Financial and Legal Issues Facing the United Mine Workers of America
Combined Benefit Fund (Correspondence, 08/15/2000, GAO/AIMD-00-280R).

Pursuant to a congressional request, GAO reviewed the United Mine
Workers of America (UMWA) Combined Benefit Fund, focusing on: (1) the
status of the Fund's financial position and its financing mechanism; (2)
the impact of major court decisions on the assignment of beneficiaries;
and (3) significant litigation and its related costs.

GAO noted that: (1) the Fund has been experiencing financial
difficulties due to rising costs and a financing mechanism that has been
negatively affected by recent court decisions; (2) according to the
Fund's September 30, 1999, audited financial statements, the Fund had a
cumulative deficit of $12.2 million; (3) the Fund's actuary estimates
that the cumulative operating deficit will increase to approximately
$513 million by 2008; (4) in addition, the actuarial projection includes
borrowing costs of $101 million during the same time frame, which
results in a total deficit of $614 million; (5) the Fund is involved in
extensive litigation arising from the Coal Act and normal business
operations; (6) Fund officials classified their significant litigation
into seven major categories: (a) constitutional cases; (b) Dixie Fuel
court cases; (c) companies challenging assessments; (d) premium rate
cases; (e) bankruptcy cases; (f) successorship cases; and (g) Evergreen
cases; (7) Eastern Enterprises v. Apfel (1998) and Dixie Fuel Company v.
Social Security Administration (1999) are two of the significant cases
that have affected or may affect the assignment of beneficiaries; (8)
Eastern resulted in approximately 8,000 beneficiary reassignments; (9)
Dixie Fuel, which has not yet been implemented, could potentially result
in the reassignment of 10,000 beneficiaries; and (10) the Fund has
incurred legal costs of over $11 million for all significant cases since
its inception.

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

 REPORTNUM:  AIMD-00-280R
     TITLE:  Financial and Legal Issues Facing the United Mine Workers
	     of America Combined Benefit Fund
      DATE:  08/15/2000
   SUBJECT:  Mining industry
	     Funds management
	     Fund audits
	     Retirement benefits
	     Litigation
	     Coalminers benefits
	     Financial analysis
IDENTIFIER:  Abandoned Mine Reclamation Fund
	     UMWA Combined Benefit Fund

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GAO/AIMD-00-280R

United Mine Workers of America

United States General Accounting Office Washington, DC 20548

Accounting and Information Management Division

B- 285020 August 15, 2000 The Honorable Don Nickles Assistant Majority
Leader United States Senate

Subject: Financial and Legal Issues Facing the United Mine Workers of
America Combined Benefit Fund

Dear Senator Nickles: In your January 24, 2000 letter, you asked us to
review the United Mine Workers of America (UMWA) Combined Benefit Fund (the
Fund). 1 As part of your request, you asked that we provide information on
(1) the status of the Fund's financial position and its financing mechanism,
(2) the impact of major court decisions on the assignment of beneficiaries,
and (3) significant litigation and its related costs. In addition, you asked
that we provide some general background information on the governance
structure, operations, and benefit structure 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 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 Abandoned Mine Land Reclamation 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, (3) reviewed the Fund's
audited financial statements and actuarial projections, and (4) obtained and
reviewed information from Fund officials on the Fund's significant
litigation and its associated costs. We did not independently verify
underlying data or compute actuarial projections. As part of our work, we

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

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 2
contacted independent actuaries to review the 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. 2 The purpose of this letter
is to summarize the information provided at the briefing. The detailed
briefing slides are enclosed.

Results in Brief

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. According to the Fund's September 30, 1999, audited
financial statements, the Fund had a cumulative deficit of $12.2 million.
The Fund's actuary estimates that the cumulative operating deficit will
increase to approximately $513 million by 2008. In addition, the actuarial
projection includes borrowing costs of $101 million during the same time
frame, which results in a total deficit of $614 million.

The Fund is involved in extensive litigation arising from the Coal Act and
normal business operations. Fund officials classified their significant
litigation into seven major categories: (1) constitutional cases, (2) Dixie
Fuelcourt cases, (3) companies challenging assessments, (4) premium rate
cases, (5) bankruptcy cases, (6) successorship cases, and (7) Evergreen
cases. Eastern Enterprisesv . Apfel (1998) and Dixie Fuel Companyv . Social
Security Administration (1999) are two of the significant cases that have
affected or may affect the assignment of beneficiaries. Easternresulted in
approximately 8,000 beneficiary reassignments. 3 Dixie Fuel, which

has not yet been implemented, could potentially result in the reassignment
of 10,000 beneficiaries. The Fund has incurred legal costs of over $11
million for all significant cases since its inception.

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 annually
in interest from the fees in the Abandoned Mine Land Reclamation Fund (the
AML Fund) could be used to defray medical premiums of

2 We will be providing the remaining information on the Fund's costs that
you asked for in your request letter, including a comparison of benefit
levels, per capita costs, administrative costs, and utilization rates with
other employer- provided health plans, and the implementation of managed
care and cost containment measures.

3 The Coal Act mandates that beneficiaries must be assigned to employing
coal companies. Beneficiaries may be reassigned if the original assignment
is voided.

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 3 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 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.

Current and Projected Financial Position and Financing Mechanism

According to the Fund's September 30, 1999, financial statements, the Fund
had a cumulative deficit of $12.2 million. Income during fiscal year 1999 of
$329.4 million was derived from three major sources: (1) premiums (44
percent), (2) Medicare capitation payments 4 (39 percent), and (3) transfers
of interest from the AML trust fund. Expenses for the same period were
$366.4 million. Medical benefit costs and administration expenses accounted
for approximately 91 percent and 7 percent of the total expenses
respectively. 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.

The financing mechanism for the Fund is mandated by the Coal Act, which
requires premiums for both health and death benefits for eligible
beneficiaries. The Coal Act attributed responsibility for financing the Fund
to coal companies and, in some cases, their successor companies. The Coal
Act requires these companies to pay yearly premiums on all beneficiaries
assigned to them. In addition to premiums, the Coal Act mandated that
interest from fees in the AML Fund would be used to defray the cost of
orphan beneficiaries. 5

SSA calculates health benefit premiums, as prescribed by the Coal Act, using
the following factors: (1) a base premium that is calculated using the
expenses, federal reimbursements, and beneficiary population of the plan
year ending June 30, 1992,

4 Rather than reimbursing the Fund as it incurs expenses for Medicare-
eligible beneficiaries, Medicare pays the Fund a fixed amount per eligible
beneficiary annually for estimated expenses for Medicarecovered services
provided to the eligible beneficiaries. This amount is known as a capitation
payment.

5 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.

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 4 and (2)
the change in the medical component of the Consumer Price Index (CPI)

between the base year, June 30, 1992, and the year being calculated.

Table 1: Top Five Coal Companies With the Largest Number of Beneficiaries
Assigned and Their Respective Year 2000 Health Benefit Premiums

Company Number of beneficiaries Year 2000 health benefit

premium

Consolidation Coal Co. 5,279 $13 million Island Creek Coal Co. 4,274 $11
million U. S. Steel Mining Co. 3, 450 $ 9 million LTV Steel Co. 3, 141 $ 8
million BethEnergy Mines, Inc. 2,045 $ 5 million

Source: Officials of the United Mine Workers of America Combined Benefit
Fund.

The April 10, 2000, actuarial projection 6 for the Fund shows a cumulative
deficit of $614 million ($ 513 million in accumulated annual deficits and
$101 million in borrowing costs) by fiscal year 2008. The projection is
based on significant assumptions about the following factors: AML transfers
(the amount of interest that will be transferred each year from the AML
fund), administrative expenses, premiums, borrowing costs, Medicare
capitation payments, investment income, borrowing costs, mortality rates,
population projections, economic and health care inflation, and health and
death benefit expenses.

According to Fund officials, the population of beneficiaries 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 covered under Medicare, and over 60 percent live in Kentucky,
West Virginia, and Pennsylvania.

An actuarial projection of the Fund dated April 10, 2000, predicts annual
premiums per beneficiary rising from $2,591 in 2001 to $3,344 in 2008, as
indicated in table 2.

Table 2: Projected Annual Health Benefit Premiums for 2001- 2008 Year
Premium

2001 $2,591 2002 $2,681 2003 $2,778 2004 $2,881 2005 $2,990 2006 $3,104 2007
$3,222 2008 $3,344

6 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.

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 5

The Impact of Court Decisions on the Assignment of Beneficiaries

The following two significant court decisions are among those that have or
may affect the assignment of beneficiaries.

The EasternDecision

Eastern Enterprisesv .Apfel( 1998) concerned whether assignments may be made
to companies considered “in business” under the Coal Act, but
who were not signatories to the 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 this decision as of
February 1993.

The Dixie Fuel Decision

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, which was the date given in the
Coal Act. The 6th Circuit Court of Appeals ruled that the 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 the ruling is implemented nationwide, Fund officials estimate
that 247 coal companies and 10,000 beneficiaries could potentially be
affected. In addition, if this ruling is implemented, the Fund may have to
refund an estimated net $57 million in premiums to coal companies.

Significant Litigation and Its Related Costs

Fund officials reported significant cases in seven major categories: (1)
constitutional cases, (2) Dixie Fuelcases, (3) companies challenging
assessments, (4) premium rate cases, (5) bankruptcy cases, (6) successorship
cases, and (7) Evergreen cases. Fund officials reported legal costs of
approximately $11 million since the Fund's inception. In addition, they
stated that these costs do not include the $100,000 to $300,000 the Fund has
incurred annually for Fund lawyers and local counsel since its inception.

Significant cases were defined as those having a potential material effect
on the Fund that would extend beyond the individual cases. Thus, Fund
officials did not include 271 individual collection lawsuits and the 57
individual proofs of claim in bankruptcy filed by the Fund since its
inception in its list of significant cases. Collection litigation activity
has resulted in total payments of approximately $118 million from employers
who were delinquent at the time of their litigation.

Constitutional Cases

These cases often involve challenges by coal companies that certain
beneficiary assignments under the Coal Act violate the Due Process or
Takings clause of the Constitution. The Fund has identified 22 significant
cases in this area, including Eastern. Fund officials estimated that the
cost of outside counsel for these cases was approximately $3.8 million.

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 6

Dixie FuelCases

Cases in this category involve the validity of the beneficiary assignments
made by SSA after September 30, 1993. Fund officials identified 13
significant cases in this category. The Fund was a party to and paid outside
counsel in seven of the cases. Fund officials estimated that the cost of
outside counsel for these cases was approximately $182,000.

Companies Challenging Assessments

In the case of Apogee Coal Co. v . Holland, major coal operators sued the
Fund over retroactive increases that were made to their first- year premium
assessments. The premium increases were a result of the increase in the
number of orphans due to SSA's voiding of assignments pursuant to the
Easterndecision. According to Fund officials, the cost of outside counsel
for this case was estimated to be $250,000.

Premium Rate Cases

These cases involve actions brought against the Secretary of Health and
Human Services to challenge the Secretary's determination of the per
beneficiary premium under the Coal Act. The Fund officials identified four
significant cases in this category, including National Coal Associationv
.Chater. The Fund was a party to and paid outside counsel in three of the
four cases. Fund officials estimated the cost of outside counsel to be about
$1.6 million.

Bankruptcy Cases

These cases involve the treatment of Coal Act premiums in bankruptcy
proceedings. Fund officials have identified eight significant cases under
this group. The Fund paid outside counsel in five of the cases. According to
Fund officials, the estimated cost of the outside counsel was about $2.7
million.

Successorship Cases

These are cases involving the treatment of certain entities as related
persons to signatory operators based on such factors as purchase of assets
and continuation of operations. Fund officials identified four significant
cases in this category. The Fund was a party to and paid outside counsel in
two of the cases. According to Fund officials, the estimated cost for the
outside counsel was about $311,000.

Evergreen Cases

“Evergreen Clause” refers to the enforcement of the continuing
contribution obligation requirements that were included in the National
Bituminous Wage Agreements since 1978. The clause does not permit coal
companies to stop paying their collectively bargained obligations. According
to Fund officials, there have been two significant Evergreen cases that cost
the Fund approximately $1.5 million for outside counsel.

We are sending copies of this report and briefing slides to other interested
congressional parties and the Fund's Board of Trustees. We will make copies
available to others upon request.

B- 285020 GAO/ AIMD- 00- 280R United Mine Workers of America Page 7 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 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- 280R United Mine Workers of America Page 8

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

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

Financial and Legal Issues Facing the Fund

Assistant Majority Leader, Senator Nickles June 28, 2000

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 9

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 2

Topics to be Discussed

Objectives Scope and Methodology Background Impact of Eastern Enterprises v.
Apfel (Eastern) on the

assignment of beneficiaries Potential impact of Dixie Fuel Company v. Social
Security Administration (Dixie Fuel) on the assignment of

beneficiaries Description of current financing mechanism for the Fund
Significant litigation and related costs Next Steps

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 10

GAO- AIMD- 00- 267R 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)

Describe the Fund's current financing structure Determine the impact of the
Easterndecision on the

assignment of beneficiaries Determine the potential impact on the assignment
of

beneficiaries due to the Dixie Fuel decision Identify significant litigation
and its related costs

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 11

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 4

Scope and Methodology

Interviewed Fund officials Conducted interviews with other affected parties

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

and other related documents Did not independently verify underlying data or
compute

actuarial projections

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 12

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 5

Scope and Methodology (cont.)

Actuarial projections and assumptions were reviewed by independent actuaries
for reasonableness

Obtained and reviewed information from Fund officials on significant
litigation

information reviewed was received through a letter dated April 25, 2000

significant litigation is defined as cases having a potential material
effect upon the Fund that would extend beyond the individual cases

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

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 13

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 6

Background - The UMWA Combined Benefit Fund

Governance structure of the Fund was created by the Coal Industry Retiree
Health Benefit Act of 1992 (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,
their successor companies, and required them to pay yearly premiums on all
beneficiaries assigned to them,

mandated that interest from fees in the Abandoned Mine Land Reclamation
(AML) trust fund would be used to defray the premium cost 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- 280R United Mine Workers of America Page 14

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 7

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.

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 companies 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- 280R United Mine Workers of America Page 15

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 8

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 The Commissioner of SSA calculates the health benefit

premium as prescribed by the Coal Act utilizing: 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- 280R United Mine Workers of America Page 16

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 9

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 the two pre- existing benefit
funds at the time the 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- 280R United Mine Workers of America Page 17

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 10

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- 280R United Mine Workers of America Page 18

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 11

Background - The UMWA Combined Benefit Fund (cont.)

Summary of the current financial position of the Fund according to the
fiscal year 1999 audited financial statements:

Income for fiscal year ended September 30, 1999 amounted to $329. 4 million.
Income is derived from three major sources namely premiums (44 percent),
Medicare (39 percent) and AML fund transfers (14 percent).

Expenses for the same period amounted to $366. 4 million. Medical benefit
cost and administration expenses accounted for approximately 91 percent and
7 percent of the expenses respectively.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 19

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 12

Background - The UMWA Combined Benefit Fund (cont.)

The Fund's September 30, 1999 audited financial statements show a $12. 2
million cumulative deficit. In addition to the AML Trust Fund transfer to
cover “Orphan” beneficiary expenses, in November 1999, Congress
appropriated an additional $68 million in AML Trust Fund interest to allow
the Fund to meet its fiscal year 2000 commitments.

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.

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

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 20

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 13

Background - The UMWA Combined Benefit Fund (cont.)

King Associates' Actuarial Projection dated April 10, 2000, projects annual
operating income, expenses and cumulative deficits (dollars in millions) of:

Fiscal Income Expenses Cumulative Year Deficits

2001 $300 $357 $ 56 2002 280 342 117 2003 262 326 182 2004 243 309 249 2005
204 293 338 2006 187 277 428 2007 167 259 520 2008 149 243 614

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 21

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 14

Background - The UMWA Combined Benefit Fund (cont.)

King Associates was engaged by the Board of Trustees of the Fund to assist
in the projection of long- term income and expenses.

In developing the actuarial projections, King Associates made significant
assumptions about the following factors:

AML Transfer Administrative Expenses Premiums Borrowing Cost Medicare
Capitation Investment Income Mortality

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 22

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 15

Premium Structure and Funding Mechanism

Premiums are mandated by the Coal Act to finance health and death benefits
for eligible beneficiaries.

There are three components of the premium structure Health Benefit Premium
Death Benefit Premium Unassigned Beneficiary Premium 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- 280R United Mine Workers of America Page 23

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 16

Premium Structure and Funding Mechanism (cont.)

Premiums are paid annually by coal companies and are determined by SSA. The
premium for calendar year 2000 is $2, 503 per beneficiary. The actuarially
projected annual premiums per beneficiary through 2008 are as follows:

2001 - $2, 591 2002 - $2, 681 2003 - $2, 778 2004 - $2, 881 2005 - $2, 990
2006 - $3, 104 2007 - $3, 222 2008 - $3, 344

For fiscal year 2000, approximately 340 coal companies were assessed
premiums.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 24

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 17

Premium Structure and Funding Mechanism (cont.)

According to Fund officials, the top five coal companies with the largest
number of beneficiaries assigned, and their respective premiums, are:

Company Beneficiaries Premiums Consolidation Coal Co. 5,279 $13 million
Island Creek Coal Co. 4, 274 $11 million U. S. Steel Mining Co. 3, 450 $ 9
million LTV Steel Co. 3, 141 $ 8 million Beth Energy Mines, Inc. 2, 045 $ 5
million

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 25

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 18

Impact of EasternDecision on Assignment of Beneficiaries

Two significant court decisions have or may affect the assignment of
beneficiaries:

Eastern Enterprises v. Apfel (Eastern)( 1998) concerned whether assignments
may be made to companies, considered “in business” under Coal
Act, but who were not signatories to the 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- 280R United Mine Workers of America Page 26

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 19

Impact of Dixie Fuelon the Assignment of Beneficiaries

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 Appeal 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.

If this ruling is implemented, the Fund may have to refund an estimated net
$57 million in premiums to coal companies.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 27

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 20

Significant Litigation and Related Costs

According to the Fund officials, the Fund reported seven significant case
categories

Constitutional cases Dixie Fuel cases

Companies challenging assessments Premium rate cases Bankruptcy cases
Successorship cases Evergreen cases

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 28

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 21

Significant Litigation and Related Costs (cont.)

Significant cases reported do not include 271 collection lawsuits and 57
proofs of claim in bankruptcy since its inception that the Fund has filed.

Collection litigation activity has resulted in total payments of
approximately $118 million from employers who were delinquent at the time of
their litigation.

The Fund has incurred $100, 000 to $300,000 per year for Fund lawyers and
local counsel since the inception of the Fund.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 29

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 22

Significant Litigation and Related Costs (cont.)

The seven major categories are: Constitutional Cases

These cases often involve challenges by coal companies that certain
beneficiary assignments under the Coal Act violated the Due Process or
Takings clause of the Constitution.

The Fund has identified 22 significant cases in this category, including
Eastern Enterprisesv. Apfel,

118 S. Ct. 2131( 1998) . According to Fund officials, the cost of outside

counsel was estimated to be approximately $3. 8 million.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 30

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 23

Significant Litigation and Related Costs (cont.)

Dixie Fuel Cases

Cases in this category involve the validity of beneficiary assignments made
by SSA after September 30, 1993.

The Fund has identified 13 significant cases in this category. The Fund was
a party and paid outside counsel in 7 of the cases. According to Fund
officials, the cost of outside counsel was estimated to be approximately
$182, 000.

These cases stemmed from Dixie Fuel Companyv. SSA, 171 F. 3d 1052 (6th Cir.
1999).

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 31

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 24

Significant Litigation and Related Costs (cont.)

Companies Challenging Assessments In the Apogee Coal Cov. Holland, C. A. 98-
C- 2858- S

(N. D. Ala. Filed Nov. 13, 1998) case, major operators sued the Fund over
retroactive increases that were made to their first year premium
assessments. The premium increases were a result of the increase in the
number of “orphans” due to SSA's voiding of assignments pursuant
to the Eastern Enterprises decision.

According to Fund officials, the cost of outside counsel was estimated to be
approximately $250,000.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 32

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 25

Significant Litigation and Related Costs (cont.)

Premium Rate Cases These cases involve actions brought by coal

companies against the Secretary of Health and Human Services to challenge
the Secretary's determination of the per beneficiary premium under the act.

The Fund has identified 4 significant cases in this category, including
National Coal Associationv. Chater, 81 F. 3d 1077( 11th Cir. 1996). The Fund
was a

party and paid outside counsel in 3 of the cases. According to Fund
officials, the cost of outside counsel

was estimated to be approximately $1.6 million.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 33

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 26

Significant Litigation and Related Costs (cont.)

Bankruptcy Cases These are cases involving the treatment of Coal Act

premiums in bankruptcy proceedings. The Fund has identified 8 significant
cases under this

group, including In re Chateaugay, 53 F. 3d 478 ( 2d Cir.), cert. Denied sub
norm., LTV Steel Co. v Shalala,

516 U. S. 913 (1995), In re Adventure Resources, 137 F. 3d 786( 4th Cir.
1998) and In re Westmoreland Coal Co., C. A. 96- 26092 (MSK) (D. Colo.).

The Fund paid outside counsel in 5 of the cases. According to Fund
officials, the cost of outside counsel

was estimated to be approximately $2.7 million.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 34

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 27

Significant Litigation and Related Costs (cont.)

Successorship Cases These are cases involving the treatment of certain

entities as related persons to signatory operators based on such factors as
purchase of assets and continuation of operations.

The Fund has identified 4 significant cases in this category. The Fund was a
party and paid outside counsel in two of the cases.

According to Fund officials, the cost of outside counsel was estimated to be
approximately $311,000.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 35

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 28

Significant Litigation and Related Costs (cont.)

Evergreen Cases “Evergreen Clause” refers to the enforcement of
the

continuing contribution obligation requirements (coal companies were not
permitted to stop paying their collectively bargained obligations) that were
included in the National Bituminous Coal Wage Agreements since 1978.

The Fund identified 2 significant cases, including UMWA 1974 Pension Trust,
et al. v. The Pittston Company, et al., 984 F. 2d 469( D. C. Cir. 1993).
According to Fund officials, the cost of outside counsel

was estimated to be approximately $1.5 million.

Enclosure GAO/ AIMD- 00- 280R United Mine Workers of America Page 36

GAO- AIMD- 00- 267R United Mine Workers of America Combined Benefit Fund 29

Next Steps

Further research on the Fund was requested. The information requested
includes:

benefit levels, per capita costs, and utilization rates comparison with
other employer- provided health plans implementation of managed care and
cost containment

options recommendations on optimizing the efficiency and

effectiveness of the Fund Final product containing all requested information
is

forthcoming.

(916368)
*** End of document. ***