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Testimony: 

Before the Committee on Health, Education, Labor and Pensions, U. S. 
Senate: 

United States Government Accountability Office: 
GAO: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Thursday, May 27, 2010: 

Private Pensions: 

Long-standing Challenges Remain for Multiemployer Pension Plans: 

Statement of Charles A. Jeszeck, Acting Director: 
Education, Workforce, and Income Security Issues: 

GAO-10-708T: 

GAO Highlights: 

Highlights of GAO-10-708T, a testimony before the to Committee on 
Health, Education, Labor and Pensions, U.S. Senate. 

Why GAO Did This Study: 

Multiemployer defined benefit pension plans, which are created by 
collective bargaining agreements covering more than one employer and 
generally operated under the joint trusteeship of labor and 
management, provide pension coverage to over 10.4 million participants 
in the 1,500 multiemployer plans insured by the Pension Benefit 
Guaranty Corporation (PBGC). Changes to the structure of the 
multiemployer plan framework and to PBGCs role as insurer have sought 
to improve plan funding. Reports of declines in plan funding have 
prompted questions about the financial health of these plans. 

The committee asked GAO to provide information on (1) the unique 
characteristics of multiemployer plans and (2) the challenges that 
multiemployer plans face and how they may affect PBGC. 

GAO provided a draft of this testimony to PBGC for review and comment. 
PBGC provided technical comments, which were incorporated, as 
appropriate. 

To address these objectives, GAO relied primarily on its previously 
published reports on multiemployer plans (GAO-04-423 and GAO-04-542T), 
and data publicly available from PBGC. GAO is not making new 
recommendations in this testimony. 

What GAO Found: 

While the Employee Retirement Income Security Act of 1974 funding 
rules apply to most private sector pension plans, the nations 
collectively bargained multiemployer plans have a unique structure 
intended to provide a certain level of plan stability and benefit 
portability while mitigating the risks to their insurer, PBGC. 
Multiemployer plans provide portable benefits to workers who change 
employers, distribute risk among participating employers and 
participants, and continue to operate long after an individual 
employer, or sponsor, goes out of business, because their framework 
makes remaining employers jointly liable for funding benefits for all 
vested participants. Multiemployer plans also pay a low insurance 
premium to PBGC because they typically do not require PBGC assistance. 
When needed, PBGC will provide loans to a plan that becomes insolvent 
and can no longer pay benefits at the level guaranteed by PBGC. Since 
the inception of the multiemployer insurance program in 1980, PBGC has 
paid $500 million in financial assistance to 62 insolvent plans. 

Multiemployer plans face ongoing funding and demographic challenges 
that potentially increase the financial burden on PBGC. According to 
PBGC, multiemployer plans have not been fully funded at the 100 
percent or above level since 2000. Other challenges include continuing 
decreases in the number of these plans and an aging participant base. 
Further, a decline in collective bargaining in the United States has 
left few opportunities for plans to attract new employers and workers. 
As a result, the proportion of active participants paying into the 
fund to others who are no longer paying into the fund has decreased, 
thereby increasing plan liabilities and the likelihood that PBGC will 
have to provide financial assistance in the future. 

Figure: Aggregate Funded Status of PBGC-Insured Multiemployer Pension 
Plans, 1980-2006: 

[Refer to PDF for image: vertical bar graph] 

Year: 1980; 
Multiemployer plans: 77%. 

Year: 1981; 
Multiemployer plans: 87%. 

Year: 1982; 
Multiemployer plans: 96%. 

Year: 1983; 
Multiemployer plans: 100%. 

Year: 1984; 
Multiemployer plans: 106%. 

Year: 1985; 
Multiemployer plans: 116%. 

Year: 1986; 
Multiemployer plans: 115%. 

Year: 1987; 
Multiemployer plans: 109%. 

Year: 1988; 
Multiemployer plans: 116%. 

Year: 1989; 
Multiemployer plans: 111%. 

Year: 1990; 
Multiemployer plans: 107%. 

Year: 1991; 
Multiemployer plans: 103%. 

Year: 1992; 
Multiemployer plans: 98%. 

Year: 1993; 
Multiemployer plans: 98%. 

Year: 1994; 
Multiemployer plans: 91%. 

Year: 1995; 
Multiemployer plans: 96%. 

Year: 1996; 
Multiemployer plans: 88%. 

Year: 1997; 
Multiemployer plans: 93%. 

Year: 1998; 
Multiemployer plans: 92%. 

Year: 1999; 
Multiemployer plans: 91%. 

Year: 2000; 
Multiemployer plans: 105%. 

Year: 2001; 
Multiemployer plans: 91%. 

Year: 2002; 
Multiemployer plans: 77%. 

Year: 2003; 
Multiemployer plans: 63%. 

Year: 2004; 
Multiemployer plans: 62%. 

Year: 2005; 
Multiemployer plans: 62%. 

Year: 2006; 
Multiemployer plans: 66%. 

Source: GAO analysis of PBGC data. 

[End of figure] 

View [hyperlink, http://www.gao.gov/products/GAO-10-708T] or key 
components. For more information, contact Charles A. Jeszeck at (202) 
512-7215 or jeszeckc@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss the multiemployer pension 
system and the challenges it faces. Multiemployer pension plans 
constitute an important segment of the nation's private employer 
pension system.[Footnote 1] Multiemployer plans are defined benefit 
(DB) plans established through collectively bargained pension 
agreements between labor unions and two or more employers.[Footnote 2] 
In 2009, there were about 1,500 multiemployer plans that cover more 
than 10.4 million workers and retirees--approximately 1 of every 4 
workers and retirees in the United States covered by a private sector 
DB plan. As we reported in 2004, the financial stakes are high for 
workers, retirees, and employers participating in these plans, as well 
as for the plans' insurer, the Pension Benefit Guaranty Corporation 
(PBGC).[Footnote 3] 

Multiemployer plans cover unionized workers in many industries, 
including the trucking, retail food, construction, mining, and garment 
industries and, importantly, provide some portability of benefits. 
Workers can continue accruing pension benefits when they change jobs 
if their new employer is a contributing employer in the same plan. 
Such arrangements are particularly suited to workers in industries 
such as construction, in which job changes are frequent over the 
course of a career. 

Since 2000, many multiemployer plans have experienced significant 
reductions in their funded status. Several factors contributed to this 
underfunding, including stock market losses, which reduced the value 
of plans' holdings, and historically low interest rates, which 
increased plan liabilities. The economic downturn also affected 
employers' ability to contribute to these plans. Many companies 
experienced slowdowns or closed their doors. While recent reports 
point to a recovering economy, some industries in which multiemployer 
plans are common have experienced high unemployment, limiting the 
stream of contributions coming into the plans. 

In 2004, we reported that the multiemployer system, in comparison with 
private single-employer plans, operates under a framework that 
redistributes risk toward employers and participants and away from 
government and potentially the taxpayer.[Footnote 4] In addition, we 
noted that this framework can create important incentives for 
interested parties to resolve financial difficulties. However, we also 
found that weak economic conditions in the early 2000s and declines in 
interest rates and equities markets increased the financial stress on 
the overall multiemployer plan framework, and each of the key 
stakeholders. We also identified several challenges to the long-term 
health of these plans, including the lack of employer funding 
flexibility compared with single-employer plans and the overall 
decline of collective bargaining. Today, 6 years later, the economic 
climate within which multiemployer plans must operate is far worse. As 
you know, we are conducting a study of multiemployer plans for another 
committee and expect to publish a report on our work later this year. 
Today I will discuss (1) some of the unique characteristics of 
multiemployer plans that affect their stability and PBGC's risk, and 
(2) current challenges faced by multiemployer plans and by PBGC as 
their insurer. 

Today's testimony draws on our work on PBGC, our 2004 report, and 
publicly available information. In developing our 2004 report, we 
examined how multiemployer DB pension plans differ from single-
employer plans, and reviewed relevant laws and regulations, Form 5500 
reports that plans file with the Department of Labor, and prior GAO 
reports and other pertinent literature. To identify recent and current 
trends and potential challenges in funding and worker participation 
rates for multiemployer plans, we reviewed PBGC reports and analyzed 
data from PBGC, conducting this performance audit in May 2010, in 
accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives. 

Background: 

In 1974, Congress passed the Employee Retirement Income Security Act 
(ERISA) to protect the interests of participants and beneficiaries 
covered by private sector employee benefit plans.[Footnote 5] Title IV 
of ERISA created PBGC as a U. S. government corporation to provide 
plan termination insurance for certain DB pension plans that become 
unable to provide pension benefits. PBGC operates two distinct pension 
insurance programs, one for multiemployer plans and one for single- 
employer plans. These plans have separate insurance funds, as well as 
different benefit guarantees, and insurance coverage rules. The 
multiemployer insurance program and PBGC's day-to-day operations are 
financed by annual premiums paid by the plans and by investment 
returns on PBGC's assets.[Footnote 6] For multiemployer plans, PBGC 
guarantees, within prescribed limits, those participant benefits that 
are not funded by plan assets when a covered plan is insolvent and 
unable to pay basic PBGC-guaranteed benefits when due for the plan 
year. 

In 1980, Congress sought to protect worker pensions in multiemployer 
plans by enacting the Multiemployer Pension Plan Amendments Act 
(MPPAA).[Footnote 7] Among other things, MPPAA (1) strengthened 
funding requirements to help ensure that plans accumulate enough 
assets to pay for promised benefits, and (2) made employers, unless 
relieved by special provisions, liable for their share of unfunded 
plan benefits when they withdrew from a multiemployer plan. The amount 
is based upon a proportional share of the plan's unfunded vested 
benefits.[Footnote 8] Liabilities that cannot be collected from a 
withdrawing employer, for example, one in bankruptcy, were to be 
"rolled over" and eventually had to be funded by the plan's remaining 
employers.[Footnote 9] The changes were to discourage withdrawals, 
which shift liabilities to PBGC's insurance program. 

The Pension Protection Act of 2006 (PPA) established new funding and 
disclosure requirements for multiemployer plans.[Footnote 10] Under 
PPA, a plan's actuary must certify to the Secretary of the Treasury 
the funding status of the plan within 90 days of the start of the plan 
year.[Footnote 11] For plans that certify that they are in endangered 
status (less than 80 percent funded) or critical status (less than 65 
percent funded), PPA requires plan trustees to take specific actions 
to improve the plan's financial status, such as developing schedules 
to increase contributions or reduce benefits.[Footnote 12] Plans 
certified as endangered must adopt a funding improvement plan, and 
those certified as critical must adopt a rehabilitation plan.[Footnote 
13] To assist plans in critical status, PPA amended ERISA to allow 
plans to reduce or eliminate some payment and early retirement options 
for plan participants who had not yet retired. In addition, PPA 
required trustees of plans in endangered or critical status to provide 
notice of that status to participants and beneficiaries, the 
bargaining parties, PBGC, and the Secretary of Labor within 30 days of 
certification.[Footnote 14] If a plan is in critical status, the 
notice must also inform employers of a possible contribution 
surcharge, and participants of a potential reduction in benefits. 

The funding requirements of PPA took effect just as the nation entered 
a severe economic recession in the fall of 2007. As a result, Congress 
enacted the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) 
to provide multiemployer plans with temporary relief from PPA 
requirements by allowing plans to temporarily freeze their funded 
status at the previous year's level.[Footnote 15] The freeze allows 
plans to delay creation of or updates to an existing funding 
improvement plan, rehabilitation plan, or other steps required under 
PPA.[Footnote 16] WRERA also requires plans to send a notice to all 
participants and beneficiaries, bargaining parties, PBGC, and the 
Department of Labor indicating that the election to freeze the status 
of the plan does not mean that the funded status of the plan has 
improved. WRERA also provided for a 3-year extension of a plan's 
funding improvement or rehabilitation period. 

Key Differences Exist Between Multiemployer and Single-Employer 
Pension Plans: 

While ERISA and PBGC funding rules apply to both single-and 
multiemployer plans, there are several important differences that 
affect the structure and stability of each type of plan. They include 
the following: 

* PBGC benefit guarantee levels: PBGC guarantees benefits for 
multiemployer beneficiaries at up to $12,870 per year, based on 30 
years of employment. PBGC's guarantee for single-employer 
beneficiaries is considerably higher--up to $54,000 per year for a 
retiree at age 65. 

* PBGC premium structure: PBGC collects insurance premiums for each 
plan it insures, but premium rates differ significantly, commensurate 
with the benefit amounts being guaranteed. In 2010, multiemployer 
plans pay PBGC an annual flat rate premium of $9 per participant, 
while single-employer plans pay PBGC $35 per participant. In addition, 
underfunded single-employer plans generally pay PBGC an additional 
variable rate premium based on the plan's unfunded vested benefits, 
because of the increased risk to PBGC because there are no other 
sponsors to cover the unfunded liabilities. Multiemployer plans are 
not required to pay this additional variable rate premium. 

* Insurable events: PBGC's "insurable event" for its multiemployer 
program--an event that triggers PBGC financial assistance--is plan 
insolvency. A multiemployer plan is insolvent and may apply for 
financial assistance when its available resources are not sufficient 
to pay benefits at PBGC's guaranteed level when due. In contrast, the 
insurable event for the single-employer program is generally 
termination of a plan, after which PBGC assumes responsibility and 
pays benefits directly to participants. 

* Provision of financial assistance: PBGC provides loans to 
multiemployer plans when they become insolvent, and a multiemployer 
plan need not be terminated to qualify for financial assistance. 
Insolvent multiemployer plans also are required to reduce or suspend 
payment of any portion of benefits to beneficiaries that exceed PBGC's 
guarantee level. If a plan recovers from insolvency, it must begin 
repaying the PBGC loan. Since the inception of the multiemployer 
insurance program in 1980, PBGC has provided $500 million in financial 
assistance to 62 plans. In fiscal year 2009 alone, PBGC provided $86 
million in financial assistance to 43 insolvent plans. In 30 years, 
only one plan has paid back its loan. PBGC provides no comparable 
assistance to single-employer plans because PBGC takes over terminated 
unfunded plans. 

* Fiduciary and settlor function: An employer's primary responsibility 
in a multiemployer plan is to pay contributions to the plan in the 
amount set in the collective bargaining agreement. Contribution 
requirements are generally a settlor rather than fiduciary function, 
for both sponsors of single-employer plans and participating sponsors 
in multiemployer plans. Individual employers in multiemployer plans do 
not assume a fiduciary role in plan management, which is instead 
handled by a board of trustees. Single-employer plans, on the other 
hand, are administered by one employer and may or may not be 
collectively bargained, so the employer generally assumes fiduciary 
duty for the pension plan.[Footnote 17] 

* Risk distribution: The pooling of risk that is inherent in 
multiemployer pension plans may buffer these plans from financial 
shocks because the economic performance of any one employer has less 
impact. Multiemployer pension plans typically continue to operate long 
after an individual employer, or sponsor, goes out of business, 
because the plan's remaining employers are jointly liable for funding 
benefits for all vested participants. Single-employer plans generally 
do not share the risk with other employers. 

* Portability of benefits: Multiemployer plans provide participants 
some benefit portability because they allow workers to keep and 
continue to accrue pension benefits when they change jobs as long as 
their new employer also participates in the same plan. Because single- 
employer plans are established and maintained by only one employer, 
their benefits are not normally portable. 

* Ability to adjust contribution and benefit levels: While minimum 
funding rules set out in ERISA and the Internal Revenue Code permit 
plan sponsors some flexibility in the timing of pension contributions, 
individual employers in multiemployer plans cannot individually adjust 
their plan contributions at will, and may be restricted in making 
changes until the collective bargaining agreement comes up for 
renegotiation, typically once every 2 or 3 years.[Footnote 18] Often, 
any changes in benefit levels must also be renegotiated by the 
bargaining parties. In contrast, sponsors of single-employer plans, 
depending on their employees' bargaining rights, may make adjustments 
to future contributions and benefits according to the company's fiscal 
condition provided that minimum funding requirements are met. 

* Employer terminations: If an employer withdraws from a multiemployer 
plan, the accrued benefits for its workers stay in and are 
administered by the plan. The plan terminates by mass withdrawal if 
all contributing employers of a multiemployer plan leave. When the 
plan becomes insolvent, PBGC begins providing financial assistance to 
the existing trustees upon insolvency of the plan, after which those 
trustees continue to administer the plan until all benefits are paid 
out. With respect to single-employer plans, PBGC assumes trusteeship 
and administers payment of participant benefits when an underfunded 
single-employer plan terminates. 

* Plan withdrawal: To protect the pensions of participants in 
multiemployer plans, MPPAA holds an employer seeking to withdraw from 
a plan liable to the plan for its share of the plan's unfunded 
liability. The law contains formulas for determining the amount, known 
as withdrawal liability, based on the employer's proportional share of 
the plan's unfunded vested benefits for all employees covered by the 
plan. In cases of bankruptcy, MPPAA requires the remaining employers 
in the plan to assume responsibility for funding benefits to the 
bankrupt employer's participants. This unfunded amount is often 
referred to as an orphaned liability. There is no comparable 
withdrawal liability for sponsors of single-employer plans, as the 
employer is liable for the unfunded benefits of the plan. According to 
PBGC, this greater financial risk on employers and lower guaranteed 
benefit level for participants in multiemployer plans, in practice, 
create incentives for employers, participants, and their collective 
bargaining representatives to avoid insolvency and to collaborate in 
trying to find solutions to the plan's financial difficulties. 

Multiemployer Plans Continue to Face Funding and Demographic 
Challenges That Could Significantly Affect PBGC: 

Multiemployer plans face ongoing funding and demographic challenges 
that have the potential to place an additional financial burden on 
PBGC. According to PBGC, multiemployer plans have not been fully 
funded at the 100 percent or above level since 2000 and their net 
funding has declined significantly since that time. The aggregate 
funded status--the percentage of benefits covered by plan assets--in 
multiemployer plans insured by PBGC declined from 105 percent in 2000 
to 66 percent in 2006, the last date for which PBGC data are 
available. (See figure 1.) The aggregate position of these plans has 
further diminished because of investment market declines and the 
recession beginning in 2007. 

Figure 1: Aggregate Funded Status of PBGC-Insured Multiemployer 
Pension Plans, 1980-2006: 

[Refer to PDF for image: vertical bar graph] 

Year: 1980; 
Multiemployer plans: 77%. 

Year: 1981; 
Multiemployer plans: 87%. 

Year: 1982; 
Multiemployer plans: 96%. 

Year: 1983; 
Multiemployer plans: 100%. 

Year: 1984; 
Multiemployer plans: 106%. 

Year: 1985; 
Multiemployer plans: 116%. 

Year: 1986; 
Multiemployer plans: 115%. 

Year: 1987; 
Multiemployer plans: 109%. 

Year: 1988; 
Multiemployer plans: 116%. 

Year: 1989; 
Multiemployer plans: 111%. 

Year: 1990; 
Multiemployer plans: 107%. 

Year: 1991; 
Multiemployer plans: 103%. 

Year: 1992; 
Multiemployer plans: 98%. 

Year: 1993; 
Multiemployer plans: 98%. 

Year: 1994; 
Multiemployer plans: 91%. 

Year: 1995; 
Multiemployer plans: 96%. 

Year: 1996; 
Multiemployer plans: 88%. 

Year: 1997; 
Multiemployer plans: 93%. 

Year: 1998; 
Multiemployer plans: 92%. 

Year: 1999; 
Multiemployer plans: 91%. 

Year: 2000; 
Multiemployer plans: 105%. 

Year: 2001; 
Multiemployer plans: 91%. 

Year: 2002; 
Multiemployer plans: 77%. 

Year: 2003; 
Multiemployer plans: 63%. 

Year: 2004; 
Multiemployer plans: 62%. 

Year: 2005; 
Multiemployer plans: 62%. 

Year: 2006; 
Multiemployer plans: 66%. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Multiemployer plans also face demographic challenges: reductions in 
the number of plans, an aging workforce, and few opportunities to 
attract new employers and workers into plans. The number of plans has 
decreased fairly steadily since the 1980s, likely reflecting plan 
mergers. (See figure 2.) 

Figure 2: Number of PBGC-Insured Multiemployer Plans and Participants, 
1980-2008: 

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

Year: 1980; 
Participants: 8.0 million; 
Plans: 2,244. 

Year: 1981; 
Participants: 8.2 million; 
Plans: 2,272. 

Year: 1982; 
Participants: 8.5 million; 
Plans: 2,289. 

Year: 1983; 
Participants: 8.4 million; 
Plans: 2,285. 

Year: 1984; 
Participants: 8.1 million; 
Plans: 2,223. 

Year: 1985; 
Participants: 8.2 million; 
Plans: 2,188. 

Year: 1986; 
Participants: 8.2 million; 
Plans: 2,153. 

Year: 1987; 
Participants: 8.3 million; 
Plans: 2,098. 

Year: 1988; 
Participants: 8.3 million; 
Plans: 2,081. 

Year: 1989; 
Participants: 8.4 million; 
Plans: 2,060. 

Year: 1990; 
Participants: 8.5 million; 
Plans: 1,983. 

Year: 1991; 
Participants: 8.7 million; 
Plans: 1,926. 

Year: 1992; 
Participants: 8.8 million; 
Plans: 1,936. 

Year: 1993; 
Participants: 8.7 million; 
Plans: 1,900. 

Year: 1994; 
Participants: 8.6 million; 
Plans: 1,880. 

Year: 1995; 
Participants: 8.6 million; 
Plans: 1,879. 

Year: 1996; 
Participants: 8.7 million; 
Plans: 1,876. 

Year: 1997; 
Participants: 8.7 million; 
Plans: 1,846. 

Year: 1998; 
Participants: 8.9 million; 
Plans: 1,817. 

Year: 1999; 
Participants: 9.0 million; 
Plans: 1,800. 

Year: 2000; 
Participants: 9.1 million; 
Plans: 1,744. 

Year: 2001; 
Participants: 9.4 million; 
Plans: 1,707. 

Year: 2002; 
Participants: 9.6 million; 
Plans: 1,671. 

Year: 2003; 
Participants: 9.7 million; 
Plans: 1,612. 

Year: 2004; 
Participants: 9.8 million; 
Plans: 1,586. 

Year: 2005; 
Participants: 9.9 million; 
Plans: 1,571. 

Year: 2006; 
Participants: 9.9 million; 
Plans: 1,538. 

Year: 2007; 
Participants: 10.0 million; 
Plans: 1,522. 

Year: 2008; 
Participants: 10.1 million; 
Plans: 1,513. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Meanwhile, although the number of total participants in multiemployer 
plans has slowly increased, the proportion of active participants to 
retirees and separated vested participants has decreased, largely 
because of an aging workforce.[Footnote 19] (See figure 3.) For 
example, multiemployer plans had 1.6 million fewer active participants 
in 2006 than in 1980, according to PBGC. 

Figure 3: PBGC-Insured Multiemployer Plan Participation, by 
Participant Status, 1980-2006: 

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

Year: 1980; 
Active:	76%; 
Retired: 18%; 
Separated Vested: 7%. 

Year: 1981; 
Active:	74%; 
Retired: 19%; 
Separated Vested: 7%. 

Year: 1982; 
Active:	73%; 
Retired: 19%; 
Separated Vested: 9%. 

Year: 1983; 
Active:	69%; 
Retired: 22%; 
Separated Vested: 10%. 

Year: 1984; 
Active:	67%; 
Retired: 23%; 
Separated Vested: 10%. 

Year: 1985; 
Active:	66%; 
Retired: 23%; 
Separated Vested: 11%. 

Year: 1986; 
Active:	64%; 
Retired: 23%; 
Separated Vested: 13%. 

Year: 1987; 
Active:	62%; 
Retired: 24%; 
Separated Vested: 14%. 

Year: 1988; 
Active:	61%; 
Retired: 25%; 
Separated Vested: 14%. 

Year: 1989; 
Active:	61%; 
Retired: 25%; 
Separated Vested: 14%. 

Year: 1990; 
Active:	59%; 
Retired: 25%; 
Separated Vested: 16%. 

Year: 1991; 
Active:	57%; 
Retired: 26%; 
Separated Vested: 17%. 

Year: 1992; 
Active:	55%; 
Retired: 28%; 
Separated Vested: 18%. 

Year: 1993; 
Active:	54%; 
Retired: 28%; 
Separated Vested: 18%. 

Year: 1994; 
Active:	53%; 
Retired: 28%; 
Separated Vested: 19%. 

Year: 1995; 
Active:	52%; 
Retired: 29%; 
Separated Vested: 19%. 

Year: 1996; 
Active:	52%; 
Retired: 29%; 
Separated Vested: 19%. 

Year: 1997; 
Active:	52%; 
Retired: 29%; 
Separated Vested: 19%. 

Year: 1998; 
Active:	51%; 
Retired: 30%; 
Separated Vested: 18%. 

Year: 1999; 
Active:	51%; 
Retired: 31%; 
Separated Vested: 19%. 

Year: 2000; 
Active:	51%; 
Retired: 30%; 
Separated Vested: 19%. 

Year: 2001; 
Active:	50%; 
Retired: 30%; 
Separated Vested: 21%. 

Year: 2002; 
Active:	48%; 
Retired: 30%; 
Separated Vested: 22%. 

Year: 2003; 
Active:	47%; 
Retired: 30%; 
Separated Vested: 23%. 

Year: 2004; 
Active:	46%; 
Retired: 31%; 
Separated Vested: 23%. 

Year: 2005; 
Active:	46%; 
Retired: 31%; 
Separated Vested: 24%. 

Year: 2006; 
Active:	45%; 
Retired: 31%; 
Separated Vested: 24%. 

Source: GAO analysis of PBGC data. 

[End of figure] 

Future growth of multiemployer plans is largely predicated on growth 
of collective bargaining. Yet collective bargaining has declined in 
the United States since the early 1950s. According to the Bureau of 
Labor Statistics, union membership--a proxy for collective bargaining 
coverage--accounted for 7.2 percent of the U.S. private sector labor 
force in 2009. In contrast, in 1990, union membership in the private 
sector accounted for about 12 percent, and in 1980, about 20 percent. 

Without a new stream of contributions, plans will increasingly have to 
tap into assets to meet benefit obligations and, everything else being 
equal, and this will generally lower the plans' funded status. The 
conditions that plans currently face increase the risk of insolvency 
and the likelihood PBGC will be forced to provide financial 
assistance. PBGC's ability to assist multiemployer plans is contingent 
upon its insurance program having sufficient funds to do so. PBGC's 
net position for its multiemployer pension insurance program has 
steadily declined since its highest point in 1998 as program 
liabilities outpaced asset growth. (See figure 4.) In fiscal year 
2009, the multiemployer program reported an accumulated deficit of 
$869 million. 

Figure 4: PBGC Multiemployer Insurance Program Assets, Liabilities, 
and Net Position, Fiscal Years 1980-2009: 

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

Year: 1980; 
Liabilities: $30 million; 
Assets: $21 million; 
Net position: -$9 million. 

Year: 1981; 
Liabilities: $29 million; 
Assets: $28 million; 
Net position: -$1 million. 

Year: 1982; 
Liabilities: $29 million; 
Assets: $40 million; 
Net position: $11 million. 

Year: 1983; 
Liabilities: $46 million; 
Assets: $52 million; 
Net position: $6 million. 

Year: 1984; 
Liabilities: $44 million; 
Assets: $61 million; 
Net position: $17 million. 

Year: 1985; 
Liabilities: $52 million; 
Assets: $78 million; 
Net position: $27 million. 

Year: 1986; 
Liabilities: $54 million; 
Assets: $98 million; 
Net position: $45 million. 

Year: 1987; 
Liabilities: $45 million; 
Assets: $114 million; 
Net position: $68 million. 

Year: 1988; 
Liabilities: $37 million; 
Assets: $129 million; 
Net position: $92 million. 

Year: 1989; 
Liabilities: $37 million; 
Assets: $161 million; 
Net position: $123 million. 

Year: 1990; 
Liabilities: $58 million; 
Assets: $190 million; 
Net position: $132 million. 

Year: 1991; 
Liabilities: $75 million; 
Assets: $238 million; 
Net position: $163 million. 

Year: 1992; 
Liabilities: $114 million; 
Assets: $283 million; 
Net position: $169 million. 

Year: 1993; 
Liabilities: $131 million; 
Assets: $407 million; 
Net position: $276 million. 

Year: 1994; 
Liabilities: $181 million; 
Assets: $378 million; 
Net position: $197 million. 

Year: 1995; 
Liabilities: $285 million; 
Assets: $477 million; 
Net position: $192 million. 

Year: 1996; 
Liabilities: $381 million; 
Assets: $505 million; 
Net position: $124 million. 

Year: 1997; 
Liabilities: $377 million; 
Assets: $596 million; 
Net position: $219 million. 

Year: 1998; 
Liabilities: $404 million; 
Assets: $745 million; 
Net position: $341 million. 

Year: 1999; 
Liabilities: $493 million; 
Assets: $692 million; 
Net position: $199 million. 

Year: 2000; 
Liabilities: $427 million; 
Assets: $694 million; 
Net position: $267 million. 

Year: 2001; 
Liabilities: $691 million; 
Assets: $807 million; 
Net position: $116 million. 

Year: 2002; 
Liabilities: $786 million; 
Assets: $944 million; 
Net position: $158 million. 

Year: 2003; 
Liabilities: $1,261 million; 
Assets: $1,000 million; 
Net position: -$261 million. 

Year: 2004; 
Liabilities: $1,306 million; 
Assets: $1,070 million; 
Net position: -$236 million. 

Year: 2005; 
Liabilities: $1,495 million; 
Assets: $1,160 million; 
Net position: -$335 million. 

Year: 2006; 
Liabilities: $1,905 million; 
Assets: $1,166 million; 
Net position: -$739 million. 

Year: 2007; 
Liabilities: $2,152 million; 
Assets: $1,197 million; 
Net position: -$955 million. 

Year: 2008; 
Liabilities: $1,800 million; 
Assets: $1,327 million; 
Net position: -$473 million. 

Year: 2009; 
Liabilities: $2,328 million; 
Assets: $1,459 million; 
Net position: -$869 million. 

Source: GAO analysis of PBGC data. 

[End of figure] 

By promoting risk sharing among participating employers and workers, 
the framework for multiemployer plans under ERISA and MPPAA is 
intended to limit PBGC's exposure to future losses from underfunded 
plans. However, in fiscal year 2009, PBGC's estimates of exposure to 
future losses from underfunded multiemployer plans rose to $326 
million (up from $30 million in 2008 and $73 million in 
2007).[Footnote 20] PBGC reported that most plans considered at risk 
were in manufacturing, transportation, services, and wholesale and 
retail trade. PBGC's estimate of the exposure to future losses from 
underfunded multiemployer plans could reach $5.5 billion over the next 
10 years. 

Concluding Observations: 

Multiemployer plans continue to provide an important source of 
retirement income for millions of American workers. These plans 
provide a useful means for these workers--workers who change jobs 
frequently within the same industry--to accrue retirement benefits 
over the course of their careers. But, similar to their single-
employer cousins, multiemployer plans are suffering some serious short-
term financial stresses within the larger context of a longer-term 
structural decline. Congress has given PBGC tools to monitor the 
overall financial health of multiemployer plans and a means to provide 
financial assistance to help these plans weather difficult financial 
times. Given recent financial events, however, it will take more time 
to determine whether the PPA requirements will achieve their intended 
purpose. 

This concludes my prepared statement. I am happy to answer any 
questions that the committee may have. 

GAO Contact and Staff Acknowledgments: 

For further questions on this testimony, please contact me at (202) 
512-7215. Individuals making key contributions to this testimony 
include Joseph Applebaum, Susan Aschoff, Robert Campbell, David 
Lehrer, Thanh Lu, Jonathan S. McMurray, and Roger J. Thomas. 

Abbreviations: 

DB: defined benefit: 

ERISA: Employee Retirement Income Security Act: 

MPPAA: Multiemployer Pension Plan Amendments Act: 

NLRA: National Labor Relations Act: 

PBGC: Pension Benefit Guaranty Corporation: 

PPA: Pension Protection Act: 

WRERA: Worker, Retiree, and Employer Recovery Act: 

[End of section] 

Footnotes: 

[1] Multiemployer plans are distinct from single-employer plans, which 
are established and maintained by one employer, and multiple-employer 
plans, many of which maintain separate funding accounts for each 
employer. 

[2] Collective bargaining has been the primary means by which workers 
can negotiate, through unions, the terms of their pension plan. In 
1935, the National Labor Relations Act (NLRA) required employers to 
bargain with union representatives over wages and other conditions of 
employment, and subsequent court decisions established that employee 
benefit plans could be among those conditions. The Taft Hartley Act of 
1947 amended the NLRA to establish terms for negotiating such employee 
benefits and placed certain restrictions on the operation of any plan 
resulting from those negotiations. For example, employer contributions 
cannot be made to a union or its representative but must be made to a 
trust that has an equal balance of union and employer representation. 

[3] GAO, Private Pensions: Multiemployer Plans Face Short-and Long-
Term Challenges, [hyperlink, http://www.gao.gov/products/GAO-04-423], 
(Washington, D.C.: Mar. 26, 2004). We designated PBGC's single-
employer pension insurance program as a high risk in 2003, including 
it on our list of major programs that need urgent attention and 
transformation. Both of PBGC's insurance programs remain high-risk 
concern because of an ongoing threat of losses from the terminations 
of underfunded plans. 

[4] [hyperlink, http://www.gao.gov/products/GAO-04-423] and GAO, 
Private Pensions: Multiemployer Pensions Face Key Challenges to Their 
Long-Term Prospects, [hyperlink, 
http://www.gao.gov/products/GAO-04-542T], (Washington, D.C.: Mar. 18, 
2004). 

[5] 29 U.S.C.  1001 nt. 

[6] The single-employer insurance program receives additional 
financing from assets acquired from terminated single-employer plans 
and by recoveries from employers responsible for underfunded 
terminated single-employer plans. PBGC receives no funds from federal 
tax revenues, but it is authorized under ERISA to borrow up to $100 
million from the federal treasury if it has inadequate resources to 
meet its responsibilities. 

[7] Pub. L. No. 96-364. 

[8] Vested benefits are benefits that are no longer subject to risk of 
forfeiture. Unfunded vested benefits are the difference between the 
present value of a plan's vested benefits and the value of plan assets 
as determined in accordance with Title IV of ERISA. 

[9] These liabilities are frequently referred to as orphaned 
liabilities. 

[10] Pub. L. No. 109-280. 

[11] 26 U.S.C.  432(b)(3). 

[12] Under PPA, a plan is considered to be in endangered status if it 
is less than 80 percent funded or if the plan is projected to have a 
funding deficiency within 7 years. A plan that is less than 80 percent 
funded and is projected to have a funding deficiency within 7 years is 
considered to be seriously endangered. A multiemployer plan is 
considered to be in critical status if (1) it is less than 65 percent 
funded and has a projected funding deficiency within 5 years or will 
be unable to pay benefits within 7 years; (2) it has a projected 
funding deficiency within 4 years or will be unable to pay benefits 
within 5 years (regardless of its funded percentage); or (3) its 
liabilities for inactive participants are greater than its liabilities 
for active participants, its contributions are less than carrying 
costs, and a funding deficiency is projected within 5 years. 

[13] 26 U.S.C.  432(c). 

[14] 26 U.S.C.  432(e)(1)(B) (for plans in endangered status) and 26 
U.S.C.  432(e)(8)(C) (for plans in critical status). 

[15] Pub. L. No. 110-458. 

[16] Section 204(b) of WRERA provides a special rule for multiemployer 
plans that would be in critical status for the election year if they 
had not elected to freeze the plan's funded status. In particular, if 
the plan has been certified by the plan actuary to be in critical 
status for the election year, then the plan is treated as being in 
critical status for that year for purposes of applying the excise tax 
exception under section 4971(g)(1)(A) of the Internal Revenue Code. 

[17] In 2008, we identified a tension inherent in the single-employer 
model for the plan sponsors, who must serve both as plan fiduciary and 
approve investment decisions. See GAO, Private Pensions: Fulfilling 
Fiduciary Obligations Can Present Challenges for 401(k) Plan Sponsors, 
[hyperlink, http://www.gao.gov/products/GAO-08-774] (Washington, D.C.: 
July 16, 2008). 

[18] Employer contributions to many multiemployer plans are typically 
made in a set dollar amount per hour of covered work, and thus reflect 
the number of active plan participants. 

[19] A separated vested participant is one who has earned a 
nonforfeitable pension benefit but is no longer accruing benefits 
under the plan and has not yet started receiving benefits. 

[20] PBGC classifies the underfunding for vested benefits in other 
multiemployer plans as reasonably possible exposure. In the 
multiemployer program, a probable liability is generated when certain 
plan metrics are sufficiently problematic. Given a sufficiently 
problematic collection of plan metrics, and a cash-flow projection of 
insolvency, a plan is classified as probable, and is thus recognized 
as a PBGC liability. 

[End of section] 

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