Private Pensions: Multiemployer Plans Face Short- and Long-Term  
Challenges (26-MAR-04, GAO-04-423).				 
                                                                 
Multiemployer-defined benefit pension plans, which are created by
collective bargaining agreements covering more than one employer 
and generally operated under the joint trusteeship of labor and  
management, provide coverage to over 9.7 million of the 44	 
million participants insured by the Pension Benefit Guaranty	 
Corporation (PBGC). The recent termination of several large	 
single-employer plans--plans sponsored by individual firms--has  
led to millions of dollars in benefit losses for thousands of	 
workers and left PBGC, their public insurer, an $11.2 billion	 
deficit as of September 30, 2003. The serious difficulties	 
experienced by these single-employer plans have prompted	 
questions about the health of multiemployer plans. This report	 
provides the following information on multiemployer pension	 
plans: (1) trends in funding and worker participation, (2) PBGC's
role regarding the plans' financial solvency, and (3) potential  
challenges to the plans' long-term prospects.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-423 					        
    ACCNO:   A09601						        
  TITLE:     Private Pensions: Multiemployer Plans Face Short- and    
Long-Term Challenges						 
     DATE:   03/26/2004 
  SUBJECT:   Collective bargaining agreements			 
	     Insurance						 
	     Pension plan cost control				 
	     Pensions						 
	     Technical assistance				 
	     Financial management				 
	     Risk management					 

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GAO-04-423

United States General Accounting Office

GAO

                       Report to Congressional Requesters

March 2004

PRIVATE PENSIONS

            Multiemployer Plans Face Short- and Long-Term Challenges

GAO-04-423

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

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

www.gao.gov/cgi-bin/getrpt?GAO-04-423.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Barbara Bovbjerg at (202)
512-7215 or [email protected].

March 2004

PRIVATE PENSIONS

Multiemployer Plans Face Short- and Long-Term Challenges

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

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

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

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

Dollars in millions

1,500

1,200

900

600

300

0

-300 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Year

                        Liabilities Assets Net Position

Source: GAO analysis of PBGC data.

Contents

Letter

Results in Brief
Background
The Financial Stability of Multiemployer Plans Has Likely

Weakened Recently, While Long-term Declines in the Number of Plans and
Participants Continue

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

A Number of Factors Challenge the Long-term Prospects of the

Multiemployer Defined Benefit System Concluding Observations Agency
Comments

                                       1

                                      2 4

                                       9

17

22 26 27

Figures

Figure 1: Aggregate Net Funding Position of PBGC-Insured DB Pension Plans,
1980-2001 10 Figure 2: Distribution of PBGC-Insured DB Pension Plans by
Number of Plan Participants, 2003 12 Figure 3: Distribution of
Participants of PBGC-Insured DB Pension Plans by Plan Size, 2003 13 Figure
4: PBGC Multiemployer Program Assets, Liabilities, and Net Position,
1980-2003 15 Figure 5: PBGC-Insured Active Participants as a Percentage of

Private Sector Wage and Salary Workers, 1980-2001 16 Figure 6: Number of
Active Participants per Retiree, 1980-2001 17 Figure 7: Number of
PBGC-Insured DB Plans, 1986-2003 25

Abbreviations

DB defined benefit
DC defined contribution
ERISA Employee Retirement Income Security Act
IRC Internal Revenue Code
IRS Internal Revenue Service
MPPAA Multiemployer Pension Plan Amendments Act
NLRA National Labor Relations Act
PBGC Pension Benefit Guaranty Corporation

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separately.

United States General Accounting Office Washington, DC 20548

March 26, 2004

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

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

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

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

To determine the trends in the funded status of multiemployer-defined
benefit plans, we analyzed Form 5500 disclosure statements and PBGC

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

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

After 2 decades of financial stability, many multiemployer plans appear to
have suffered recent and significant funding losses; meanwhile, long-term
declines continue in terms of new plan formation and worker participation.
At the close of the 1990s, the majority of multiemployer plans had
reported assets exceeding 90 percent of total liabilities, with average
funding rising to 105 percent in 2000. However, subsequent stock market
declines, coupled with low interest rates and poor economic conditions
have likely reduced the assets and increased liabilities for many
multiemployer plans. Comprehensive funding data are not available to
depict recent developments, but significant signs of funding weakness
exist. In its 2003 Annual Report, PBGC estimated that underfunded
multiemployer plans now face an aggregate unfunded liability reaching

Results in Brief

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

$100 billion. While most multiemployer plans continue to provide benefits
to retirees at unreduced levels, the agency has increased its forecast of
the number of plans that will likely need financial assistance from 56
plans in 2001 to 62 in 2003. PBGC also reported that its multiemployer
program had an accumulated net deficit of $261 million at the end of 2003,
the program's first deficit since 1981. Private survey data corroborate
this trend, with one survey by an actuarial consulting firm showing a
decline in the percentage of fully funded client plans from 83 percent in
2001 to 67 percent in 2002. Meanwhile, multiemployer plans have continued
their steady, long-term decline in numbers and worker participation. The
number of plans has dropped by a quarter since 1980 to fewer than 1,700,
and only 5 new plans have been formed since 1992. The number of workers
covered by multiemployer plans has also fallen by 1.4 million since 1980,
with the percentage of the private sector labor force covered by
multiemployer plans declining from 7.7 percent in 1980 to 4.1 percent in
2001.

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

guarantees are set at a lower level for the multiemployer insurance
program compared with the guarantees provided by the single-employer
program. According to agency officials, these features encourage the
affected parties to collaborate constructively to address a plan's
financial difficulties.

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

Background 	Multiemployer plans are established pursuant to collectively
bargained pension agreements negotiated between labor unions representing
employees and two or more employers and are generally jointly

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

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

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

Since its enactment in 1974, multiemployer defined benefit pensions have
been regulated by the Employee Retirement Income Security Act (ERISA),
which Congress passed to protect the interests of participants and

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

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

529U.S.C.S:186(c)(5).

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

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

Over the last few years, the finances of PBGC's single-employer insurance
program have taken a severe turn for the worse. Although the program
registered a $9.7 billion accumulated surplus as recently as 2000, it
reported a $11.2 billion accumulated deficit for fiscal year 2003,
primarily brought on by the termination of a number of large underfunded
pension

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

7PBGC 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.

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

plans. Several underlying factors contributed to the severity of the
plans' underfunded condition at termination, including a sharp decline in
the stock market, which reduced plan asset values, and a general decline
in interest rates, which increased the cost of terminating defined benefit
pension plans.9 Because of its accumulated deficit, the significant risk
that other large underfunded plans might terminate and other structural
factors, we designated PBGC's single-employer pension insurance program as
a "high risk" program and added it to the list of agencies and major
programs that we believe need urgent attention.10

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

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

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

equal, the reduced employment of active participants will result in lower
contributions and reduced plan funding.11

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

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

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

The Financial Stability of Multiemployer Plans Has Likely Weakened
Recently, While Longterm Declines in the Number of Plans and Participants
Continue

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

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

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

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

Dollars in billions

             1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Year

                             Single-employer plans

Multiemployer plans

                       Source: GAO analysis of PBGC data.

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

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

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

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

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

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

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

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

Percentage of plans
80

73

70

60

50

40

30

20

10

0 <250 250-999 1,000-4,999 5,000-9,999 10,000+ Size of plan

Single-employer plans Multiemployer plans Source: GAO analysis of PBGC
data.

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

Percentage of participants

                                       80

                                       73

                                       70

                                       60

                                       50

                                       40

                                       30

                                       20

                                      10 0

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

              <1,000 1,000-4,999 5,000-9,999 10,000+ Size of plan

                                Single-employer

Multiemployer

                       Source: GAO analysis of PBGC data.

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

from 58 plans with expected liabilities of $775 million in 2002 to 62
plans with expected liabilities of $1.25 billion in 2003.15

Private survey data and anecdotal evidence are consistent with this
assessment of multiemployer funding losses. One survey by an actuarial
consulting firm showed that the percentage of its multiemployer client
plans that were fully funded declined from 83 percent in 2001 to 67
percent in 2002.16 Other, more anecdotal evidence suggests increased
difficulties for multiemployer plans. Discussions with plan administrators
have indicated that there has been an increase in the number of plans with
financial difficulties in recent years, with some plans reducing or
temporarily freezing the future accruals of participants. In addition, IRS
officials recently reported an increase in the small number of
multiemployer plans (less than 1 percent of all multiemployer plans)
requesting tax-specific waivers that would provide plans relief from
current funding shortfall requirements.

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

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

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

Dollars in millions 1,500

1,200 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year

                                  Liabilities

Assets

                                  Net position

                       Source: GAO analysis of PBGC data.

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

Multiemployer Plans Are Over the past 2 decades, the multiemployer system
has experienced a Experiencing Long-term steady decline in the number of
plans and in the number of active Declines in Plan Formation participants.
In 1980, there were 2,244 plans and by 2003 the number had

fallen to 1,631, a decline of about 27 percent. While a portion of the
declineand Worker Participation in the number of plans can be explained by
consolidations through

mergers, few new plans have been formed, only 5, in fact, since 1992.
Meanwhile, the number of active multiemployer plan participants has
declined both in relative and absolute terms. By 2001, only about 4.1
percent of the private sector workforce was comprised of active
participants in multiemployer pension plans, down from 7.7 percent in 1980
(see fig. 5), with the total number of active participants decreasing from
about 6.1 million to about 4.7 million.17

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

Percentage of workers

30

25

20

15

10

5

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Year

Single employer active participants

Multiemployer active participants

Source: GAO analysis of PBGC data.

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

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

workers to retirees affects multiemployer funding more directly because
employer contributions are tied to active employment.

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

Active participants per retiree 6

5

4

3

2

1

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000

Year

Single employer Multiemployer

Source: GAO analysis of PBGC data.

PBGC's role regarding multiemployer plans includes monitoring plans for
financial problems, providing technical and financial assistance to
troubled plans, and guaranteeing a minimum level of benefits to
participants in insolvent plans. For example, PBGC annually reviews the
financial condition of multiemployer plans to identify those that may have
potential financial problems in the near future. Agency officials told us
that troubled plans often solicit their technical assistance since under
the multiemployer framework, affected parties have a vested interest in a
plan's survival. Occasionally, PBGC is asked to serve as a facilitator
where the agency works with all the parties associated with the troubled
plan to improve its financial status. Examples of such assistance by PBGC
include facilitating the merger of troubled plans into one stronger plan
and the "orderly shutdown" of plans, allowing the affected employers to
continue to operate and pay benefits until all liabilities are paid.
Unlike its role in the single-employer program where PBGC trustees weak
plans and pays

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

benefits directly to participants, PBGC does not take over the
administration of multiemployer plans, but instead, upon application,
provides financial assistance in the form of loans when plans become
insolvent and are unable to pay benefits at PBGC-guaranteed levels. Such
financial assistance is infrequent; for example, PBGC has made loans
totaling $167 million to 33 multiemployer plans since 1980 compared with
296 trusteed terminations of single-employer plans and PBGC benefit
payments of over $4 billion in 2002-2003 alone. PBGC officials believe
that the low frequency of PBGC financial assistance to multiemployer plans
is likely due to specific features of the multiemployer insurance
regulatory framework: (1) the employers sponsoring the plan share the risk
for providing benefits to all participants in the plan and (2) benefit
guarantees are set at a lower level for the multiemployer insurance
program compared with the guarantees provided by the single-employer
program. Agency officials say that together these features encourage the
affected parties to collaborate on their own to address the plan's
financial difficulties.

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

Several of PBGC's functions regarding its multiemployer program and its
single-employer program are similar. For example, under both programs PBGC
monitors the financial condition of all plans to identify those that are
at-risk of requiring financial assistance. The agency maintains a database
of financial information about such plans that draws its data from both
PBGC premium filings and the Form 5500.18 Using an automated screening
process19 that measures each plan against funding and financial standards,
the agency determines which plans may be at risk of termination or
insolvency. For both, PBGC also annually identifies plans that it
considers probable or reasonably possible liabilities and

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

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

enumerates their aggregate unfunded liabilities in the agency's annual
financial statements for each program.20

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

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

PBGC sometimes provides technical assistance to help multiemployer plan
administrators improve their funding status or for help on other issues.
Plan administrators may contact PBGC's customer service representatives at
designated offices to obtain assistance on such matters as premiums, plan
terminations, and general legal questions related to PBGC. Agency
officials told us that on a few occasions PBGC has worked with plan
administrators to facilitate plan mergers, "orderly shutdowns," and other
arrangements to protect plan participants' benefits. For example, in 1997,
PBGC worked with the failing Local 675 Operating Engineers Pension Fund
and the Operating Engineers Central Pension Fund to effect a merger of the
two plans.22 However, PBGC officials also told us that the

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

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

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

majority of mergers are crafted by private sector parties and have no
substantial PBGC involvement.

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

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

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

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

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

of single-employer plans and PBGC benefit payments of over $4 billion to
single-employer plan beneficiaries in 2002 and 2003 alone.26

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

The smaller size of PBGC's multiemployer program might also contribute to
the lower frequency of assistance. The multiemployer program's $1 billion
in assets and $1.3 billion in liabilities accounts for a relatively

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

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

28Under the single-employer program, the maximum guarantee for plans
terminating in 2004 is $44,386.32 yearly ($3,698.77 monthly) for a single
life annuity beginning at age

65. The maximum is adjusted downward for retirees younger than age 65.
Under the multiemployer program, PBGC guarantees the first $11 of monthly
accrual and 75 percent of the next $33 of monthly accrual, for a maximum
monthly accrual of $35.75 per month times the years of credited service.
For a participant with 30 years of service under the plan, the maximum
annual PBGC guaranteed benefit would be $12,870. Workers with less than 30
years service would receive a lower maximum guaranteed benefit.

A Number of Factors Challenge the Longterm Prospects of the Multiemployer
Defined Benefit System

small portion of PBGC's total assets and liabilities, representing less
than 3 percent of the total. Further, the multiemployer program covers
just 22 percent of all defined benefit plan participants. There are also
many fewer plans in the multiemployer program, about 1,700, as compared
with about 30,000 single-employer plans. Other things equal, there are
fewer opportunities for potential PBGC assistance to multiemployer plans
than to single-employer plans.29

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

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

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

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

The future growth of multiemployer plans is also predicated on the future
growth prospects of collective bargaining. Collective bargaining is an
inherent feature of the multiemployer plan model. Collective bargaining,
however, has been declining in the United States since the early 1950s.

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

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

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

Currently, union membership, a proxy for collective bargaining coverage,
accounts for less than 9 percent of the private sector labor force. In
1980, union membership accounted for about 19 percent of the civilian
workforce and about 27 percent of the civilian workforce in 1953.

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

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

Employers have tended to move away from DB plans and towards DC plans
since the mid 1980s. The number of PBGC-insured defined benefit plans
declined from 97,683 in 1980 to 31,135 in 2002. (See fig. 7.) The number
of defined contribution plans sponsored by private employers nearly
doubled from 340,805 in 1980 to 673,626 in 1998.34 Along with this
continuing trend to sponsoring DC plans, there has also been a shift in
the mix of plans that private sector workers participate. Labor reports
that the percentage of private sector workers who participated in a
primary DB plan has decreased from 38 percent in 1980 to 21 percent by
1998, while the percentage of such workers who participated in a primary
DC plan has increased from 8 to 27 percent during this same period.
Moreover, these same data show that, by 1998, the majority of active
participants (workers participating in their employer's plan) were in DC
plans, whereas nearly 20 years earlier the majority of participants were
in DB plans.35 Experts have suggested a variety of explanations for this
shift, including the greater risk borne by employers with DB plans,
greater administrative costs and more onerous regulatory requirements, and
that employees more easily understand and favor DC plans. These experts
have also noted considerable employee demand for plans that state benefits
in the form of

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

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

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

an account balance and emphasize portability of benefits, such as is
offered by 401(k) type defined contribution pension plans.

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

Plans in thousands 140

120

100

80

60

40

20

0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 Year

Source: GAO analysis of PBGC data.

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

Increasing health insurance costs are another factor affecting the
longterm prospects of pensions, including multiemployer pensions. Recent
increases in employer provided health insurance costs are accounting for a
rising share of total compensation, increasing pressure on employers'
ability to maintain wages and other benefits, including pensions. Bureau
of Labor Statistics data show that the cost of employer provided health
insurance has risen steadily in recent years, rising from 5.4 percent of
total compensation in 1999 to 6.5 percent as of the third quarter of 2003.
A private survey of employers found that employer-sponsored health
insurance costs rose about 14 percent between the spring of 2002 and the
spring of 2003, the third consecutive year of double digit acceleration
and the highest premium increase since 1990.36 Plan administrators and
employer and union representatives that we talked with identified the
rising costs of employer provided health insurance as a key problem facing
plans, as employers are increasingly forced to choose between maintaining
current levels of pension or medical benefits.

Concluding Observations

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

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

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

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

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

We are sending copies of this report to the Secretary of Labor, the
Secretary of the Treasury, and the Executive Director of the Pension
Benefit Guaranty Corporation; appropriate congressional committees; and
other interested parties. We will also make copies available to others on

request. In addition, the report will be available at no charge on GAO's
Web site at http://www.gao.gov.

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

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

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