these legislative and regulatory changes to the pension environment, 
most survey respondents indicated that it was unlikely or very unlikely 
that their firms would use assets from DB plans to fund qualified 
health plans; increase their employer match for DC plans; terminate at 
least one DB plan; amend at least one DB plan to change (either 
increase or decrease) rates of future benefit accruals; convert a DB 
plan to a cash balance or hybrid design plan, or replace a DB plan with 
a 401(k)-style DC plan. 

Additionally, most respondents indicated "no role" when asked whether 
PPA, FASB, or pension law and regulation prior to PPA had been a factor 
in their decision (see appendix 1, slide 35). Though the majority of 
these responses indicated a trend of limited action related to PPA and 
FASB, it is interesting to note that, among the minority of firms that 
reported they were likely to freeze at least one DB plan for new 
participants only, most indicated that PPA played a role in this 
decision.[Footnote 43] Similarly, while only a few firms indicated that 
it was likely they would replace a DB plan with a 401(k)-style DC plan, 
most of these firms also indicated that both PPA and FASB played a role 
in that decision.[Footnote 44] 

There were two prospective changes that a significant number of 
respondents believed would be likely or very likely implemented in the 
future. Fifty percent[Footnote 45] of respondents indicated that adding 
or expanding automatic enrollment features to 401(k)-type DC plans was 
likely or very likely, and 43 percent[Footnote 46] indicated that PPA 
played a major role in this decision.[Footnote 47] This is not 
surprising, as PPA includes provisions aimed at encouraging automatic 
enrollment and was expected to increase the use of this feature. Forty- 
five percent[Footnote 48] of respondents indicated that changing the 
investment policy for at least one DB plan to increase the portion of 
the plan's portfolio invested in fixed income assets was likely or very 
likely--with 21 percent[Footnote 49] indicating that PPA and 29 percent 
[Footnote 50] indicating that FASB played a major or moderate role in 
this decision[Footnote 51] (see appendix 1, slide 36). Our survey did 
not ask about the timing of this portfolio change, so we cannot 
determine the extent of any reallocation that may have occurred prior 
to the decline in the financial markets in the last quarter of 2008. 

Finally, responding sponsors did not appear to be optimistic about the 
future of the DB system, as the majority stated there were no 
conditions under which they would consider forming a new DB plan. For 
the 26 percent[Footnote 52] of respondents that said they would 
consider forming a new DB plan, some indicated they could be induced by 
such changes as a greater scope in accounting for DB plans on corporate 
balance sheets and reduced unpredictability or volatility of plan 
funding requirements (see appendix I, slides 38). Conditions less 
likely to cause respondents to consider a new DB plan included 
increased regulatory requirements of DC plans and reduced PBGC premiums 
(see appendix I, slide 39). 

Conclusions: 

Until recently, DB pension plans administered by large sponsors 
appeared to have largely avoided the general decline evident elsewhere 
in the system since the 1980s. Their relative stability has been 
important, as these plans represent retirement income for more than 
three-quarters of all participants in single-employer plans. Today, 
these large plans no longer appear immune to the broader trends that 
are eroding retirement security. While few plans have been terminated, 
survey results suggest that modifications in benefit formulas and plan 
freezes are now common among these large sponsors. This trend is most 
pronounced among nonbargained plans but is also apparent among 
bargained plans. Yet, this survey was conducted before the current 
economic downturn, with its accompanying market turmoil. The fall in 
asset values and the ensuing challenge to fund these plans places even 
greater stress on them today. 

Meanwhile, the survey findings, while predating the latest economic 
news, add to the mounting evidence of increasing weaknesses throughout 
the existing private pension system that include low contribution rates 
for DC plans, high account fees that eat into returns, and market 
losses that significantly erode the account balances of those workers 
near retirement. Moreover, the entire pension system still only covers 
about 50 percent of the workforce, and coverage rates are very modest 
for low-wage workers. Given these serious weaknesses in the current tax-
qualified system, it may be time for policymakers to consider 
alternative models for retirement security. 

Agency Comments: 

We provided a draft of this report to the Department of Labor, the 
Department of the Treasury, and PBGC. The Department of the Treasury 
and PBGC 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 Director of the PBGC, appropriate 
congressional committees, and other interested parties. In addition, 
the report will be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. 

If you have or your staffs any questions about this report, please 
contact me at (202) 512-7215 or bovbjergb@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made key contributions 
are listed in appendix III. 

Signed by: 

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

[End of section] 

Appendix I: Survey Results of the Nation's Largest Private DB Plan 
Sponsors: 

Defined Benefit (DB) Pensions: Survey Results of the Nation’s Largest 
Private DB Plan Sponsors: 

Preliminary Findings: 

February 24, 2009: 

Survey Objectives: 

* Assess the impact of recent developments facing sponsors of the 
nation’s largest private sector DB plans: 

1)What recent changes have employers made to their pension and benefit 
offerings? 

2) What changes might employers make with respect to their pensions in 
the future, and how might these changes be influenced by changes in 
pension law and other factors? 

GAO Survey of the Largest DB Sponsors: Overview of Survey and Topics: 

The survey consisted of 105 questions and covered a broad range of 
areas including: 

* the status of current DB plans; 

* the status of frozen plans (if any) and largest frozen plan (if 
applicable); 

* health care information (for active employees and retirees); 

* non-wage compensation targets and priorities; 

* pension and other benefit practices/changes over the last ten years 
or so and reasons for those changes; 

- these questions were separated into two sections: one for plans 
covering non-bargaining unit employees and one for plans covering 
bargaining units; 

* prospective benefit plan changes and the influence of laws and 
accounting rules on those prospective changes; 

* opinions about the possible formation of a new DB plan. 

GAO Survey of the Largest DB Sponsors: Sampling/Summary Statistics: 

* Target group -A selection sample of the largest 100 private sector 
sponsors of DB plans that were also listed on the Fortune 500 or Global 
500; 

* Of the originally targeted 100 sponsors, we were able to obtain 
contact information—typically the firm’s Director of Benefits—for 94 
sponsors; 
- Sponsors received a web based survey administered from November 2007 
to October 2008; the vast majority of respondents completed the survey 
prior to July 2008; 

* 44 of the 94 sponsors responded; 

* Responding firms often had multiple plans—a median of 2 plans and an 
average of about 4 plans. 

GAO Survey of the Largest DB Sponsors: Significance and Interpretation: 

As a selection sample of the largest plans, results are not 
generalizable to all DB plan sponsors. 

However, the sample can serve as an important indicator of the health 
of the private DB system and the sample’s possible importance to the 
Pension Benefit Guaranty Corporation (PBGC). 

The 44 sponsoring firms that responded represent an estimated: 

* 25 percent (or $370 billion) of total DB system liabilities as of 
2004; 

* 19 percent (or 6 million) of the system’s DB participants (active, 
separated-vested, retired as of 2004). 

Among the responding firms, the largest individual self-reported 
business line was manufacturing, with other key areas being finance and 
information. (Figure 1). 

These firms reported employing on average 75,000 employees in their 
U.S. operations in 2006. 

Figure 1: Large DB Plan Sponsors Most Common In Manufacturing 
Industries: 

[Refer to PDF for image: pie-chart] 

DB Plan sponsors' major line of business (N = 42): 

Manufacturing: 18; 
Finance or Insurance: 7; 
Information (Telecommunications, Other Communications): 5; 
Other Industries (Retail Trade, Transportation): 12. 

Source: GA analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

GAO Survey of the Largest DB Sponsors: Context: 

The DB system has been in decline: 

* Long term decline in number of private DB plans and percentage of 
system participants who are active workers; 

* Large net accumulated deficit ($11 billion) for Pension Benefit 
Guaranty Corporation (PBGC) which insures private DB plans. 

Developments affecting DB plans and sponsors: 

* Pension Protection Act of 2006 and related legislation, which 
tightened funding rules and raised PBGC premiums; 

* New accounting rules, such as FAS 158, which highlighted importance 
of plan underfunding on corporate balance sheets; 

* Rising cost pressures from health insurance for active workers and 
retirees. 

Survey conducted prior to: 

* Financial market turmoil of 2008; 

* Detroit automakers, who have DB plans, seeking federal assistance; 

* Rising unemployment; 

* Recently legislated pension funding relief, the Worker, Retiree, and 
Employer Recovery Act of 2008. 

Overview: Survey Findings: 

Between 1997 and October 2008: 

* Revisions to DB plan features (e.g. benefit formulas, plan freezes, 
hybrid plan conversions) were common, especially among sponsors’non-
bargained (NB) plans; 

* Revisions to defined contribution (DC) plan features were most common 
among sponsors’ NB plans; 
- Many respondents reported having already implemented or planning to 
implement auto-enrollment; 

* Health insurance benefits to current retirees were still common,but 
20 percent placed full costs on retirees; over 46 percent did not offer 
benefit to some future retirees, or employees hired after a certain 
date. 

Most DB plan sponsors planned few changes before 2012. 

Large DB Plan Sponsor Survey: Trends in DB Plan Sponsorship and Design: 

Between 1997 and October 2008: 

* Collectively bargained (CB) plans were more likely to report a 
benefit formula improvement in generosity while NB plans were more 
likely to report a decline in benefit formula generosity (Figure 2); 
- For CB plans key reasons cited for changes were competitive economic 
pressures and employee demographics (Figure 3); 
- For NB plans key reasons cited for changes were funding 
unpredictability, competitive economic pressures and employee 
demographics (Figure 4). 

* Respondents reported more conversions to hybrid designs among NB 
plans (Figure 5). 
- Top reasons for non-bargaining unit conversions: employee 
demographics and unpredictable funding requirements (Figure 6). 

Figure 2: Sponsors Reported DB Formula Changes as Generally More 
Generous for Plans that are CB: 

[Refer to PDF for image: horizontal bar graph] 

How defined benefit formulas changed from January 1, 1997: 

N = 40 (NB Plans), 24 CB Plans, 24 (both CB and NB). 

Formula changed to increase generosity: 
Respondents with plans covering CB employees: 58; 
Respondents with plans covering NB employees: 12. 

Formulas did not change: 
Respondents with plans covering CB employees: 25; 
Respondents with plans covering NB employees: 37. 

Formula changed to decrease generosity: 
Respondents with plans covering CB employees: 17; 
Respondents with plans covering NB employees: 48. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: Nearly 40 percent of respondents did not respond to questions 
regarding collectively bargained plans. 

[End of figure] 

Figure 3: Reasons for Formula Changes Varied by Bargaining Status of 
the Plan: Plans Covering CB Employees: 

[Refer to PDF for image: horizontal bar graph] 

N = 18. 

Global/domestic competitive economic pressures in your industry: 
Major reason: 22%; 
Moderate, minor reason: 39%; 
Not a reason: 28%; 
No response, not checked: 11%. 

Demographics of bargaining unit (increasing average age): 
Major reason: 11%; 
Moderate, minor reason: 50%; 
Not a reason: 33%; 
No response, not checked: 6%. 

401(k) or other defined contribution retirement plan benefits were 
increased as a trade-off: 
Major reason: 6%; 
Moderate, minor reason: 11%; 
Not a reason: 67%; 
No response, not checked: 17%. 

Other benefits for new hires were increased as a tradeoff: 
Major reason: 0; 
Moderate, minor reason: 0; 
Not a reason: 78%; 
No response, not checked: 22%. 

401(k) or other defined contribution retirement plan benefits were 
decreased as a trade-off: 
Major reason: 0; 
Moderate, minor reason: 0; 
Not a reason: 83%; 
No response, not checked: 17%. 

Health benefits for active employees were reduced as a tradeoff: 
Major reason: 0; 
Moderate, minor reason: 0; 
Not a reason: 83%; 
No response, not checked: 17%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 
33 percent of respondents selected Other as a Major Reason; 3 out of 6 
respondents mention inflation or increased cost of living as the other 
reason. 

[End of figure] 

Figure 4: Reasons for Formula Changes Vary by Bargaining Status of the 
Plan: Plans Covering NB Employees: 

[Refer to PDF for image: horizontal bar graph] 

N = 24. 

Unpredictability or volatility of DB plan funding requirements: 
Major reason: 25%; 
Moderate, minor reason: 46%; 
Not a reason: 25%; 
No response, not checked: 4%. 

Global/domestic competitive economic pressures in your industry: 
Major reason: 21%; 
Moderate, minor reason: 42%; 
Not a reason: 33%; 
No response, not checked: 4%. 

Trends in employee demographic (toward an older/younger workforce): 
Major reason: 17%; 
Moderate, minor reason: 54%; 
Not a reason: 17%; 
No response, not checked: 13%. 

Pressure from shareholders to increase profitability: 
Major reason: 13%; 
Moderate, minor reason: 33%; 
Not a reason: 50%; 
No response, not checked: 4%. 

To compensate for investment performance of DB plans: 
Major reason: 0; 
Moderate, minor reason: 42%; 
Not a reason: 50%; 
No response, not checked: 8%. 

To compensate for reduced effectiveness of defined benefit plans as an 
employee retention tool: 
Major reason: 4%; 
Moderate, minor reason: 25%; 
Not a reason: 63%; 
No response, not checked: 8%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 
17 percent of respondents selected Other as a ‘major reason;’ 3 out of 
5 respondents mention mergers or acquisitions as the other reason. 

[End of figure] 

Figure 5: Conversion to Hybrid/Cash Balance Plans: 

[Refer to PDF for image: horizontal bar graph] 

N = 40 (NB Plans), 24 CB Plans, 24 (both CB and NB). 

Did not convert a traditional plan to a hybrid plan: 
Respondents with plans covering CB employees: 79; 
Respondents with plans covering NB employees: 48. 

Converted a traditional plan to a hybrid plan: 
Respondents with plans covering CB employees: 21; 
Respondents with plans covering NB employees: 52. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Figure 6: Reasons for Non-Bargaining Unit Conversions to Hybrid/Cash 
Balance plans: 

[Refer to PDF for image: horizontal bar graph] 

N = 21. 

Trends in employee demographic (toward an older/younger workforce): 
Major reason: 24%; 
Moderate, minor reason: 62%; 
Not a reason: 10%; 
No response, not checked: 5%. 

Unpredictability or volatility of DB plan funding requirements: 
Major reason: 10%; 
Moderate, minor reason: 52%; 
Not a reason: 33%; 
No response, not checked: 5%. 

Global/domestic competitive economic pressures in your industry: 
Major reason: 10%; 
Moderate, minor reason: 29%; 
Not a reason: 43%; 
No response, not checked: 19%. 

Administrative or regulatory complexity involved in maintaining DB 
plans: 
Major reason: 5%; 
Moderate, minor reason: 24%; 
Not a reason: 62%; 
No response, not checked: 10%. 

Pension Protection Act of 2006 clarified legal uncertainty: 
Major reason: 5%; 
Moderate, minor reason: 14%; 
Not a reason: 62%; 
No response, not checked: 19%. 

Large increase in cost of health insurance coverage: 
Major reason: 0; 
Moderate, minor reason: 24%; 
Not a reason: 62%; 
No response, not checked: 14%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 
33 percent of respondents selected ‘other’ as a ‘major reason.’ In 
‘other’ reasons listed by those respondents, 4 out of 9 listed merger 
or acquisition as the major reason for conversion. 

[End of figure] 

Large DB Plan Sponsor Survey: Trends in DB Plan Sponsorship and 
Design—Freezes and Termination: 

* 62 percent (26 of 42) of respondents in the survey froze at least one 
plan; however, these larger sponsors were likely to report multiple 
plans; 

* 28 percent of respondents plans were frozen (47 of a total of 169 
plans); only 8 percent were under a hard freeze, or a type of plan 
freeze in which all future benefit accruals cease. (Figure 7); 
- the rate of plan freezes is generally consistent with rate found for 
a subset of larger sponsors using a statistically representative sample 
in previous report analyzing freeze data[A]; 
- prior report found larger sponsors were significantly less likely 
than smaller sponsors to have implemented a hard freeze. 

* Plan terminations were extremely rare among large plans, with only a 
few occurring during the time the sample was selected and administered. 

[A] See GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of 
Participants and May Pose Retirement Income Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21, 
2008) 

[End of figure] 

Figure 7: Freeze Patterns among Respondents and their Plans: 

[Refer to PDF for image: 2 pie-charts] 

N = 42 (respondents); 169 (plans). 

Freezes by firm/sponsors (i.e. Not by plan): 
Firms with no frozen plans: 38%; 
Firms with one or more frozen plans: 62%. 

Freezes by all firm's plans: 
Hard frozen: 8%; 
Soft/partial/other freeze: 20%; 
Not frozen: 72%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Trends in 401(k) Contributions among Large DB Plan Sponsors: 

* Most DB plan sponsors also offered a DC plan, typically a 401(k)plan. 

* From 1997 to the time of survey response, most DB sponsors either 
increased or did not change employer contributions to 401(k) plans for 
their NB employees (Figure 8); 
- Main reasons for change included redesigned matching formula as well 
as compensation adjustments to attract top employees. 

* The vast majority of respondents reported that plans covering NB 
employees either increased or did not change employee contributions; 
- Main reasons among respondents reporting increased contributions 
included addition of automatic enrollment feature to one or more plans. 

* 72 percent of large sponsors reported either using or planning to use 
auto enrollment for plans covering NB employees (Figure 9). 

Trends in 401(k) Contributions among Large DB Plan Sponsors: Bargaining 
Unit Employees: 

* From 1997 to the time of survey response, most DB sponsors either 
increased or did not change employer contributions to 401(k) plans for 
their bargaining unit employees (Figure 8); 
- No single reason stood out for this result. 

* Bargaining unit employees of most sponsors did not change employee 
contributions. (Figure 8) 

* 50 percent of large sponsors with plans covering CB employees 
reported either not using or not planning to use auto enrollment 
(Figure 9). 

Figure 8: Employer and Employee 401(k) Contributions for Non Bargaining 
and Bargaining Unit Employees: 

[Refer to PDF for image: horizontal bar graph] 

Change in level of employee and employer contributions to 401(k) plans 
between January 1997 and submission of surveys: 

N = 40 (NB Employer Conts.); 39 (NB Employer Conts.); 24 CB 
Employee/Employer Conts); 24 (NB & CB Employer Conts.); 23 (NB & CB 
Employee Conts.). 

Employee contributions (bargaining unit): 
Increase: 33%; 
Did not change: 54%; 
Decreased: 4%; 
No response: 8%. 

Employee contributions (non-bargaining unit): 
Increase: 46%; 
Did not change: 36%; 
Decreased: 10%; 
No response: 8%. 

Employer contributions (bargaining unit): 
Increase: 42%; 
Did not change: 50%; 
Decreased: 4%; 
No response: 4%. 

Employer contributions (non-bargaining unit): 
Increase: 45%; 
Did not change: 37%; 
Decreased: 15%; 
No response: 2%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Figure 9: Prevalence of 401(k) Auto-Enrollment Feature for Non 
Bargaining and Bargaining Unit Employees: 

[Refer to PDF for image: horizontal bar graph] 

N = 39 (NB plans); 24 (CB plans); 24 (NB & CB). 

Not auto enrolling, not planning to auto enroll: 
Respondents with plans covering CB employees: 50; 
Respondents with plans covering NB employees: 28. 

Planning to auto enroll: 
Respondents with plans covering CB employees: 21; 
Respondents with plans covering NB employees: 18; 

Currently auto enrolling: 
Respondents with plans covering CB employees: 25; 
Respondents with plans covering NB employees: 54. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Large DB Plan Sponsor Survey: Health Benefits for Active Employees and 
Retirees: 

* Health care was the single largest benefit as a percentage of base 
pay (Figure 10). 

* All responding DB plan sponsors offered health insurance to active 
employees and contributed to the cost. 

* All responding DB plan sponsors offered health insurance to at least 
some current retirees—nearly all to both pre-age 65 and age 65-plus 
employees; 
- 80 percent provided health insurance to at least some active 
employees who become eligible for the benefit upon retirement; 
- 20 percent provided health insurance that was fully paid by the 
retired employee (Figure 11). 

Figure 10: For Large DB Sponsors, Health Insurance for Active Employees 
Was the Largest Component of Non-wage Compensation: 

[Refer to PDF for image: horizontal bar graph] 

Average percentage of firms' current base pay devoted to non-wage 
compensation: 

N = 15-25. 

Active employee health plans: 
Percentage of base pay: 10.8%. 

Defined benefit retirement/pension plan: 
Percentage of base pay: 10.3%. 

Pay for time not worked (vacation/sick leave, holidays): 
Percentage of base pay: 8.6%. 

Retiree health plan(s): 
Percentage of base pay: 4.2%. 

Defined contribution retirement/pension plan: 
Percentage of base pay: 4.1%. 

Other benefits (short/long term life insurance, premium pay, disability 
insurance, etc.): 
Percentage of base pay: 3.4%. 

Other retirement/pension plans: 
Percentage of base pay: 0.4%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: Chart categories not mutually exclusive; N varies from 15-25 as 
respondents were not required to select a response to each category. 

[End of figure] 

Figure 11: Provision of Health Benefits to Active Employees, Current or 
Future Retirees: 

[Refer to PDF for image: horizontal bar graph] 

N = 41. 

Firms methods for providing retiree health benefits: 

We continue to offer retiree health benefits to all or some employees 
and it is partially paid by the employer: 
Percentage of base pay: 80%. 

Employees hired after a certain date are no longer offered retiree 
health benefits: 
Percentage of base pay: 46%. 

We continue to offer retiree health benefits and it is all paid by the 
participant: 
Percentage of base pay: 20%. 

Other: 
Percentage of base pay: 12%. 

We continue to offer retiree health benefits to some or all active 
employees and it is all paid by the employer: 
Percentage of base pay: 2%. 

Employees must retire before a certain date: 
Percentage of base pay: 0. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Large DB Plan Sponsor Survey: Health Benefits for Current Retirees: 

Compared to respondents reporting on their benefits covering CB 
employees, respondents with NB employees reported decrease in the 
employer’s share of the cost of providing health benefits to current 
retirees (Figure 12). 

* Main reasons were increases in cost of health insurance for retirees 
and for active employees (Figure 13). 

A plurality of respondents with CB employees reported no change in 
firm’s share of the cost of providing health benefits to current 
retirees. 

Figure 12: Changes in Share of Health Benefit Costs for Current 
Retirees by Non-bargaining Unit and Bargaining Unit Firms: 

[Refer to PDF for image: horizontal bar graph] 

N = 40 (NB plans); 23 (CB plans); 23 (both NB and CB plans). 

Employer Share of Cost Did Not Change: 
Respondents with plans covering CB employees: 39%; 
Respondents with plans covering NB employees: 30%. 

Employer Share of Cost Decreased: 
Respondents with plans covering CB employees: 35%; 
Respondents with plans covering NB employees: 35%. 

Employer Share of Cost Increased: 
Respondents with plans covering CB employees: 13%; 
Respondents with plans covering NB employees: 27%. 

Employer Did Not Offer Benefit, No Response; 
Respondents with plans covering CB employees: 9%; 
Respondents with plans covering NB employees: 7%. 

Employer Eliminated Benefit; 
Respondents with plans covering CB employees: 4%; 
Respondents with plans covering NB employees: 0%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Figure 13: Reasons for Changes in Non-Bargaining Unit Firms' Share of 
Health Benefit Costs for Current Retirees: 

[Refer to PDF for image: horizontal bar graph] 

N = 25. 

Large increases in cost of health insurance coverage for retirees: 
Major reason: 72%; 
Moderate, minor reason: 24%; 
Not a reason: 0%; 
No response, not checked: 4%. 

Large increases in cost of health insurance coverage for active 
employees: 
Major reason: 24%; 
Moderate, minor reason: 44%; 
Not a reason: 28%; 
No response, not checked: 4%. 

Unwillingness/inability to completely shift costs to current retirees: 
Major reason: 20%; 
Moderate, minor reason: 32%; 
Not a reason: 40%; 
No response, not checked: 8%. 

Rapidly rising costs due to adverse demographic workforce projections: 
Major reason: 8%; 
Moderate, minor reason: 24%; 
Not a reason: 60%; 
No response, not checked: 8%. 

Uncertainty surrounding the application of accounting rule changes for 
health insurance costs: 
Major reason: 8%; 
Moderate, minor reason: 24%; 
Not a reason: 64%; 
No response, not checked: 4%. 

Maintain comparability with similar provisions in collective bargaining 
agreements: 
Major reason: 0; 
Moderate, minor reason: 12%; 
Not a reason: 76%; 
No response, not checked: 12%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 
24 percent of respondents selected Other as a Major Reason; 5 out of 8 
respondents mentioned caps reached or FAS 106 caps reached as part of 
the reason. 

[End of figure] 

Large DB Plan Sponsor Survey: Health Benefits for Future Retirees: 

* 46 percent of plan sponsors no longer offered retiree health benefits 
to active employees hired after a certain date. 

* 54 percent decreased or eliminated the firm's share cost of providing 
health benefits for future retirees who were non-bargaining employees 
(Figure 14); 
- Primary reasons cited were large cost increases in health insurance 
for both retirees and active employees (Figure 15). 

* 41 percent of sponsors with bargaining unit employees reported 
decrease in or elimination of firm's share of health care costs for 
future retirees (Figure 14); 
- 26 percent reported no change; 
- Primary reason cited was match/maintain parity with competitor’s 
benefits package (Figure 16). 

Figure 14: Changes in Share of Health Benefit Costs for Future Retirees 
by Non-bargaining Unit and Bargaining Unit Firms: 

[Refer to PDF for image: horizontal bar graph] 

N = 39 (NB plans); 22 (CB plans); 22 (NB & CB plans). 

Employer share of cost decreased: 
Respondents with plans covering CB employees: 32%; 
Respondents with plans covering NB employees: 51%. 

Employer share of cost increased: 
Respondents with plans covering CB employees: 27%; 
Respondents with plans covering NB employees: 26%. 

Employer share of cost did not change: 
Respondents with plans covering CB employees: 27%; 
Respondents with plans covering NB employees: 15%. 

Employer did not offer benefit, no response: 
Respondents with plans covering CB employees: 5%; 
Respondents with plans covering NB employees: 5%. 

Employer eliminated benefit: 
Respondents with plans covering CB employees: 9%; 
Respondents with plans covering NB employees: 3%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

[End of figure] 

Figure 15: Reasons for Changes in Non-Bargaining Unit Firms' Share of 
Health Benefit Costs for Future Retirees: 

[Refer to PDF for image: horizontal bar graph] 

N = 31. 

Top Major Reasons and Not Reasons selected for changes in firms' share 
of health benefit costs: 

Large increases in cost of health insurance coverage for retirees: 
Major reason: 71%; 	
Moderate, minor reason: 26%; 
Not a reason: 3%; 
No response, not checked: 0%. 

Large increases in cost of health insurance coverage for active 
employees: 
Major reason: 26%; 	
Moderate, minor reason: 35%; 
Not a reason: 32%; 
No response, not checked: 7%. 

Match/maintain parity with competitor's benefits package: 
Major reason: 10%; 
Moderate, minor reason: 55%; 
Not a reason: 26%; 
No response, not checked: 9%. 

Uncertainty surrounding the application of accounting rule changes for 
health insurance costs:
Major reason: 6%; 
Moderate, minor reason: 26%; 
Not a reason: 61%; 
No response, not checked: 7%. 

Rising costs of other benefits provided that are needed to recruit 
employees: 
Major reason: 3%; 
Moderate, minor reason: 29%; 
Not a reason: 61%; 
No response, not checked: 7%. 

Maintain comparability with provisions of collective bargaining 
agreements: 
Major reason: 0%; 
Moderate, minor reason: 10%; 
Not a reason: 77%; 
No response, not checked: 13%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 

[End of figure] 

Figure 16: Reasons for Changes in Collective Bargaining Unit Firms' 
Share of Health Benefit Costs for Future Retirees: 

[Refer to PDF for image: horizontal bar graph] 

N = 15. 

Top Major Reasons and Not Reasons selected for changes in firms' share 
of health benefit costs: 

Match/maintain parity with competitor's benefits package: 
Major reason: 13%; 
Moderate, minor reason: 33%; 
Not a reason: 47%; 
No response, not checked: 7%. 

Large number of former bargaining unit members as retirees: 
Major reason: 13%; 
Moderate, minor reason: 27%; 
Not a reason: 53%; 
No response, not checked: 7%. 

Demographics of bargaining unit (increasing average age): 
Major reason: 13%; 
Moderate, minor reason: 27%; 
Not a reason: 53%; 
No response, not checked: 7%. 

Defined benefit retirement plans were generally decreased as a 
tradeoff: 
Major reason: 0%; 
Moderate, minor reason: 0%; 
Not a reason: 93%; 
No response, not checked: 7%. 

Employer share 401(k) or other defined contribution retirement plan 
benefits were decreased as a tradeoff:
Major reason: 0%; 
Moderate, minor reason: 0%; 
Not a reason: 93%; 
No response, not checked: 7%. 

Health benefits for active employees were reduced as tradeoff:
Major reason: 0%; 
Moderate, minor reason: 0%; 
Not a reason: 93%; 
No response, not checked: 7%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 
40 percent of respondents selected Other as a Major Reason; within the 
Other reasons listed by these respondents, there were no consistent 
responses. 

[End of figure] 

Retiree Health Care Represents a Significant Liability for DB Plan 
Sponsors: 

As of the end of 2004, 29 DB plan sponsors reported a total liability 
for retiree health plan year was $68 billion. 

* This was about 18 percent of the $370 billion of total DB liabilities 
that we estimated for all respondents from the 2004 Form 5500. 

* If we include the liabilities of only those that reported a retiree 
health liability, then the retiree health represented 40 percent of 
their estimated DB liabilities ($174 billion; covered by $180 billion 
in assets). 

We chose 2004 because: 

* We used 2004 Form 5500 data to select the respondents; and; 

* Changes occurred with respect to the accounting treatment of health 
care liabilities that made it difficult to ascertain those liabilities 
in later years. 

Large DB Plan Sponsor Survey: Most Sponsors Reported Few Planned 
Changes Before 2012: 

When sponsors were asked about prospective changes to benefit 
offerings, most plan sponsors reported no firm plans to revise benefit 
formulas, freeze or terminate plans, or convert hybrid plans before 
2012: 

* More than 60 percent of respondents planned no change to formula for 
calculating the rates of benefit accrual provided by DB plan. 

* More than 60 percent of respondents believed their firm will probably 
not or definitely not freeze at least one DB plan. 

* 80 percent of respondents believed their firm will probably not or 
definitely not convert DB plans to cash balance or other hybrid plans. 

* 79 percent of respondents believed their firm will probably not or 
definitely not terminate DB plans. 

Large DB Plan Sponsor Survey: Sponsors Expect Few Changes to Their 
Pension Plans: 

When sponsors were asked about how the pension environment (i.e. laws, 
accounting rules, etc.) might influence future benefit offerings, a 
majority respondents believed it unlikely or very unlikely that firm 
would: 

* use assets from DB to fund qualified health plans; 

* increase employer match for DC plans; 

* terminate at least one DB plan; 

* amend at least one DB plan to change (either increase or decrease) 
rates of future benefit accruals; 

* convert DB plan to cash balance or hybrid plan; 

* replace DB plan with 401(k)-style DC plan. 

PPA, FASB played virtually no role in changes to retirement plans. 

Large DB Plan Sponsor Survey: Limited Changes to DB and DC plans in 
response to PPA, FASB, or other changes prior to passage of PPA: 

* 50 percent of sponsors believed adding or expanding automatic 
enrollment features to 401(k)-type DC plans was very likely or likely 
in the future; 
- 43 percent of these said PPA played major role in this expansion. 

* 45 percent of respondents believed changing the investment policy for 
at least one DB plan to increase the portion of the plans’ portfolio 
invested in fixed income assets was very likely or likely; 
- 21 percent said PPA played major/moderate role; 29 percent said FASB 
played major/moderate role. 

Large DB Plan Sponsor Survey: Conditions to Consider Forming New DB 
Plans: 

* Most sponsors reported no possible conditions that could make them 
definitely consider forming a new DB plan. 

* 26 percent of sponsors reported that there were conditions under 
which they would have considered offering a new DB plan; the most 
common conditions selected were: 
- Provide sponsors with greater scope in accounting for DB plans on 
corporate balance sheets; 
- DB plans became more effective as an employee retention tool; 
- Reduced unpredictability or volatility in DB plan funding 
requirements (Figure 17). 

Figure 17: Among the 26 Percent of Respondents that Would Consider a 
New DB Plan, Conditions Under Which They Would Consider Doing So: 

[Refer to PDF for image: horizontal bar graph] 

N = 15. 

Provide sponsors with greater scope in accounting for DB plans on 
corporate balance sheets: 
Definitely, probably consider: 73%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 0%; 
Don't know, no opinion, no response: 9%. 

DB plans became more effective as an employee retention tool: 
Definitely, probably consider: 64%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 9%; 
Don't know, no opinion, no response: 9%. 

Reduced unpredictability or volatility in DB plan funding requirements: 
Definitely, probably consider: 64%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 9%; 
Don't know, no opinion, no response: 9%. 

DB plans became the standard for retirement benefits in the firms 
industry: 
Definitely, probably consider: 64%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 9%; 
Don't know, no opinion, no response: 9%. 

Increase in tax deductibility of DB plans compared to DC plans: 
Definitely, probably consider: 64%; 
Probably not, definitely not consider: 9%; 
Equally consider as not: 18%; 
Don't know, no opinion, no response: 9%. 

Reduced regulatory/administrative requirements for DB plans: 
Definitely, probably consider: 55%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 18%; 
Don't know, no opinion, no response: 9%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 

[End of figure] 

Figure 18: Conditions Under Which Firms Would Have Considered Offering 
Employees a New DB Plan: 

[Refer to PDF for image: horizontal bar graph] 

N = 11. 

DB plans became more effective as an employee recruitment tool: 
Definitely, probably consider: 55%; 
Probably not, definitely not consider: 18%; 
Equally consider as not: 18%; 
Don't know, no opinion, no response: 9%. 

Mitigation of constraints with respect to ERISA nondiscrimination or 
"top-heavy" rules: 
Definitely, probably consider: 36%; 
Probably not, definitely not consider: 38%; 
Equally consider as not: 18%; 
Don't know, no opinion, no response: 9%. 

Increased costs of DC plans: 
Definitely, probably consider: 37%; 
Probably not, definitely not consider: 64%; 
Equally consider as not: 0%; 
Don't know, no opinion, no response: 9%. 

DB plan was a consequence of collective bargaining negotiations: 
Definitely, probably consider: 27%; 
Probably not, definitely not consider: 9%; 
Equally consider as not: 18%; 
Don't know, no opinion, no response: 45%. 

Reduced PBGC premiums: 
Definitely, probably consider: 18%; 
Probably not, definitely not consider: 45%; 
Equally consider as not: 27%; 
Don't know, no opinion, no response: 9%. 

Increased regulatory requirements of DC plans: 
Definitely, probably consider: 0%; 
Probably not, definitely not consider: 64%; 
Equally consider as not: 27%; 
Don't know, no opinion, no response: 9%. 

Source: GAO analysis of survey of sponsors of large defined benefit 
pension plans. 

Note: The top three key reasons are ranked in declining order of the 
percentage of firms listing a ‘major reason,’ while the bottom three 
reasons are listed in declining order of firms listing ‘not a reason.’ 

[End of figure] 

Implications/Concluding Observations: 

Stability of large sponsor plans now increasingly vulnerable to the 
broader decline of the DB system. 

* Benefit formula revisions and plan freezes common among survey 
respondents, especially among NB plans, but among CB plans as well. 

Findings consistent with mounting evidence of challenges facing private 
sector retirement system. 

* DC plans losses from current markets, low coverage participation 
rates high fees. 

* Current market turmoil exacerbates these challenges. 

Findings highlight need for examination of current system’s problems 
and the need to consider alternative models. 

[End of section] 

Appendix II: Scope and Methodology: 

To achieve our objectives, we conducted a survey of sponsors of large 
defined-benefit (DB) pension plans. For the purposes of our study, we 
defined "sponsors" as the listed sponsor on the 2004 Form 5500 for the 
largest sponsored plan (by total participants).[Footnote 53] To 
identify all plans for a given sponsor, we matched plans through unique 
sponsor identifiers.[Footnote 54] 

Population and Sample Design: 

We constructed our population of DB plan sponsors from the 2004 Pension 
Benefit Guaranty Corporation's (PBGC) Form 5500 Research Database by 
identifying unique sponsors listed in this database and aggregating 
plan-level data (for example, plan participants) for any plans 
associated with this sponsor. As a result of this process, we 
identified approximately 23,500 plan sponsors. We further limited these 
sponsors to the largest sponsors (by total participants in all 
sponsored plans) that also appeared on the Fortune 500 or Fortune 
Global 500 lists. We initially attempted to administer the survey to 
the first 100 plans that met these criteria, but ultimately, we were 
only able administer the survey to the 94 sponsoring firms for which we 
were able to obtain sufficient information for the firm's benefits 
representative. While the 94 firms we identified for the survey are an 
extremely small subset of the approximately 23,500 total DB plan 
sponsors in the research database, we estimate that these 94 sponsors 
represented 50 percent of the total single-employer liabilities insured 
by PBGC and 39 percent of the total participants (active, retired, and 
separated-vested) in the single-employer DB system as of 2004. 

Administration of Survey: 

The Web-based questionnaire was sent in December 2007, via e-mail, to 
the 94 sponsors of the largest DB pension plans (by total plan 
participants as of 2004) who were also part of the Fortune 500 or 
Global Fortune 500. This was preceded by an e-mail to notify 
respondents of the survey and to test our e-mail addresses for these 
respondents. This Web questionnaire consisted of 105 questions and 
covered a broad range of areas, including: 

* the status of current DB plans; 

* the status of frozen plans (if any) and the status of the largest 
frozen plan (if applicable); 

* health care for active employees and retirees; 

* nonwage compensation priorities; 

* pension and other benefit practices or changes over approximately the 
last 10 years[Footnote 55] and the reasons for those changes[Footnote 
56] (parallel questions asked for plans covering collectively bargained 
employees and those covering nonbargaining employees);[Footnote 57] 

* prospective benefit plan changes; 

* the influence of laws and accounting practices on possible 
prospective benefit changes; and: 

* opinions about the possible formation of a new DB plan. 

The first 17 questions and last question of the GAO Survey of Sponsors 
of Large Defined Benefit Pension Plans questionnaire mirrored the 
questions asked in a shorter mail questionnaire (Survey of DB Pension 
Plan Sponsors Regarding Frozen Plans) about benefit freezes that was 
sent to a stratified random sample of pension plan sponsors that had 
100 or more participants as of 2004. Sponsors in the larger survey 
were, like the shorter survey, asked to report only on their single- 
employer DB plans. 

To help increase our response rate, we sent four follow-up e-mails from 
January through November 2008. We ultimately received responses from 44 
plan sponsors, representing an overall response rate of 44 percent. 

To pretest the questionnaires, we conducted cognitive interviews and 
held debriefing sessions with 11 pension plan sponsors. Three pretests 
were conducted in-person and focused on the Web survey, and eight were 
conducted by telephone and focused on the mail survey. We selected 
respondents to represent a variety of sponsor sizes and industry types, 
including a law firm, an electronics company, a defense contractor, a 
bank, and a university medical center, among others. We conducted these 
pretests to determine if the questions were burdensome, understandable, 
and measured what we intended. On the basis of the feedback from the 
pretests, we modified the questions as appropriate. 

Nonsampling Error: 

The practical difficulties of conducting any survey may introduce other 
types of errors, commonly referred to as nonsampling errors. For 
example, differences in how a particular question is interpreted, the 
sources of information available to respondents, or the types of people 
who do not respond can introduce unwanted variability into the survey 
results. We included steps in both the data collection and data 
analysis stages for the purpose of minimizing such nonsampling errors. 

We took the following steps to increase the response rate: developing 
the questionnaire, pretesting the questionnaires with pension plan 
sponsors, and conducting multiple follow-ups to encourage responses to 
the survey. 

We performed computer analyses of the sample data to identify 
inconsistencies and other indications of error and took steps to 
correct inconsistencies or errors. A second, independent analyst 
checked all computer analyses. 

We initiated our audit work in April 2006. We issued results from our 
survey regarding frozen plans in July 2008.[Footnote 58] We completed 
our audit work for this report in March 2009 in accordance with all 
sections of GAO's Quality Assurance Framework that are relevant to our 
objectives. The framework requires that we plan and perform the 
engagement to obtain sufficient and appropriate evidence to meet our 
stated objectives and to discuss any limitations in our work. We 
believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

Contact: 

Barbara D. Bovbjerg, (202) 512-7215 or bovbjergb@gao.gov. 

Staff Acknowledgments: 

In addition to the contact above, Joe Applebaum, Sue Bernstein, Beth 
Bowditch, Charles Ford, Brian Friedman, Charles Jeszeck, Isabella 
Johnson, Gene Kuehneman, Marietta Mayfield, Luann Moy, Mark Ramage, Ken 
Stockbridge, Melissa Swearingen, Walter Vance, and Craig Winslow made 
important contributions to this report. 

[End of section] 

Footnotes: 

[1] Employers may sponsor defined benefit (DB) or defined contribution 
(DC) plans for their employees. DB plans promise to provide a benefit 
that is generally based on an employee's salary and years of service. 
29 U.S.C. § 1002(35). DB plans use a formula to determine the ultimate 
pension benefit participants are entitled to receive. Under a DC plan, 
such as a 401(k) plan, employees have individual accounts to which the 
employee, employer, or both make contributions, and benefits are based 
on contributions, along with investment returns (gains and losses) on 
the accounts. 29 U.S.C. § 1002(34). 

[2] See Pension Benefit Guaranty Corporation, Pension Insurance Data 
Book 2007, Number 12 (Washington, D.C.,Winter 2008), page 70. 

[3] See GAO, Defined Benefit Pensions: Plan Freezes Affect Millions of 
Participants and May Pose Retirement Income Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21, 
2008). 

[4] The most common tax-advantaged savings arrangements that enrollees 
can use to pay for a portion of their health expenses are health 
reimbursement arrangements (HRA) or health savings accounts (HSA). 
These accounts allow funds to accrue over time. HRA accounts are owned 
by the employer, and only the employer may contribute to them. HSAs are 
owned by the enrollee and, therefore, are portable when workers change 
jobs. Both employers and enrollees can make contributions to HSAs. See 
GAO, Employer Sponsored Health and Retirement Benefits: Efforts to 
Control Employer Costs and the Implication for Workers, [hyperlink, 
http://www.gao.gov/products/GAO-07-355] (Washington, D.C.: Mar. 30, 
2007). 

[5] We previously used a portion of this survey to analyze frozen plan 
tendencies, which used a stratified random probability sample of 471 DB 
pension sponsors from PBGC's 2004 Form 5500 Research Database. See 
[hyperlink, http://www.gao.gov/products/GAO-08-817]. 

[6] Cash balance plans are referred to as hybrid plans because, 
legally, they are DB plans but contain certain features that resemble 
DC plans. Similar to traditional DB plans, cash balance plans use a 
formula to determine pension benefits. However, unlike traditional 
final average pay plans that pay retirement benefits on the basis of an 
annuity amount calculated using years of service and earnings, cash 
balance plans express benefits as a hypothetical individual account 
balance that is based on pay credits (percentage of salary or 
compensation) and interest credits, rather than an annuity. 

[7] Or 34 of 42 respondents that answered this question for either 
their plans covering nonbargaining employees only or their plans 
covering collectively bargained employees. All results in this report 
are unweighted. For example, results reported on a respondent basis are 
not additionally weighted by another factor such as plan liabilities or 
the number of participants in the responding sponsors' plans. 

[8] Or 14 of 24 respondents that answered the question for their plans 
covering collectively collective-bargaining employees. 

[9] Or 19 of 40 respondents that answered the question for their plans 
covering nonbargaining employees only. 

[10] Respondents may be responding for both questions relating to plans 
covering nonbargaining unit employees only and questions relating to 
plans covering bargaining unit employees. For the question relating to 
DB formula changes, 24 respondents answered both questions. 

[11] This reason was most common, both among those reporting a change 
and among only those respondents reporting a formula decrease. 

[12] See appendix II for an explanation of the difference between 
collectively bargained plans and collectively bargained employees. 

[13] A flat-benefit plan uses a formula multiplying a beneficiary's 
months of service by a predetermined, flat, monthly rate. This 
contrasts with the more typical unit credit plan, which typically uses 
a formula multiplying a beneficiary's years of service by a percentage 
of his or her salary. Flat-benefit plans are more common in 
collectively bargained plans where the range of monthly wages between 
employees is comparatively small. Because, typically, an employee's 
wages often increase over time, flat-benefit plans are amended, usually 
in conjunction with a new collective-bargaining agreement, by raising 
the monthly rate. As such, a cost-of-living adjustment for an employee 
with a pension using a flat-benefit formula may be thought of as 
analogous to a wage increases that may be witnessed by an employee with 
a pension using a unit credit formula. 

[14] Or 21 of 40 respondents that answered the question for their plans 
covering non-bargaining employees only. 

[15] Or 5 of 24 respondents that answered the question for their plans 
covering collective-bargaining employees. 

[16] Or 26 of 42 respondents that answered the question. 

[17] Or 14 plans as hard frozen, among the 169 total plans reported by 
42 respondents. 

[18] Or 33 plans as soft, partial, or other freeze, among the 169 total 
plans reported by 42 respondents. 

[19] A soft freeze is a freeze that limits future benefit accruals 
based on a component of the benefit accrual formula (that is, the 
service or salary component), and at a minimum, closes the plan to new 
participants. A partial freeze is a freeze that closes the plan to new 
entrants and, for only a subset of active participants, the plan's 
prospective benefit formula is changed to limit or cease future benefit 
accruals. 

[20] See [hyperlink, http://www.gao.gov/products/GAO-08-817]. Many of 
the large sponsors in the GAO Survey of Large Defined Benefit Sponsors 
were included as a subset of sponsors in the Survey of Plan Freezes. 

[21] Or 38 of 42 respondents that answered 401(k)-related questions for 
either their plans covering nonbargaining employees only or their plans 
covering collectively bargained employees. 

[22] Or 28 of 42 respondents that answered the automatic enrollment 
question for either their plans covering only nonbargaining employees 
or their plans covering collectively bargained employees. 

[23] See Congressional Research Service, Automatic Enrollment in 401(k) 
Plans, RS21954 (Washington, D.C., Jan. 16, 2007). The PPA amended the 
Employee Retirement Income Security Act of 1974 (ERISA) to provide that 
under default investment arrangements that provide participants with 
required notice, employers and other plan fiduciaries will not be held 
liable for losses to the same extent as if a participant had exercised 
control of the investment. PPA § 624, 120 Stat. 980. The law also 
provided that automatic contribution arrangements that provide 
automatic deferral of pay, matching or nonelective contributions, and 
notice to employees will be deemed to meet the nondiscrimination 
requirements of the Internal Revenue Code. PPA §§ 902(a), 120 Stat. 
1033-35. It also provided that plans consisting solely of contributions 
made through automatic enrollment will not be considered top-heavy 
plans. PPA § 902(c), 120 Stat. 1036. 

[24] Or 28 of 39 respondents that answered the question for their plans 
covering non-bargaining employees only. 

[25] Or 11 of 24 respondents that answered the question for their plans 
covering collective-bargaining employees. 

[26] Twenty-five respondents reported their firm's percent of base pay 
devoted to active employee health plans, and 25 respondents reported 
their firm's percent of base pay devoted to retiree health plans. 

[27] Twenty-five respondents reported their firm's percent of base pay 
devoted to DB plans, and 25 respondents reported their firm's percent 
of base pay devoted to DC plans. 

[28] Or 42 of the 42 respondents that answered the questions. 

[29] Or 33 of the 41 respondents that offered a retiree health benefit 
to at least some current employees. 

[30] Or 8 of the 41 respondents that offered a retiree health benefit 
to at least some current employees. 

[31] These figures are not necessarily mutually exclusive. The very 
same respondents could answer multiple questions about features of 
their current retiree health offering or offerings. 

[32] Or 19 of the 41 respondents that offered a retiree health benefit 
to at least some current employees. 

[33] Or 11 of 40 respondents that answered the question for their plans 
covering nonbargaining employees only. 

[34] Or 3 of 23 respondents that answered the question for their plans 
covering collective-bargaining employees. 

[35] We do not report selected reasons for respondents reporting for 
their collectively bargained employees, as the response rate for the 
question was not robust. 

[36] A cost cap is a limitation placed on an employer's share of costs. 
A few firms specifically cited Financial Accounting Standard (FAS) 106 
as the impetus for the cap. FAS 106 outlines accounting practices for 
postretirement benefits other than pensions, which includes health 
plans. 

[37] Or 21 of 39 respondents that answered the question for their plans 
covering nonbargaining employees only. 

[38] These respondents indicated that "large cost increases in health 
insurance for retirees" and "large cost increases in health insurance 
for active employees" were the major reasons for the change to benefits 
(Appendix I, slide 31). Interestingly, these reasons were ranked as top 
reasons for respondents that specifically reported an increase in an 
employer's share of the cost, as well as those that specifically 
reported a decrease. 

[39] Or 9 of 22 respondents that answered the question for their plans 
covering collective-bargaining employees. 

[40] We asked for this somewhat older information for two reasons: (1) 
we used 2004 Form 5500 information to construct the survey sample, and 
we could use this information to compare the reported retiree health 
liabilities to the DB liabilities of the responding plan sponsors; and 
(2) changes occurred with respect to the accounting treatment of health 
care liabilities with the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. No. 108-173, 117 Stat. 2006), 
which could potentially make consistent comparisons of liabilities in 
later years difficult. For more information on MMA and its effect on 
accounting, see GAO, Retiree Health Benefits: Options for Employment- 
Based Prescription Drug Benefits under the Medicare Modernization Act, 
[hyperlink, http://www.gao.gov/products/GAO-05-205] (Washington, D.C.: 
Feb. 5, 2005). 

[41] The tax treatment of such funding is extremely unfavorable, 
especially when compared to the treatment accorded the funding of 
pensions. Contributions in excess of those needed for retiree health 
benefits currently payable are not deductible from a corporation's 
income for tax purposes. Further, to the extent that excess funds are 
contributed, any investment earnings on those accumulations are 
considered to be income to the plan sponsor. On the other hand, when 
the health benefits are paid, they become an expense of the plan 
sponsor. This is exactly the reverse of the treatment of pensions. For 
pensions, the contributions to tax-qualified plans are, within limits, 
an ordinary business expense and, hence, are deductible from the 
sponsor's income; investment earnings on the accumulations are 
deferred; and benefit payments do not reduce the sponsor's income but 
are considered income to the recipient. 

[42] More than 60 percent (or 27 of 42) of respondents planned no 
change to formula for calculating the rates of benefit accrual provided 
by DB plan; more than 60 percent (or 27 of 42) of respondents believed 
their firm will probably not or definitely not freeze at least one DB 
plan; 80 percent (or 34 of 42) of respondents believed their firm will 
probably not or definitely not convert DB plans to cash balance or 
other hybrid plans; and 79 percent (or 33 of 42) of respondents 
believed their firm will probably not or definitely not terminate DB 
plans. 

[43] Of the 11 firms that indicated a freeze for new participants was 
likely, 8 firms said that PPA played a role in the decision--4 of which 
selected "major role." 

[44] Of the 5 firms that indicated replacing a DB plan with a 401(k)- 
style DC plan was likely, 4 indicated that both PPA and FASB played a 
role--2 of which selected "major role" for each. 

[45] Or 21 of 42 respondents that answered this question for their 
plans covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[46] Or 18 of 42 respondents that answered this question for their 
plans covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[47] The role of PPA is more pronounced among the 50 percent that 
indicated this change was likely; of these, 71 percent (15 out of 21) 
indicated that PPA played a "major role." 

[48] Or 19 of 42 respondents that answered this question for their 
plans covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[49] Or 9 of 42 respondents that answered this question for their plans 
covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[50] Or 12 of 42 respondents that answered this question for their 
plans covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[51] The role of PPA and FASB is more pronounced among the 45 percent 
of respondents that indicated this change was likely; of these, 47 
percent (9 out of 19) indicated PPA played a role, and 63 percent (12 
out of 19) indicated FASB played a role. 

[52] Or 11 of 42 respondents that answered this question for their 
plans covering nonbargaining employees and/or their plans covering 
collectively bargained employees. 

[53] At the time of sample selection we removed plans that terminated 
after 2004, which may have also included plans that reported a final 
filing or had merged into another plan. 

[54] These include the nine-digit employee identification number (EIN) 
found in the Form 5500, as well as the Committee on Uniform Securities 
Identification Procedures (CUSIP) number, which is contained in the 
PBGC Research Database. A CUSIP number identifies most North American 
securities, including stocks of all registered U.S. and Canadian 
companies and U.S. government and municipal bonds. The number consists 
of nine characters (including letters and numbers) that uniquely 
identify a company or issuer and the type of security. In addition to 
these two methods, we identified sponsors by visually inspecting plan 
names and sponsor names from the database to find common sponsors that 
were not identified by EINs or CUSIPs. 

[55] The GAO Survey of Large Defined Benefit Plan Sponsors asked firms 
about changes made to benefit offerings between 1997 and the time of 
survey response, which for nearly all responding sponsors, was prior to 
July 2008. 

[56] The reasons varied by the individual question. We developed an 
initial set of reasons that we pretested with sponsors, and we revised 
our list of reasons, given respondent reactions and input during those 
pretests. An open-ended "other" reason was also offered to respondents 
if the sponsor felt other reasons were needed to clarify an answer. 

[57] The parallel questions in the survey asked the respondents to 
report for "plans covering nonbargaining unit employees only" and 
"plans covering collective-bargaining unit employees." Generally 
speaking, 40 respondents reported on the questions referring to plans 
covering nonbargaining unit employees, and 24 respondents reported on 
the questions referring to plans covering collective-bargaining unit 
employees. The 24 respondents that answered questions related to plans 
covering collective-bargaining unit employees generally also answered 
questions relating to plans covering nonbargaining unit employees. The 
number of respondents for a given survey question are enumerated in the 
briefing as "Ns" in Appendix II. While we attempted to use consistent 
terminology for bargaining status throughout the survey, plans covering 
collectively bargained employees are not necessarily the same as 
collectively bargained plans. Some collectively bargained plans may 
cover nonbargaining unit employees--possibly under a separate 
nonnegotiated benefit structure. Further, a plan covering members of a 
bargaining unit is sometimes not collectively bargained, although 
collectively bargained pension plans are common among large plan 
sponsors that have employees covered by collective-bargaining 
agreements. Our survey only asked about plans covering collectively 
bargained employees, and we cannot determine if these plans also 
include nonbargained employees or if the plan itself is actively 
bargained. 

[58] We previously used a portion of this survey to analyze frozen plan 
tendencies, which used a stratified random probability sample of 471 DB 
pension sponsors from PBGC's 2004 Form 5500 Research Database. See GAO, 
Defined Benefit Pensions: Plan Freezes Affect Millions of Participants 
and May Pose Retirement Income Challenges, [hyperlink, 
http://www.gao.gov/products/GAO-08-817] (Washington, D.C.: July 21, 
2008). 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink, http://www.gao.gov] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 
[hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 
information. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]: 
E-mail: fraudnet@gao.gov: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, dawnr@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: