Analysis of the Administration's Proposal to Ensure Solvency of the
United Mine Workers of America Combined Benefit Fund (Correspondence,
08/15/2000, GAO/AIMD-00-267R).

Pursuant to a congressional request, GAO reviewed the administration's
proposal to ensure solvency of the United Mine Workers of America (UMWA)
Combined Benefit Fund, focusing on the impact of the proposal to: (1)
extend the Abandoned Mine Land (AML) Reclamation fees; (2) reverse the
effects of National Coal v. Chater; (3) reverse the effects of Dixie
Fuel Company v. Social Security Administration; and (4) appropriate
federal funds.

GAO noted that: (1) if the administration's proposal is not adopted, the
federal government potentially would have to provide $513 million over
the next 8 years to ensure the Fund's solvency through 2008, assuming
that the Dixie Fuel decision is not implemented; (2) however, if the
Dixie Fuel decision is implemented, the Fund may have to refund an
estimated net $57 million in premiums to coal companies and would have
to find funding for 10,000 additional unassigned beneficiaries; (3)
although an estimate of the cost has not yet been developed, nationwide
implementation of the Dixie Fuel decision would increase the Fund's
projected deficit; (4) according to GAO's review of available financial
data, while the administration's proposal improves the projected
financial position of the Fund, reducing the fiscal year 2008
anticipated cumulative deficit, not including borrowing costs, from $513
million to $83 million, it does not ensure the solvency of the Fund; and
(5) additional funds will be needed to ensure the solvency of the Fund.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-00-267R
     TITLE:  Analysis of the Administration's Proposal to Ensure
	     Solvency of the United Mine Workers of America Combined
	     Benefit Fund
      DATE:  08/15/2000
   SUBJECT:  Mining industry
	     Financial management
	     Coalminers benefits
	     Financial analysis
	     Future budget projections
	     Retirement benefits
IDENTIFIER:  UMWA Combined Benefit Fund
	     Abandoned Mine Land Fund
	     Medicare Program

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GAO/AIMD-00-267R

United Mine Workers of America

United States General Accounting Office Washington, DC 20548

Accounting and Information Management Division

B- 285749 August 15, 2000 The Honorable William V. Roth, Jr. Chairman,
Committee on Finance United States Senate

Subject: Analysis of the Administration's Proposal to Ensure Solvency of the
United Mine Workers of America Combined Benefit Fund

Dear Mr. Chairman: In your March 9, 2000, letter you asked us to review the
administration's proposal to ensure the solvency of the United Mine Workers
of America (UMWA) Combined Benefit Fund. Specifically, you asked that we
analyze the impact of the administration's proposal to (1) extend the
Abandoned Mine Land Reclamation (AML) fees, (2) reverse the effects of
National Coalv. Chater( National Coal), (3) reverse the effects of Dixie
Fuel Companyv. Social Security Administration ( Dixie Fuel), and (4)
appropriate federal funds. In addition, you asked that we

provide some general background information on the operations, governance
structure, benefit structure, and historical and projected financial
position of the Fund.

As you know, in 1992, more than 100,000 UMWA retirees and their dependents
were in danger of losing their health benefits. The Congress responded by
enacting the Coal Industry Retiree Health Benefit Act (P. L. 102- 486),
which established the Combined Benefit Fund (Fund 1 ) to pay these health
benefits. More recently, the Fund has been experiencing financial
difficulties due to rising costs and a financing mechanism that has been
negatively affected by recent court decisions. In November 1999, the
Congress responded to the Fund's financial difficulties by appropriating to
the Fund $68 million in interest from the AML Fund in the Consolidated
Appropriations Act for Fiscal Year 2000 (P. L. 106- 113).

To provide the information you requested and address your specific
questions, we (1) interviewed fund officials and other affected parties, (2)
examined applicable statutes and regulations, and (3) reviewed the Fund's
audited financial statements and actuarial projections. We did not
independently verify underlying data or

1 The Fund is a multi- employer plan as defined by the Financial Accounting
Standards Board in Financial Accounting Standard (FAS) 106 and has annual
audits by independent auditors, which include actuarial projections of the
Fund's unfunded liability.

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 2 compute
actuarial projections. As part of our work, we contacted independent

actuaries to review actuarial projections and assumptions for
reasonableness. We obtained oral comments on a draft of our briefing slides
from UMWA officials. Their comments have been incorporated where
appropriate.

We conducted our work from March 2000 through June 2000 in accordance with
generally accepted government auditing standards. On June 28, 2000, we
briefed your staff on the results of our work. The purpose of this letter is
to summarize the information provided at the briefing. The detailed briefing
slides are enclosed.

Results in Brief

If the administration's proposal is not adopted, the federal government
potentially would have to provide $513 million over the next 8 years to
ensure the Fund's solvency through 2008, assuming that the Dixie
Fueldecision is not implemented. However, if the Dixie Fueldecision is
implemented, the Fund may have to refund an estimated net $57 million in
premiums to coal companies and would have to find funding for 10,000
additional unassigned beneficiaries. Although an estimate of the cost has
not yet been developed, nationwide implementation of the Dixie Fuel decision
would increase the Fund's projected deficit.

According to our review of available financial data, while the
administration's proposal improves the projected financial position of the
Fund, reducing the fiscal year 2008 anticipated cumulative deficit, not
including borrowing costs, 2 from $513 million to $83 million, it does not
ensure the solvency of the Fund. Additional funds will be needed to ensure
the solvency of the Fund. Figure 1 shows a comparison of the potential
cumulative deficits in fiscal year 2008 if individual provisions of the
proposal were enacted and if the entire proposal was enacted.

2 The actuarial projection estimates the year 2008 accumulated deficit to be
$614 million, which includes $101 million in borrowing costs.

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 3

Figure 1: Comparison of Potential Cumulative Deficits in Fiscal Year 2008
Under Various Provisions of the Administration's Proposal (Dollars in
Millions)

1 Base represents the cumulative deficit if none of the provisions of the
proposal are enacted.

Background

The Coal Industry Retiree Health Benefit Act established the Fund as of
February 1, 1993, by merging two existing UMWA retiree health benefit
trusts. The act also established a financing mechanism for the Fund by
assessing annual premiums on certain coal companies (and in some cases
successor companies) that signed coal wage agreements with UMWA in 1988 or
in prior years and are either still in the coal business or in any other
business. In addition, the act (1) mandated that up to $70 million per year
in interest from the fees in the AML Fund could be used to defray medical
premiums of those beneficiaries who could not be assigned to an employing
coal company and (2) required the transfer of $210 million from the 1950
Pension Trust Fund to provide initial funding. The act instructed the Social
Security Administration (SSA) to assign retired miners and dependents to
responsible companies before October 1, 1993.

The Fund's operations are overseen by a seven member Board of Trustees,
comprised of (1) two individuals designated by UMWA, (2) one individual
designated by the Bituminous Coal Operators Association (BCOA), (3) one
individual designated by the three employers who were not signatories to the
1988 National Bituminous Coal Wage Agreement and have the largest number of
assigned beneficiaries, and (4) three individuals agreed to by the four
designated trustees.

The Commissioner of SSA determines premiums as prescribed by the act, using
(1) a base premium, calculated using the expenses, federal reimbursements,
and beneficiary population of the plan year ending June 30, 1992, and (2)
the change in the medical component of the Consumer Price Index (CPI)
between the base year and the year being calculated. According to Fund
officials, the population is declining at an average rate of 7 percent per
year. As of June 30, 1999, there were approximately 67,000 beneficiaries
covered by the Fund. Eighty- one percent of the Fund's beneficiaries are
over the age of 70, 72 percent are female, 91 percent are

$0 $100

$200 $300

$400 $500

$600 Base 1 AML National

Coal

Federal funds

Full proposal

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 4 covered
under Medicare, and over 60 percent live in Kentucky, West Virginia, and

Pennsylvania. The Fund offers its beneficiaries comprehensive health care
coverage including physician services, durable medical supplies,
prescription medications, home health services, inpatient hospital services,
mental health treatment, preventive care, surgery, treatment of illness or
injury, and certain other benefits.

The Fund's September 30, 1999, audited financial statements show a $12.2
million cumulative deficit. In November 1999, the Congress appropriated an
additional $68 million in interest from the AML Fund to allow the Fund to
meet its fiscal year 2000 commitments. Due to that appropriation, the Fund
is expected to have a positive fund balance of approximately $1 million at
September 30, 2000.

Analysis of the Impact of the Administration's Proposal

The administration's legislative proposal includes provisions for (1)
extension of the assessment of AML fees, (2) a change in the calculation of
premiums to reverse the effects of the National Coaldecision, (3) preventing
the Dixie Fueldecision from affecting the Fund, and (4) a transfer of
general revenue to the Fund. This legislation was designed to continue the
reclamation of abandoned coal mines, in addition to maintaining health
benefits for retired coal miners and their families who are beneficiaries
under the Coal Act of 1992.

An actuarial projection 3 of the Fund dated April 10, 2000, predicts an
accumulated deficit 4 of approximately $513 million by the end of fiscal
year 2008, exclusive of borrowing costs. Projected operating annual
shortfalls (excess of annual expenses over income) through fiscal year 2008
range from $57 million to $75 million, as indicated in figure 2.

3 The actuarial projections were developed by King Associates, who were
engaged by the Board of Trustees of the Fund to assist in the projection of
long- term income and expenses. 4 The actuarial projections of the Fund
assume that the Fund will borrow if income is insufficient to pay expenses
and incur borrowing costs. We eliminated these costs from our analysis as
the purpose of the administration's proposal is to eliminate possible
shortfalls.

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 5

Figure 2: Projected Operating Shortfalls With No Changes in Current Funding
Sources (Dollars in Millions)

Extension of the Assessment of AML Fees The administration is proposing to
extend the AML 5 fees through September 30, 2014, which would potentially
have a positive impact on the Fund's solvency. AML funds its reclamation
programs with fees paid by coal companies on each ton of coal mined. Funds
that are not used immediately are invested in government securities and earn
interest. The Coal Act authorizes the use of interest earned on AML fees to
pay medical expenses and offset health premiums of beneficiaries who are not
assigned to a coal company. Currently, the AML Fund generates average annual
interest of $61.8 million and as of May 2000, there was $227 million of
accumulated interest. AML fees are scheduled to expire on September 30,
2004. The Fund has received an average of $47 million annually from the AML
Fund from fiscal year 1996 through fiscal year 1999.

According to the proposal, the current AML fee structure would be
maintained, and there are no proposed changes in the statutory limitations
on the use of AML interest by the Fund. Our analysis indicates that the
extension of AML fee collection would potentially decrease the projected
accumulated deficit in fiscal year 2008 from $513 million to $450 million.
The projected annual operating shortfalls of the Fund if AML fee collection
is extended is shown in figure 3.

5 AML fee collection, authorized by the Surface Mining Control and
Reclamation Act of 1997, provides for restoration of lands mined and
abandoned prior to August 3, 1977.

$0 $10

$20 $30

$40 $50

$60 $70

$80 $90

2001 2002 2003 2004 2005 2006 2007 2008

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 6

Figure 3: Potential Operating Shortfalls of the Fund if AML Fee Collection
Is Extended (Dollars in Millions)

Reverse the Effects of the National CoalDecision National Coal Associationv
.Chater( 1996) concerned the calculation of health benefit premiums by the
Commissioner of SSA. The 11th Circuit Court of Appeals ruled that SSA
improperly accounted for Medicare reimbursements in health benefit premium
calculations. As a result, all coal company health benefit premiums were
reduced by approximately 10 percent.

The administration's proposal to reverse the effect of the National
Coaldecision by changing the calculation of the annual premiums in the Coal
Act should have a positive impact on the Fund's solvency. The proposal sets
a premium amount and year to serve as the base for future premium schedule
calculations as follows: (1) base year premium is $2,791.42 and (2) base
year is the plan year beginning October 1, 1999. The proposed formula for
the calculation of the annual premium is “base year premium multiplied
by [the current year medical component of the CPI minusthe base year medical
component of the CPI].”

Our analysis indicates that, by itself, the change in the premium formula
will potentially reduce the projected accumulated deficit in fiscal year
2008 from $513 million to $427 million. The positive effect of the change in
the calculation of premiums diminishes over time because premium income
diminishes as the number of beneficiaries decreases. The potential annual
operating shortfalls of the Fund through fiscal year 2008, if the proposal's
provision to reverse the effect of the National Coaldecision is enacted, are
presented in figure 4. In addition, as you

requested, we considered the effect of enacting both the AML fee extension
and the reversal of the effects of the National Coaldecision. If both
provisions were enacted, the projected cumulative deficit in fiscal year
2008 would decrease from $513 million to $364 million.

$0 $10

$20 $30

$40 $50

$60 $70

$80 $90

2001 2002 2003 2004 2005 2006 2007 2008

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 7

Figure 4: Potential Operating Shortfalls of the Fund if the Administration's
Proposal to Reverse the Effect of the National Coal Decision Is Enacted
(Dollars in Millions)

Prevent the Dixie FuelDecision from Affecting the Fund Dixie Fuel Companyv .
Social Security Administration( 1999) concerned the right of the
Commissioner of SSA to make assignments of beneficiaries to coal companies
after September 30, 1993, the date given in the Coal Act. The 6th Circuit
Court of Appeals ruled that assignments of beneficiaries made after
September 30, 1993, were invalid. This ruling has not yet been implemented
and is still the subject of litigation. If implemented, the ruling could
potentially affect 247 coal companies and 10,000 beneficiaries.

The administration is also proposing legislation to eliminate the potential
effects of the Dixie Fueldecision. The proposal would amend the Internal
Revenue Code to eliminate the deadline of October 1, 1993, and thereby grant
SSA authority to assign beneficiaries at any time. This authority would be
retroactive to when the relevant Internal Revenue Code provision was enacted
by the Coal Act. As previously discussed, the Dixie Fueldecision, which has
not yet been implemented and is still the subject of litigation, could
negate approximately 10,000 beneficiary assignments (of 247 coal companies),
and result in an increased need for AML interest to cover the medical costs
of these newly reclassified unassigned beneficiaries. In addition, the Fund
may have to refund net premiums of $57 million. There is currently no
estimate of the cost to the Fund of implementing the Dixie Fueldecision
nationwide. However, nationwide implementation would increase the projected
deficit.

Transfer of General Revenue to the Fund The final provision of the
administration's proposal is to transfer general fund revenue to the Fund.
The provision includes (1) a transfer of $281 million in general revenue in
annual installments from 2001 through 2008 and (2) an additional $65 million
in general revenue in annual installments for 2009 and 2010. This transfer
of federal funds would significantly improve the financial position of the
Fund. Figure 5 shows the projected annual operating shortfalls of the Fund
if this provision is

$0 $10

$20 $30

$40 $50

$60 $70

$80 $90

2001 2002 2003 2004 2005 2006 2007 2008

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 8 enacted.
Our analysis indicates that these transfers, by themselves, would reduce the

projected accumulated deficit of the Fund from $513 million to $232 million
in fiscal year 2008. However, by themselves, the transfers are not
sufficient to ensure the Fund's solvency.

Figure 5: Potential Operating Shortfalls of the Fund if the Administration's
Proposal to Transfer General Revenue Funds Is Enacted (Dollars in Millions)

$0 $10

$20 $30

$40 $50

$60 $70

$80 $90

2001 2002 2003 2004 2005 2006 2007 2008

Summary

We considered five possible scenarios in our review as you requested. To
review, if none of the provisions of the administration's proposal are
enacted, the Fund faces a projected cumulative deficit of $513 million in
fiscal year 2008. If AML fees are extended, the projected cumulative deficit
is reduced to $450 million. If the provision to reverse the effects of
National Coalis enacted, the projected cumulative deficit in fiscal year
2008 decreases to $427 million. If both the AML extension and the provision
to reverse the effects of National Coalare enacted, the projected cumulative
deficit decreases to $364 million. If only the provision to provide federal
funds is enacted, the projected cumulative deficit decreases to $232
million. And, finally, if all the provisions of the administration's
proposal are enacted, the projected cumulative deficit of the Fund in fiscal
year 2008 decreases to $83 million. None of the projections include the
potential cost of nationwide implementation of the Dixie Fueldecision as no
estimate of that cost has been developed. However, full implementation of
the decision would increase the projected deficit.

We are sending copies of this letter to the Honorable Daniel Moynihan,
Ranking Minority Member Senate Committee on Finance, as well as, all of the
other members of the Committee. We will make copies available to others upon
request. We appreciate the opportunity to be of assistance. If you or your
staff have any questions regarding the briefing or this letter, or if we can
be of further assistance, please

B- 285749 GAO/ AIMD- 00- 267R United Mine Workers of America Page 9 contact
either me at (202) 512- 4476, or Alana Stanfield, Assistant Director, at

(202) 512- 3197. I may also be reached by e- mail at jarmong. aimd@ gao.
gov. Key contributors to this assignment were Bonnie Derby, Suzanne
Lightman, Ogbeide Oniha, and Jeffrey Jacobson.

Sincerely yours, Gloria L. Jarmon Director, Health, Education, and

Human Services, Accounting and Financial Management

Enclosure

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 10

Slides From the June 28, 2000, Briefing on the UMWA Combined Benefit Fund

The United Mine Workers of America (UMWA) Combined Benefit Fund

Analysis of the Administration's Proposal to Ensure Solvency

Senate Committee on Finance June 28, 2000

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 11

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
2

Topics to be Discussed

Objectives Scope and Methodology Background Impact of the Administration's
Proposal

extending Abandoned Mine Land Reclamation (AML) fees

reversing effects of National Coal v. Chater (National Coal) decision
reversing Dixie Fuel Company v. Social Security Administration (Dixie Fuel)
decision determining necessary federal funds for solvency Conclusion

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 12

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
3

Objectives

Research the governance structure, operations, benefit structure, and
current and projected financial position of the UMWA Combined Benefit Fund
(the Fund)

Analyze the impact of the Administration's proposal to: extend AML fees
reverse the effects of National Coal decision reverse the effects of Dixie
Fuel decision appropriate federal funds

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 13

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
4

Objectives (cont.)

Determine the amount of federal payments needed to ensure the Fund's
solvency through 2008 using available actuarial projections

if the Administration's proposal is fully enacted if no sections of the
Administration's proposal are

enacted

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 14

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
5

Scope and Methodology

Interviewed Fund officials Conducted interviews with other affected parties

trade association coal companies collective bargaining entities others
Examined applicable statutes and regulations Reviewed audited financial
statements and actuarial

projections Did not independently verify underlying data or compute

actuarial projections

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 15

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
6

Scope and Methodology (cont.)

Actuarial projections and assumptions were reviewed by independent actuaries
for reasonableness.

Conducted our work from March, 2000 through June, 2000 in accordance with
generally accepted government auditing standards

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 16

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
7

Background - The UMWA Combined Benefit Fund

Governance structure of the Fund was created by the Coal Industry Retiree
Health Benefit Act of 1992 (the Coal Act) to provide health benefits for
retired coal miners and their dependents who were covered by two previously
existing funds. The Coal Act

attributed funding responsibility to coal companies and, in some cases,
successor companies, requiring them to pay yearly premiums on beneficiaries
assigned to them.

mandated that interest from fees in the AML trust fund would be used to
defray medical premiums of those beneficiaries who could not be assigned to
an employing coal company.

required the transfer of $210 million from the 1950 Pension Trust Fund to
provide initial funding.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 17

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
8

Background - The UMWA Combined Benefit Fund (cont.)

instructed the Social Security Administration (SSA) to assign retired miners
and dependents to responsible companies before October 1, 1993.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 18

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
9

Background - The UMWA Combined Benefit Fund (cont.)

Operations of the Fund are overseen by 7 trustees appointed as follows:

2 individuals designated by UMWA 1 individual designated by Bituminous Coal
Operators

Association (BCOA) 1 individual designated by the three employers who

were not signatories to the 1988 National Bituminous Coal Wage Agreement,
and

have the largest number of assigned beneficiaries 3 individuals agreed to by
the 4 designated trustees

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 19

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
10

Background - The UMWA Combined Benefit Fund (cont.)

The Fund is a multi- employer plan as defined by the Financial Accounting
Standards Board in Financial Accounting Standard (FAS) 106 and:

has annual audits by independent auditors produces annual actuarial
projections of unfunded

liability SSA calculates premiums as prescribed by the Coal Act,

using the following factors: a base premium, calculated using the expenses,

federal reimbursements and beneficiary population of the plan year ending
June 30, 1992

the change in the medical component of the Consumer Price Index (CPI)
between the base year (ending June 30, 1992) and the year being calculated

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 20

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
11

Background - The UMWA Combined Benefit Fund (cont.)

The beneficiary population of the Fund is limited to those miners and their
dependents who were receiving benefits from two pre- existing benefit funds
at the time these funds were merged under the Coal Act to form the Combined
Benefit Fund. According to Fund officials, the population is declining at an
average rate of 7 percent per year.

As of June 30, 1999, there were approximately 67, 000 beneficiaries of
which:

81 percent are over the age of 70 72 percent are female 91 percent are
covered by Medicare over 60 percent live in Kentucky, West Virginia and

Pennsylvania

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 21

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
12

Background - The UMWA Combined Benefit Fund (cont.)

The Fund offers comprehensive health care coverage which includes: physician
services durable medical supplies prescription medications home health
services inpatient hospital services mental health treatment preventive care
surgery treatment of illness or injury certain other benefits

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 22

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
13

Background - The UMWA Combined Benefit Fund (cont.)

Three significant court decisions have or may affect the Fund's financial
position:

National Coal Association v. Chater (National Coal) (1996) concerned the
calculation of health benefit premiums by the Commissioner of SSA. The 11th
Circuit Court of Appeals ruled that SSA improperly accounted for Medicare
reimbursements in health benefit premium calculations. As a result, all coal
company health benefit premiums were reduced by approximately 10 percent.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 23

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
14

Background - The UMWA Combined Benefit Fund (cont.)

Eastern Enterprises v. Apfel (Eastern)( 1998) concerned whether assignments
may be made to companies, considered “in business” under the
Coal Act, but who were not signatories to 1974 or later National Bituminous
Coal Wage Agreements. The Supreme Court ruled that Coal Act assignments to
these companies were unconstitutional. One hundred and thirty- two coal
companies and approximately 8, 000 beneficiaries were affected by the
decision as of February, 1993.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 24

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
15

Background - The UMWA Combined Benefit Fund (cont.)

Dixie Fuel Company v. Social Security Administration (Dixie Fuel)( 1999)
concerned the right of the Commissioner of SSA to make assignments of
beneficiaries to coal companies after the deadline for assignments given in
the Coal Act. The 6th Circuit Court of Appeals ruled that assignments of
beneficiaries made after September 30, 1993 were invalid.

However, this ruling has not yet been implemented and is still the subject
of litigation.

This ruling could potentially affect 247 coal companies and 10, 000
beneficiaries.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 25

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
16

Background - The UMWA Combined Benefit Fund (cont.)

The Fund's September 30, 1999 audited financial statements show a $12. 2
million cumulative deficit.

In November, 1999, Congress appropriated an additional $68 million in
interest from the AML trust fund to allow the Fund to meet its fiscal year
2000 commitments.

Due to that appropriation, the Fund is expected to have a positive fund
balance of approximately $1 million at September 30, 2000.

An actuarial projection of the Fund dated April 10, 2000 predicts:

an accumulated deficit of approximately $56 million by the end of fiscal
year 2001 exclusive of borrowing costs.

an accumulated deficit of approximately $513 million by fiscal year 2008
exclusive of borrowing costs.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 26

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
17

Background - The UMWA Combined Benefit Fund (cont.)

The actuarial projections of the Fund assume that the Fund will borrow if
income is insufficient to pay expenses and incur borrowing costs. We have
eliminated these costs from our analysis as the purpose of the proposal is
to eliminate possible shortfalls (excess of annual expenses over annual
income).

The following chart shows the Fund's projected operating shortfalls through
fiscal year 2008 assuming that there are no changes in the current funding
sources. Estimated fiscal year shortfalls are:

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 27

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
18

Projected Operating Shortfalls of the Fund with no Legislative Changes

Expense Income

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 28

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
19

The Potential Impact of the Administration's Proposal to Extend AML

The Administration is proposing to extend AML's authority to collect fees
through September 30, 2014. AML, authorized by the Surface Mining Control
and

Reclamation Act of 1977, provides for restoration of lands mined and
abandoned prior to August 3, 1977.

AML funds its reclamation programs by fees paid by coal companies on each
ton of coal mined.

Funds that are not used immediately for reclamation are invested in
government securities and earn interest.

The Coal Act authorizes use of interest from AML fees to pay medical
expenses and offset health premiums of beneficiaries who are not assigned to
a coal company.

AML is scheduled to stop imposing fees on September 30, 2004.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 29

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
20

The Potential Impact of the Administration's Proposal to Extend AML (cont.)

According to the proposal, the current AML fee structure would be
maintained.

There are no changes in the statutory limitations on the use of AML interest
by the Fund.

The Fund may only withdraw a maximum of $70 million per year.

Any withdrawals by the Fund from the AML trust fund must be used to pay
medical expenses and offset health benefit premiums for orphans.

Orphans are beneficiaries who are unable to be assigned to an employer
either because the employer is no longer in business or has been relieved of
liability by a legal decision.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 30

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
21

The Potential Impact of the Administration's Proposal to Extend AML (cont.)

The extension of AML fee collection would potentially have a positive impact
on the Fund's solvency. Projected accumulated deficit in fiscal year 2008 is
reduced from $513 million to $450 million.

AML interest subsidizes the cost of the orphans by covering a portion of
medical premiums, the coal companies cover any additional premium expense
through their premium payments.

Currently, the AML fund generates average annual interest of $61.8 million.
There is $227 million of accumulated interest in the AML fund as of May,
2000.

The Coal Act requires that the companies' premiums increase as the AML
contribution decreases to cover orphan medical costs.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 31

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
22

The Potential Impact of the Administration's Proposal to Extend AML (cont.)

The following chart illustrates our analysis of the potential effect on the
operating shortfalls of the Fund if the extension of the AML fees is enacted
through fiscal year 2008. Estimated fiscal year operating shortfalls would
be:

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 32

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
23

Potential Operating Shortfalls of the Fund If AML Extended

Expense Income

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 33

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
24

Potential Impact of Administration's Proposal to Reverse Effect of National
Coal

The Administration is proposing to reverse the effects of National Coal by
changing the calculation of annual premiums in the Coal Act. The proposal
sets a premium amount and year to serve as

basis for future premium calculations: base premium is $2, 791.42 base year
is the plan year beginning October 1, 1999 The proposed formula for the
calculation of the annual

premium is as follows: base year premium x (current year medical care

component of CPI - base year medical care component of CPI)

The new calculation would become effective for all future fiscal years.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 34

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
25

Potential Impact of Administration's Proposal to Reverse Effect of National
Coal( cont.)

By itself, the change in the premium formula should improve the projected
financial picture of the Fund, reducing projected accumulated deficit in
fiscal year 2008 from $513 million to $427 million.

If both the AML extension and the change in premium formula are enacted, the
projected accumulated deficit in fiscal year 2008 is reduced to $364
million.

These two parts of the proposal will not ensure the solvency of the Fund.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 35

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
26

Potential Impact of Administration's Proposal to Reverse Effect of National
Coal( cont.)

The positive effect of the change in the calculation of premiums diminishes
over time because premium income diminishes as the number of beneficiaries
decreases.

The following chart shows the potential effect on operating shortfalls of
the Fund if the premium change is enacted. Estimated fiscal year shortfalls
would be:

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 36

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
27

Potential Impact on Operating Shortfalls if

National CoalProposal Is Enacted

Expense Income

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 37

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
28

Potential Impact of Administration's Proposal to Reverse Effect of National
Coal (cont.)

The following chart shows the potential impact on the operating shortfalls
of the Fund if both the AML extension and the premium change to reverse the
effects of National Coalare enacted. The estimated fiscal year shortfalls
are:

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 38

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
29

Potential Impact of National Coal and AML on Operating Shortfalls of the
Fund

Expense Income

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 39

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
30

Potential Impact of the Proposal to Reverse the Effects of Dixie Fuel

The Administration is proposing legislation to eliminate the potential
effects of the Dixie Fuel decision.

The proposal would amend the Internal Revenue Code to eliminate the deadline
of October 1, 1993, and thereby grant SSA authority to assign beneficiaries
at any time. This authority would be retroactive to when the relevant
Internal Revenue Code provision was enacted by the Coal Act.

However, the Dixie Fuel ruling has not yet been implemented and is still the
subject of litigation.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 40

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
31

Potential Impact of the Proposal to Reverse the Effects of Dixie Fuel(
cont.)

As previously mentioned, the potential impact of the implementation of Dixie
Fuel includes:

beneficiary assignments would be negated for 247 coal companies

10, 000 beneficiaries would retroactively become unassigned orphans. As a
result of the increased number of orphans, there would be an increased need
for AML interest to cover their medical costs.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 41

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
32

Federal Funds Needed to Ensure the Fund's Solvency Through 2008

The Administration is proposing to transfer general fund revenue to the
Fund. The proposal includes:

a transfer of $281 million in general revenue in annual installments from
2001- 2008

an additional $65 million in general revenue in annual installments in 2009
and 2010

The transfer of the federal funds would significantly improve the position
of the Fund. By itself, the transfer reduces the projected accumulated
deficit of the Fund from $513 million to $232 million in fiscal year 2008.

However, the transfer of federal funds, as proposed by the Administration,
by itself is not sufficient to ensure the Fund's solvency.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 42

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
33

Federal Funds Needed to Ensure the Fund's Solvency Through 2008 (cont.)

If all the provisions of the Administration's proposal are fully enacted,
the projected accumulated deficit of the Fund in 2008 would decrease from
$513 million to $83 million.

The Administration's proposal includes the following provisions:

extension of the assessment of AML fees a change in the calculation of
premiums to reverse the

effects of National Coal

transfer of general revenue to the Fund The proposal also includes a
provision to prevent the Dixie Fueldecision from affecting the Fund.
However, as the

ruling has not taken effect, there is no current financial impact on the
Fund.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 43

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
34

Federal Funds Needed to Ensure the Fund's Solvency Through 2008 (cont.)

The following chart shows the potential impact on the yearly operating
shortfalls of the Fund if all the provisions of the Administration's
proposal are enacted. The estimated fiscal year shortfalls are:

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 44

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
35

Potential Cumulative Impact of Administration's Proposal on the Fund's
Operating Shortfalls

Expense Income

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 45

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
36

Federal Funds Needed to Ensure the Fund's Solvency Through 2008 (cont.)

If the Administration's proposal is not adopted, the federal government
potentially would have to supply $513 million over the next 8 years to
ensure that the Fund will be solvent in 2008, assuming that the Dixie Fuel
decision is not implemented.

If Dixie Fuel is implemented, the Fund may have to refund an estimated net
$57 million in premiums to coal companies and would have to find funding for
10, 000 beneficiaries who would become orphans. This would increase the
Fund's accumulated deficit. The cost of the implementation is not included
in the $513 million projected accumulated deficit.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 46

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
37

Conclusion

According to our review of available financial data, while the
Administration's proposal improves the projected financial position of the
Fund, reducing the anticipated deficit in fiscal year 2008 from $513 million
to $83 million, it does not ensure the solvency of the Fund.

Additional funds will be needed to ensure the solvency of the Fund. The
following charts show the projected comparative annual shortfalls and
cumulative deficits of the Fund under the different scenarios.

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 47

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
38

Comparison of the Fund's Potential Annual Shortfalls Under Various Proposals

Dollars in Million Fiscal Year

Enclosure GAO/ AIMD- 00- 267R United Mine Workers of America Page 48

GAO- AIMD- 00- 280R The United Mine Workers of America Combined Benefit Fund
39

Comparison of Potential Cumulative Deficits in FY 2008 Under Various
Proposals

Fiscal Year In Million of Dollars

(916367)
*** End of document. ***