Private Pensions
Changes Needed to Better Protect Multiemployer Pension Benefits Gao ID: GAO-11-79 October 18, 2010Thirty years ago Congress enacted protections to ensure that participants in multiemployer pension plans received their promised benefits. These defined benefit plans are created by collective bargaining agreements covering more than one employer. Today, these plans provide pension coverage to over 10.4 million participants in approximately 1,500 multiemployer plans insured by the Pension Benefit Guaranty Corporation (PBGC). In this report, GAO examines (1) the current status of nation's multiemployer plans; (2) steps PBGC takes to monitor the health of these plans; (3) the structure of multiemployer plans in other countries; and (4) statutory and regulatory changes that could help plans provide participants with the benefits they are due. To address these questions, GAO analyzed government and industry data and interviewed government officials, pension experts and plan practitioners in the United States, the Netherlands, Denmark, United Kingdom, and Canada.
Most multiemployer plans report large funding shortfalls and face an uncertain future. U.S. multiemployer plans have not been fully funded in aggregate since 2000 and the recent economic recession had a severely negative impact on the funded status of multiemployer plans. Annual data from the Internal Revenue Service (IRS) show that the proportion of multiemployer plans less than 80 percent funded rose from 23 percent of plans in 2008 to 68 percent of plans in 2009. While some plans may be able to improve their funded status as the economy improves, many plans will continue to face demographic challenges that threaten their long-term financial outlook--including an aging workforce and few opportunities to attract new employers and workers into plans. PBGC monitors the health of multiemployer plans, but can provide little assistance to troubled plans until they become insolvent, at which point PBGC provides loans to allow insolvent plans to continue paying participant benefits at the guaranteed level (currently $12,870 per year for 30 years of employment). PBGC receives more current information on plan status, but uses older plan data to determine which plans are at the greatest risk of insolvency, because these data are audited, comprehensive, and PBGC's monitoring system was designed for them. The private pension systems in the countries GAO studied face short-term and long-term challenges similar to those that U.S. multiemployer plans currently face, including plan funding deficiencies and an aging workforce. The plans in these countries are subject to a range of funding, reporting, and regulatory requirements that require plans to interact frequently with pension regulators. Multiemployer plans in these countries have a number of tools available to improve and maintain their funded status, such as increasing contributions and reducing the rate of benefit accruals. The statutory and regulatory framework for multiemployer plans is not structured to assist plans on an ongoing basis and promotes little interaction among the federal agencies responsible for monitoring and assisting plans and safeguarding participant benefits. The lack of timely and accurate information and interagency collaboration hampers efforts to monitor and assist plans, and to enforce plan requirements. The recent economic downturn revealed that these plans, like most pension plans, are vulnerable to rapid changes in their funded status. Plans in the worst condition may find that the options of increasing employer contributions or reducing benefits are insufficient to address their underfunding and demographic challenges. For these plans, the effects of the economic downturn, declines in collective bargaining, the withdrawal of contributing employers, and an aging workforce will likely increase their risk of insolvency. Without additional options to address plan underfunding or to attract new employers to contribute to plans, plans may be more likely to require financial assistance from PBGC. Additional claims would further strain PBGC's insurance program that, already in deficit, it can ill afford. GAO is asking Congress to consider ways to eliminate duplicative reporting requirements and establish a shared database. GAO is also recommending that PBGC, IRS, and Labor work together to improve data collection and monitoring efforts. In commenting on a draft of this report, the agencies generally agreed to improve their coordination efforts.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Barbara D. Bovbjerg Team: Government Accountability Office: Education, Workforce, and Income Security Phone: (202) 512-5491GAO-11-79, Private Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits
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Report to the Chairman, Committee on Education and Labor, House of
Representatives:
United States Government Accountability Office:
GAO:
October 2010:
Private Pensions:
Changes Needed to Better Protect Multiemployer Pension Benefits:
GAO-11-79:
GAO Highlights:
Highlights of GAO-11-79, a report to the Chairman, Committee on
Education and Labor, House of Representatives.
Why GAO Did This Study:
Thirty years ago Congress enacted protections to ensure that
participants in multiemployer pension plans received their promised
benefits. These defined benefit plans are created by collective
bargaining agreements covering more than one employer. Today, these
plans provide pension coverage to over 10.4 million participants in
approximately 1,500 multiemployer plans insured by the Pension Benefit
Guaranty Corporation (PBGC).
In this report, GAO examines (1) the current status of nation‘s
multiemployer plans; (2) steps PBGC takes to monitor the health of
these plans; (3) the structure of multiemployer plans in other
countries; and (4) statutory and regulatory changes that could help
plans provide participants with the benefits they are due. To address
these questions, GAO analyzed government and industry data and
interviewed government officials, pension experts and plan
practitioners in the United States, the Netherlands, Denmark, United
Kingdom, and Canada.
What GAO Found:
Most multiemployer plans report large funding shortfalls and face an
uncertain future. U.S. multiemployer plans have not been fully funded
in aggregate since 2000 and the recent economic recession had a
severely negative impact on the funded status of multiemployer plans.
Annual data from the Internal Revenue Service (IRS) show that the
proportion of multiemployer plans less than 80 percent funded rose
from 23 percent of plans in 2008 to 68 percent of plans in 2009. While
some plans may be able to improve their funded status as the economy
improves, many plans will continue to face demographic challenges that
threaten their long-term financial outlook”including an aging
workforce and few opportunities to attract new employers and workers
into plans.
PBGC monitors the health of multiemployer plans, but can provide
little assistance to troubled plans until they become insolvent, at
which point PBGC provides loans to allow insolvent plans to continue
paying participant benefits at the guaranteed level (currently $12,870
per year for 30 years of employment). PBGC receives more current
information on plan status, but uses older plan data to determine
which plans are at the greatest risk of insolvency, because these data
are audited, comprehensive, and PBGC‘s monitoring system was designed
for them.
The private pension systems in the countries GAO studied face short-
term and long-term challenges similar to those that U.S. multiemployer
plans currently face, including plan funding deficiencies and an aging
workforce. The plans in these countries are subject to a range of
funding, reporting, and regulatory requirements that require plans to
interact frequently with pension regulators. Multiemployer plans in
these countries have a number of tools available to improve and
maintain their funded status, such as increasing contributions and
reducing the rate of benefit accruals.
The statutory and regulatory framework for multiemployer plans is not
structured to assist plans on an ongoing basis and promotes little
interaction among the federal agencies responsible for monitoring and
assisting plans and safeguarding participant benefits. The lack of
timely and accurate information and interagency collaboration hampers
efforts to monitor and assist plans, and to enforce plan requirements.
The recent economic downturn revealed that these plans, like most
pension plans, are vulnerable to rapid changes in their funded status.
Plans in the worst condition may find that the options of increasing
employer contributions or reducing benefits are insufficient to
address their underfunding and demographic challenges. For these
plans, the effects of the economic downturn, declines in collective
bargaining, the withdrawal of contributing employers, and an aging
workforce will likely increase their risk of insolvency. Without
additional options to address plan underfunding or to attract new
employers to contribute to plans, plans may be more likely to require
financial assistance from PBGC. Additional claims would further strain
PBGC‘s insurance program that, already in deficit, it can ill afford.
What GAO Recommends:
GAO is asking Congress to consider ways to eliminate duplicative
reporting requirements and establish a shared database. GAO is also
recommending that PBGC, IRS, and Labor work together to improve data
collection and monitoring efforts. In commenting on a draft of this
report, the agencies generally agreed to improve their coordination
efforts.
View [hyperlink, http://www.gao.gov/products/GAO-11-79] or key
components. For more information, contact Barbara D. Bovbjerg at (202)
512-7215 or bovbjergb@gao.gov.
[End of section]
Contents:
Letter:
Background:
Multiemployer Plans Reported Large Funding Shortfalls and Face an
Uncertain Future:
PBGC Monitors the Health of Multiemployer Plans, but Does Not Assist
Troubled Plans on an Ongoing Basis:
Pension Structures in Other Countries Provide Multiemployer Plans with
Options to Improve Funding:
Changes to U.S. Multiemployer Plan Framework Could Help to Protect
Pension Benefits:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Department of Labor:
Appendix III: Comments from the Department of the Treasury:
Appendix IV: Comments from the Pension Benefit Guaranty Corporation:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: PPA Funding Zone Status and Reporting Requirements:
Table 2: Selected Differences between Single-employer Plans and
Multiemployer Plans:
Table 3: Funding Zone Status of Multiemployer Plans, as Certified with
IRS, Tax Years 2008 and 2009:
Table 4: Classification of Plans on PBGC's Contingency List:
Table 5: Multiemployer Plan Information Filed with PBGC:
Table 6: Comparison of Select Economic and Demographic Characteristics
in the Studied Countries and the United States (2008):
Table 7: Comparison of Multiemployer Plan Structures in the Studied
Countries and the United States:
Table 8: Reporting Requirements for Multiemployer Plans in the Studied
Countries:
Table 9: Monitoring of Multiemployer Plans in the Studied Countries:
Table 10: Recovery Periods and Tools Available to Improve Plan Funded
Status in the Studied Countries:
Table 11: Comparison of Multiemployer Plan Status Information Received
by Federal Agencies, 2008 and 2009:
Table 12: Experts' Suggestions to Improve PBGC's Assistance to Plans:
Table 13: Experts' Suggestions to Improve the Multiemployer Framework:
Figures:
Figure 1: PBGC-Insured Multiemployer Plans and Participants, 1980
through 2009:
Figure 2: PBGC-Insured Multiemployer Plan Participants, by Industry,
2000 through 2008:
Figure 3: Aggregate Funded Status and Funding Level of PBGC-Insured
Multiemployer Plans, 1980 through 2007:
Figure 4: Funded Status of PBGC-Insured Multiemployer Plans, by
Industry, 2000 through 2007:
Figure 5: PBGC-Insured Multiemployer Plan Participation, by
Participant Status, 1980 through 2007:
Figure 6: Private Sector Union Affiliation, by Industry, 2000 through
2009:
Figure 7: PBGC Multiemployer Insurance Program Assets, Liabilities,
and Net Position, Fiscal Years 1980 through 2009:
Figure 8: PBGC-Insured Multiemployer Plans on PBGC's Contingency List,
Fiscal Years 2000 through 2009:
Figure 9: Multiemployer Plans Receiving PBGC's Financial Assistance
and Amounts Received, 1981 through 2009:
Abbreviations:
AFN: Annual Funding Notice:
BLS: Bureau of Labor Statistics:
DB: defined benefit:
EBSA: Employee Benefits Security Administration:
EPCU: Employee Plans Compliance Unit:
ERISA: Employee Retirement Income Security Act of 1974 IRS Internal
Revenue Service:
ME-PIMS: Multiemployer Pension Insurance Modeling System:
MPPAA: Multiemployer Pension Plan Amendments Act of 1980:
NLRA: National Labor Relations Act of 1935:
OECD: Organization of Economic Co-operation and Development:
PBGC: Pension Benefit Guaranty Corporation:
PIMS: Pension Insurance Modeling System PPA Pension Protection Act of
2006:
WRERA: Worker, Retiree, and Employer Recovery Act of 2008:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 18, 2010:
The Honorable George Miller:
Chairman:
Committee on Education and Labor:
House of Representatives:
Dear Mr. Chairman:
Thirty years ago Congress enacted new protections for multiemployer
pension plans to better ensure that they could fulfill their promise
to pay benefits to plan participants in retirement. Today, these plans
continue to constitute an important part of the nation's private
employer pension system. For the purposes of this report,
multiemployer plans are defined benefit (DB) plans established through
collectively bargained pension agreements between labor unions and two
or more employers.[Footnote 1] In 2009, there were about 1,500
multiemployer plans covering more than 10.4 million workers and
retirees--approximately 1 of every 4 workers and retirees in the
United States covered by a private-sector DB plan. Multiemployer plans
are distinct from single-employer plans, which are established and
maintained by one employer, and multiple-employer plans, many of which
maintain separate funding accounts for each employer. Multiemployer
plans cover unionized workers in many industries, including trucking,
retail food, construction, mining, and garment, and provide some
portability of benefits. Workers in multiemployer plans can continue
accruing pension benefits when they change jobs if their new employer
is a contributing employer in the same plan. Such arrangements are
particularly suited to workers in these industries, who change jobs
frequently over the course of a career.
The Employee Retirement Income Security Act of 1974 (ERISA) created
the Pension Benefit Guaranty Corporation (PBGC) as a U. S. government
corporation to provide plan termination insurance for certain single-
and multiemployer pension plans that become unable to provide pension
benefits. For multiemployer plans, PBGC guarantees, within prescribed
limits, participant benefits when a covered plan becomes insolvent and
cannot pay such benefits when due for a plan year. PBGC provides loans
to insolvent multiemployer plans to allow them to continue paying
benefits at the PBGC guarantee level, which in 2010, was $12,870 per
year, based on 30 years of employment.
In 2004, we reported that the multiemployer system, in contrast with
private single-employer plans, operates in a framework that
redistributes risk toward employers and participants and away from the
government and potentially the taxpayer.[Footnote 2] This framework,
we noted, can create important incentives for interested parties to
resolve financial difficulties, such as plan underfunding. However, we
also found that weak economic conditions in the early 2000s and
declines in interest rates and equity markets had increased the
financial stress on the overall multiemployer plan framework and each
of its key stakeholders. We identified several challenges to the long-
term health of these plans, including a lack of employer funding
flexibility compared with single-employer plans and the national
decline of collective bargaining. Earlier this year we testified that
deterioration in economic conditions had increased stress on
multiemployer plans, which continue to face funding shortages and
other challenges.[Footnote 3]
Given these ongoing concerns about multiemployer plans, this report
addresses the following questions:
(1) What is the current status of the nation's multiemployer pension
plans?
(2) What steps does PBGC take to monitor the health of these plans?
(3) What is the structure of multiemployer plans in other countries?
(4) What statutory and regulatory changes, if any, could help plans to
continue to provide participants with the benefits due to them?
To identify the current status of the nation's multiemployer pension
plans, we analyzed data from PBGC, the Department of Labor's Employee
Benefits Security Administration (EBSA), and the Department of the
Treasury's Internal Revenue Service (IRS) and reviewed relevant
industry studies. To determine the steps PBGC takes to monitor the
health of these plans, we interviewed PBGC officials and reviewed
PBGC's multiemployer policies and procedures. We also reviewed
relevant federal laws and regulations. To understand the structure of
multiemployer plans in other countries, we conducted site visits to
four countries--the Netherlands, Denmark, United Kingdom, and Canada--
and we worked with U.S. State Department officials to identify and
interview government officials and various pension experts in these
countries. We did not conduct an independent legal analysis of foreign
laws. To identify what changes, if any, are needed to help plans
continue to provide participants with the benefits due them, we
interviewed a diverse range of multiemployer plan experts and
practitioners in the United States and abroad. We assessed the
reliability of the data used in this report and determined that they
were reliable for our purposes.
We conducted this performance audit from September 2009 through
October 2010, in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives. Appendix I provides more detail on the scope and
methodology used in developing this report.
Background:
The Taft Hartley Act of 1947 established terms for negotiating
employee benefits in collectively bargained multiemployer plans and
placed certain restrictions on the operation of these plans, including
the placement of plan assets in a trust.[Footnote 4] For example, the
law required a collectively bargained plan and its assets to be
managed by a joint board of trustees equally representative of
management and labor. It further required plan assets to be placed in
a trust fund, legally distinct from the union and the employers, for
the sole and exclusive benefit of the plan beneficiaries. In 1974,
Congress passed ERISA to protect the interests of participants and
beneficiaries covered by private sector employee benefit plans.
[Footnote 5] Title IV of ERISA created PBGC as a U. S. government
corporation to provide plan termination insurance for certain defined
benefit pension plans that are unable to pay promised benefits. PBGC
operates two distinct pension insurance programs, one for
multiemployer plans and one for single-employer plans. These programs
have separate insurance funds as well as different insurance coverage
rules and benefit guarantees. The multiemployer insurance program and
PBGC's day-to-day operations are financed by annual premiums paid by
the plans and by investment returns on PBGC's assets.[Footnote 6] In
turn, PBGC guarantees benefits, within prescribed limits, when a
multiemployer plan is insolvent and unable to pay the basic PBGC-
guaranteed benefits when due for the plan year.
In 1980, Congress sought to protect worker pensions in multiemployer
plans by enacting the Multiemployer Pension Plan Amendments Act
(MPPAA).[Footnote 7] Among other things, MPPAA (1) strengthened
funding requirements to help ensure plans accumulate enough assets to
pay for promised benefits, and (2) made employers, unless relieved by
special provisions, liable for their share of unfunded plan benefits
when they withdraw from a multiemployer plan. The amount owed by a
withdrawing employer is based upon a proportional share of a plan's
unfunded vested benefits.[Footnote 8] Liabilities that cannot be
collected from a withdrawing employer, for example, one in bankruptcy,
are to be "rolled over" and eventually funded by the plan's remaining
employers.[Footnote 9] These changes were made to discourage employer
withdrawals from a plan.
The Pension Protection Act of 2006 (PPA) established new funding and
disclosure requirements for multiemployer plans.[Footnote 10] (See
table 1.)
Table 1: PPA Funding Zone Status and Reporting Requirements:
Funding zone status: Safe;
Funded percentage: greater than or equal to 80%;
Plan reporting requirements:
Annual Funding Notice (AFN): [Check];
Annual actuarial certification of funded status: [Check];
Notice of endangered or critical status: [Check];
Funding improvement plan or rehabilitation plan: [Empty].
Funding zone status: Endangered;
Funded percentage: 65-80%;
Plan reporting requirements:
Annual Funding Notice (AFN): [Check];
Annual actuarial certification of funded status: [Check];
Notice of endangered or critical status: [Check];
Funding improvement plan or rehabilitation plan: Funding improvement
plan.
Funding zone status: Critical;
Funded percentage: less than 65%;
Plan reporting requirements:
Annual Funding Notice (AFN): [Check];
Annual actuarial certification of funded status: [Check];
Notice of endangered or critical status: [Check];
Funding improvement plan or rehabilitation plan: Rehabilitation plan.
Filing requirements:
Plan reporting requirements:
Annual Funding Notice (AFN): Within 120 days after the close of the
plan year;
Annual actuarial certification of funded status: Within 90 days after
the start of the plan year;
Notice of endangered or critical status: Within 30 days after
actuarial certification;
Funding improvement plan or rehabilitation plan: Adopted within 240
days after the deadline for actuarial certification.
Recipients:
Plan reporting requirements:
Annual Funding Notice (AFN): PBGC, participants, beneficiaries,
participating unions and contributing employers;
Annual actuarial certification of funded status: Secretary of the
Treasury and trustees;
Notice of endangered or critical status: PBGC, Department of Labor,
participants, beneficiaries, participating unions and contributing
employers;
Funding improvement plan or rehabilitation plan: Participating unions
and contributing employers must receive schedules within 30 days of
adoption.
Source: GAO analysis of the Pension Protection Act of 2006.
[End of table]
PPA requires trustees of plans certified in endangered or critical
status to take specific actions to improve the plans' financial
status, such as developing schedules to increase contributions or
reduce benefits.[Footnote 11] Plans certified as endangered must adopt
a funding improvement plan, which:
outlines steps the plan will take to increase the plan's funded status
over a 10-year period or, in some cases, longer. Plans certified as
critical must adopt a rehabilitation plan, which outlines actions, to
enable the plan to cease to be in critical status by the end of a 10-
year rehabilitation period and may include reductions in plan
expenditures (including plan mergers and consolidations), reductions
in future benefit accruals or increases in contributions, if agreed to
by the bargaining parties, or any combination of such actions.
[Footnote 12] To assist plans in critical status, PPA amended ERISA to
allow these plans to reduce or eliminate adjustable benefits, such as
early retirement benefits, post-retirement death benefits, and
disability benefits. In addition, critical status plans are generally
exempt from the excise taxes that IRS can assess on plans with funding
deficiencies.[Footnote 13]
The funding requirements of PPA took effect just as the nation entered
a severe economic recession in December 2007. As a result, Congress
enacted the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA)
to provide multiemployer plans with temporary relief from some PPA
requirements by allowing multiemployer plans to temporarily freeze
their funded status at the previous year's level.[Footnote 14] The
freeze allows plans to delay creation of, or updates to, an existing
funding improvement plan or rehabilitation plan, or postpone other
steps required under PPA.[Footnote 15] WRERA also requires plans to
send a notice to all participants and beneficiaries, bargaining
parties, PBGC, and the Department of Labor indicating that the
election to freeze the status of a plan does not mean that the funded
status of the plan has improved. WRERA also provided for a 3-year
extension of a plan's funding improvement or rehabilitation period.
Although both single-employer and multiemployer plans are subject to
the rules outlined in Title IV of ERISA, there are several important
differences between the plan types that affect the structure and
stability of each type of plan. (See table 2.)
Table 2: Selected Differences between Single-employer Plans and
Multiemployer Plans:
Plan characteristic: PBGC benefit guarantee levels;
Single-employer plans: PBGC's guarantees benefits up to $54,000 per
year for a retiree at age 65. Benefit amounts are indexed for
inflation;
Multiemployer plans: PBGC guarantees benefits of $12,870 per year,
based on 30 years of employment. Benefit amounts are not indexed for
inflation.
Plan characteristic: PBGC premium structure;
Single-employer plans: In 2010, plans pay PBGC a flat rate premium of
$35 per participant that is indexed for inflation. Plans are also
subject to a variable rate premium based on underfunding and
termination premiums;
Multiemployer plans: In 2010, plans pay PBGC an annual flat rate
premium of $9 per participant. The premium is indexed for inflation.
Plan characteristic: Insurable events;
Single-employer plans: The insurable event is generally termination of
an underfunded plan, after which PBGC assumes responsibility and pays
benefits directly to participants;
Multiemployer plans: The insurable event is plan insolvency.
Plan characteristic: Provision of financial assistance;
Single-employer plans: PBGC provides no financial assistance to plans
but instead takes over terminated underfunded plans as trustee;
Multiemployer plans: PBGC provides loans to plans when they become
insolvent, and a multiemployer plan need not be terminated to qualify
for financial assistance. Insolvent multiemployer plans also are
required to reduce or suspend payment of any portion of benefits to
beneficiaries that exceeds PBGC's guarantee level. If a plan recovers
from insolvency, it must begin repaying the PBGC loan.
Plan characteristic: Fiduciary and settlor function;
Single-employer plans: Employer sponsor generally assumes fiduciary
role in addition to its settlor role;
Multiemployer plans: Individual employers do not assume a fiduciary
role in plan management, which is instead handled by a board of
trustees.
Plan characteristic: Risk distribution;
Single-employer plans: Plans generally do not share the risk with
other employers;
Multiemployer plans: Plans typically continue to operate after an
individual employer, or sponsor, goes out of business because the
plan's remaining employers are jointly liable for funding benefits for
all vested participants.
Plan characteristic: Portability of benefits;
Single-employer plans: Plans are established and maintained by only
one employer and their benefits are not normally portable;
Multiemployer plans: Plans provide participants some benefit
portability because they allow workers to continue to accrue pension
benefits when they change jobs as long as their new employer also
participates in the same plan.
Plan characteristic: Ability to adjust contribution and benefit levels;
Single-employer plans: Employer sponsors, depending on their
employees' bargaining rights, may make adjustments to future
contributions and benefits according to the company's fiscal condition
provided that minimum funding requirements are met;
Multiemployer plans: Individual employers cannot adjust their plan
contributions at will and may be restricted in making changes until
the collective bargaining agreement comes up for renegotiation,
typically once every 2 or 3 years.
Plan characteristic: Plan terminations;
Single-employer plans: PBGC assumes trusteeship and administers
payment of participant benefits when an underfunded plan terminates;
Multiemployer plans: If an employer withdraws from a plan, the accrued
benefits for its workers stay in and are administered by the plan. The
plan terminates by mass withdrawal of all contributing employers. When
a plan becomes insolvent, PBGC does not take over trusteeship but
instead provides financial assistance to its trustees, who continue to
administer the plan until all guaranteed benefits are paid out.
Plan characteristic: Employer withdrawal;
Single-employer plans: There is no withdrawal liability for plan
sponsors. However, plan sponsors are liable for benefits of its
employees and to PBGC for any underfunding;
Multiemployer plans: An employer seeking to withdraw from a plan is
liable for its allocable share of the plan's unfunded vested benefits
for all employees covered by the plan. In cases of bankruptcy, the
remaining employers in the plan assume responsibility for funding
benefits to the bankrupt employer's participants.[A]
Source: GAO analysis of ERISA, PBGC documents, and prior GAO reports.
[A] PBGC officials said that this greater financial risk for employers
and lower guaranteed benefit level for participants in multiemployer
plans, in practice, creates incentives for employers, workers, and
their collective bargaining representatives to avoid insolvency and
find solutions to a plan's financial difficulties.
[End of table]
The overall number of multiemployer plans insured by PBGC has
decreased steadily since the 1980s as a result of plan mergers and
terminations. At the same time, the aggregate number of participants--
including active and inactive--has continued to rise. (See figure 1)
Figure 1: PBGC-Insured Multiemployer Plans and Participants, 1980
through 2009:
[Refer to PDF for image: combination vertical bar and line graph]
Year: 1980;
Participants: 8.0 million;
Plans: 2,244.
Year: 1981;
Participants: 8.2 million;
Plans: 2,272.
Year: 1982;
Participants: 8.5 million;
Plans: 2,289.
Year: 1983;
Participants: 8.4 million;
Plans: 2,285.
Year: 1984;
Participants: 8.1 million;
Plans: 2,223.
Year: 1985;
Participants: 8.2 million;
Plans: 2,188.
Year: 1986;
Participants: 8.2 million;
Plans: 2,153.
Year: 1987;
Participants: 8.3 million;
Plans: 2,098.
Year: 1988;
Participants: 8.3 million;
Plans: 2,081.
Year: 1989;
Participants: 8.4 million;
Plans: 2,060.
Year: 1990;
Participants: 8.5 million;
Plans: 1,983.
Year: 1991;
Participants: 8.7 million;
Plans: 1,926.
Year: 1992;
Participants: 8.8 million;
Plans: 1,936.
Year: 1993;
Participants: 8.7 million;
Plans: 1,900.
Year: 1994;
Participants: 8.6 million;
Plans: 1,880.
Year: 1995;
Participants: 8.6 million;
Plans: 1,879.
Year: 1996;
Participants: 8.7 million;
Plans: 1,876.
Year: 1997;
Participants: 8.7 million;
Plans: 1,846.
Year: 1998;
Participants: 8.9 million;
Plans: 1,817.
Year: 1999;
Participants: 9.0 million;
Plans: 1,800.
Year: 2000;
Participants: 9.1 million;
Plans: 1,744.
Year: 2001;
Participants: 9.4 million;
Plans: 1,707.
Year: 2002;
Participants: 9.6 million;
Plans: 1,671.
Year: 2003;
Participants: 9.7 million;
Plans: 1,612.
Year: 2004;
Participants: 9.8 million;
Plans: 1,586.
Year: 2005;
Participants: 9.9 million;
Plans: 1,571.
Year: 2006;
Participants: 9.9 million;
Plans: 1,538.
Year: 2007;
Participants: 10.0 million;
Plans: 1,522.
Year: 2008;
Participants: 10.2 million;
Plans: 1,517.
Year: 2009;
Participants: 10.4 million;
Plans: 1,495.
Source: PBGC annual Pension Insurance Data Books.
[End of figure]
The number of participants in multiemployer plans also varies by
industry. While PBGC covers workers in all major industrial sectors,
the construction trades consistently account for over one-third of all
covered multiemployer plan participants, totaling 36 percent in 2008.
Other industries, including transportation and manufacturing, account
for a smaller portion of participants, roughly 15 percent in 2007.
(See figure 2)
Figure 2: PBGC-Insured Multiemployer Plan Participants, by Industry,
2000 through 2008:
[Refer to PDF for image: vertical bar graph]
Year: 2000;
Construction: 3.2 million;
Manufacturing: 1.3 million;
Transportation: 1.4 million;
Retail trade: 1.2 million;
Services: 1.3 million;
Other industries: 684,000.
Year: 2001;
Construction: 3.6 million;
Manufacturing: 1.4 million;
Transportation: 1.1 million;
Retail trade: 1.4 million;
Services: 1.4 million;
Other industries: 540,000.
Year: 2002;
Construction: 3.6 million;
Manufacturing: 1.3 million;
Transportation: 1.5 million;
Retail trade: 1.3 million;
Services: 1.3 million;
Other industries: 501,000.
Year: 2003;
Construction: 3.5 million;
Manufacturing: 1.5 million;
Transportation: 1.5 million;
Retail trade: 1.4 million;
Services: 1.4 million;
Other industries: 382,000.
Year: 2004;
Construction: 3.6 million;
Manufacturing: 1.5 million;
Transportation: 1.6 million;
Retail trade: 1.3 million;
Services: 1.4 million;
Other industries: 458,000.
Year: 2005;
Construction: 3.5 million;
Manufacturing: 1.5 million;
Transportation: 1.6 million;
Retail trade: 1.4 million;
Services: 1.4 million;
Other industries: 474,000.
Year: 2006;
Construction: 3.5 million;
Manufacturing: 1.5 million;
Transportation: 1.6 million;
Retail trade: 1.4 million;
Services: 1.4 million;
Other industries: 531,000.
Year: 2007;
Construction: 3.6 million;
Manufacturing: 1.5 million;
Transportation: 1.6 million;
Retail trade: 1.4 million;
Services: 1.5 million;
Other industries: 529,000.
Year: 2008;
Construction: 3.7 million;
Manufacturing: 1.2 million;
Transportation: 1.6 million;
Retail trade: 1.4 million;
Services: 1.8 million;
Other industries: 486,000.
Source: GAO analysis of PBGC annual Pension Insurance Data Books.
Note: PBGC draws these data from annual premium filings in which plans
self-report their industry classification based on the predominant
business activity of all employers in the plan. The industry
classification categories are based on principal business activity
codes used in the North American Industry Classification System.
Additionally, the "Other Industries" category is made up of industries
that individually account for less than 3 percent of all PBGC-insured
multiemployer plan participants, including Agriculture, Mining,
Information, Wholesale Trade, Finance, Insurance, and Real Estate. The
2001 participant data presented here are from PBGC's Pension Insurance
Data Book 2002. PBGC published different 2001 participant data in its
Pension Insurance Data Book 2001.
[End of figure]
Multiemployer Plans Reported Large Funding Shortfalls and Face an
Uncertain Future:
Multiemployer Plans Have Experienced General Funding Declines Since
2000:
Multiple data sources that we examined indicate that most
multiemployer plans experienced steep declines in their funded status
in recent years. According to PBGC, multiemployer plans in aggregate
have not been fully funded--at 100 percent or above level--since 2000
and their net funded status has declined significantly through 2007,
the last date for which PBGC data are available. While plans are
considered "safe" if their funded status is at least 80 percent, the
aggregate funded status--the percentage of benefits covered by plan
assets--of multiemployer plans insured by PBGC declined from 105
percent in 2000 to 69 percent in 2007. (See figure 3)
Figure 3: Aggregate Funded Status and Funding Level of PBGC-Insured
Multiemployer Plans, 1980 through 2007:
[Refer to PDF for image: combined vertical bar and line graph]
Year: 1980;
Funding status: 77%;
Funding level: -$11.8 billion.
Year: 1981;
Funding status: 87%;
Funding level: -$6.9 billion.
Year: 1982;
Funding status: 96%;
Funding level: -$2.4 billion.
Year: 1983;
Funding status: 100%;
Funding level: -$2.1 billion.
Year: 1984;
Funding status: 106%;
Funding level: $4.1 billion.
Year: 1985;
Funding status: 116%;
Funding level: $12.2 billion.
Year: 1986;
Funding status: 115%;
Funding level: $13.8 billion.
Year: 1987;
Funding status: 109%;
Funding level: $9.8 billion.
Year: 1988;
Funding status: 116%;
Funding level: $17.1 billion.
Year: 1989;
Funding status: 111%;
Funding level: $13.7 billion.
Year: 1990;
Funding status: 107%;
Funding level: $10.2 billion.
Year: 1991;
Funding status: 103%;
Funding level: $5.4 billion.
Year: 1992;
Funding status: 98%;
Funding level: -$3.2 billion.
Year: 1993;
Funding status: 98%;
Funding level: -$4.7 billion.
Year: 1994;
Funding status: 91%;
Funding level: -$19.4 billion.
Year: 1995;
Funding status: 96%;
Funding level: -$8.5 billion.
Year: 1996;
Funding status: 88%;
Funding level: -$32.0 billion.
Year: 1997;
Funding status: 93%;
Funding level: -$19.1 billion.
Year: 1998;
Funding status: 92%;
Funding level: -$26.9 billion.
Year: 1999;
Funding status: 91%;
Funding level: -$30.3 billion.
Year: 2000;
Funding status: 105%;
Funding level: $16.9 billion.
Year: 2001;
Funding status: 91%;
Funding level: -$34.2 billion.
Year: 2002;
Funding status: 77%;
Funding level: -$99.2 billion.
Year: 2003;
Funding status: 63%;
Funding level: -$178.2 billion.
Year: 2004;
Funding status: 62%;
Funding level: -$208.5 billion.
Year: 2005;
Funding status: 62%;
Funding level: -$226.1 billion.
Year: 2006;
Funding status: 66%;
Funding level: -$199.7 billion.
Year: 2007;
Funding status: 69%;
Funding level: -$193.3 billion.
Source: GAO analysis of PBGC annual Pension Insurance Data Books.
[End of figure]
The funded status of multiemployer plans insured by PBGC varies
significantly by industry sector within which the plan operates.
According to PBGC data, while all industries generally follow the same
trend in funded status, plans in the transportation industry have
since 2000 reported a consistently lower funded status than other
industries. For example, in 2007, the aggregate funded status for
plans in the transportation industry was 63 percent in contrast to the
overall average of 69 percent. Furthermore, in 2000, the last year
that the aggregate funded status of all multiemployer plans was over
100 percent, the funded status of multiemployer plans in the retail
trade and services industries was about 30 percent higher than the
funded status of plans in the transportation industry. (See figure 4.)
The extent of underfunding in multiemployer plans also varies by
industry with the construction and transportation industries
accounting for 71 percent of the underfunding of all PBGC-insured
multiemployer plans in 2007.
Figure 4: Funded Status of PBGC-Insured Multiemployer Plans, by
Industry, 2000 through 2007:
[Refer to PDF for image: multiple line graph]
Year: 2000;
Construction: 105%;
Manufacturing: 113%;
Transportation: 85%;
Retail Trade: 116%;
Services: 116%;
Other Industries: 104%;
Total: 111%.
Year: 2001;
Construction: 91%;
Manufacturing: 98%;
Transportation: 83%;
Retail Trade: 93%;
Services: 99%;
Other Industries: 91%;
Total: 101%.
Year: 2002;
Construction: 77%;
Manufacturing: 83%;
Transportation: 72%;
Retail Trade: 78%;
Services: 83%;
Other Industries: 77%;
Total: 85%.
Year: 2003;
Construction: 64%;
Manufacturing: 68%;
Transportation: 58%;
Retail Trade: 65%;
Services: 68%;
Other Industries: 64%;
Total: 74%.
Year: 2004;
Construction: 62%;
Manufacturing: 67%;
Transportation: 58%;
Retail Trade: 62%;
Services: 67%;
Other Industries: 62%;
Total: 72%.
Year: 2005;
Construction: 63%;
Manufacturing: 69%;
Transportation: 57%;
Retail Trade: 61%;
Services: 67%;
Other Industries: 62%;
Total: 71%.
Year: 2006;
Construction: 66%;
Manufacturing: 68%;
Transportation: 62%;
Retail Trade: 64%;
Services: 71%;
Other Industries: 66%;
Total: 75%.
Year: 2007;
Construction: 70%;
Manufacturing: 76%;
Transportation: 63%;
Retail Trade: 69%;
Services: 74%;
Other Industries: 69%;
Total: 80%.
Source: GAO analysis of PBGC annual Pension Insurance Data Books.
Note: PBGC draws these data from annual Form 5500 filings in which
plans self-report their industry classification based on the
predominant business activity of all employers in the plan. The
industry classification categories are based on principal business
activity codes used in the North American Industry Classification
System. Additionally, the "Other Industries" category is made up of
industries that individually account for less than 3 percent of all
PBGC-insured multiemployer plan participants, including Agriculture,
Mining, Information, and Wholesale Trade.
[End of figure]
Since 2007, the last year for which data are available, aggregate plan
funded status has declined further as a result of investment market
declines. While the rapid drop in funded status, like the economic
conditions that caused it, was severe, experts said that its effect on
plans was similar to what happened to plans during the market
correction of 2000 to 2002. For example, experts said that some plans,
learning from the downturn from 2000 to 2002, took remedial steps in
the following years, such as increasing contributions, and likely
fared better in the recent recession. In contrast, other plans did not
change course after the 2000 to 2002 downturn in the hope that market
returns would erase their deficits and are now the plans in the most
critical financial condition.
Many Multiemployer Plans Reported Large Funding Shortfalls during the
Recent Economic Downturn:
Although funded status was in a general decline since 2000, the
economic recession that began in December 2007 had a negative impact
on the funded status of multiemployer plans, according to a number of
data sources. Annual actuarial certification data from IRS show that
the proportion of multiemployer plans reporting in endangered or
critical zone status rose significantly, from 23 percent of plans in
2008 to 68 percent of plans in 2009. (See table 3.)
Table 3: Funding Zone Status of Multiemployer Plans, as Certified with
IRS, Tax Years 2008 and 2009:
Funding zone status: Critical status;
2008: Plans: 138;
2008: %: 10;
2009: Plans: 461;
2009: %: 35.
Funding zone status: Endangered status;
2008: Plans: 175;
2008: %: 13;
2009: Plans: 444;
2009: %: 33.
Funding zone status: Subtotal;
2008: Plans: 313;
2008: %: 23;
2009: Plans: 905;
2009: %: 68.
Funding zone status: Safe status;
2008: Plans: 1,034;
2008: %: 77;
2009: Plans: 426;
2009: %: 32.
Funding zone status: Total;
2008: Plans: 1,347;
2008: %: 100;
2009: Plans: 1,331;
2009: %: 100.
Source: GAO analysis of Internal Revenue Service annual actuarial
certification data.
Note: The endangered status category includes plans certifying as
endangered or seriously endangered.
[End of table]
Data from PBGC, although incomplete, show a similar downward trend in
plan funded status. According to the annual funding notices that PBGC
received in the 2009 plan year, nearly all of the 484 plans that filed
reported a decrease in funded status from 2008 to 2009. Similarly,
PBGC received more notices of critical or endangered status from
plans, from 266 plans in 2008 to 624 plans in 2009.
Recent industry surveys of multiemployer plans found similar declines
in funded status. For example, two industry groups surveying their
multiemployer plan membership in 2009 found the same result: 80
percent of plans reported being in critical or endangered zone status,
a reversal from 2008 when 80 percent of plans reported being in safe
status.[Footnote 16] Similarly, another industry survey of nearly 400
plans found that the proportion of plans in the endangered or critical
zone status increased from 24 percent in 2008 to 80 percent in 2009.
[Footnote 17] While these surveys are not comprehensive, they provide
further evidence of the negative impact that the economic downturn had
on multiemployer plans.
Although it did not affect their underlying funded status, many plans
took advantage of the one-time freeze allowed under WRERA. According
to IRS data, 745 plans elected to freeze their funded status in either
2008 or 2009, including 373 plans in critical status, 351 in
endangered status, and 21 plans in safe status. According to experts,
some plans took advantage of the freeze option for a variety of
reasons. Plans wanted to give the markets a chance to rebound in order
to recoup plan assets lost in the downturn. Others may have chosen the
freeze due to timing of collective bargaining agreements, not wanting
to take steps to address funding deficiencies until a new agreement
was reached. Still other plans elected the freeze to avoid having to
revisit or revise ongoing rehabilitation plans. However, experts also
noted that the WRERA freeze option was not helpful for all plans.
Specifically, some plans chose not to freeze in endangered status,
preferring to go straight to critical status to give them more options
to address their funding deficiencies.
Plans Face Long-standing Demographic Challenges and an Uncertain
Future:
Multiemployer plans continue to face demographic challenges that
threaten their long-term financial outlook--including an aging
workforce and few opportunities to attract new employers and workers
into plans. While the number of total participants in multiemployer
plans has slowly increased, the proportion of active participants to
retirees and separated vested participants has decreased.[Footnote 18]
(See figure 5.) For example, multiemployer plans had about 1.6 million
fewer active participants in 2007 than in 1980, according to PBGC.
With fewer active participants, plans have more difficulty making up
funding deficiencies by increasing employers' funding contributions.
Moreover, increases in life expectancy also put pressure on plans,
increasing the amount of benefits that the plan will have to pay as
retirees live longer.
Figure 5: PBGC-Insured Multiemployer Plan Participation, by
Participant Status, 1980 through 2007:
[Refer to PDF for image: stacked vertical bar graph]
Year: 1980;
Active: 76%;
Retired: 18%;
Separated Vested: 7%.
Year: 1981;
Active: 74%;
Retired: 19%;
Separated Vested: 7%.
Year: 1982;
Active: 73%;
Retired: 19%;
Separated Vested: 9%.
Year: 1983;
Active: 69%;
Retired: 22%;
Separated Vested: 10%.
Year: 1984;
Active: 67%;
Retired: 23%;
Separated Vested: 10%.
Year: 1985;
Active: 66%;
Retired: 23%;
Separated Vested: 11%.
Year: 1986;
Active: 64%;
Retired: 23%;
Separated Vested: 13%.
Year: 1987;
Active: 62%;
Retired: 24%;
Separated Vested: 14%.
Year: 1988;
Active: 61%;
Retired: 25%;
Separated Vested: 14%.
Year: 1989;
Active: 61%;
Retired: 25%;
Separated Vested: 14%.
Year: 1990;
Active: 59%;
Retired: 25%;
Separated Vested: 16%.
Year: 1991;
Active: 57%;
Retired: 26%;
Separated Vested: 17%.
Year: 1992;
Active: 55%;
Retired: 28%;
Separated Vested: 18%.
Year: 1993;
Active: 54%;
Retired: 28%;
Separated Vested: 18%.
Year: 1994;
Active: 53%;
Retired: 28%;
Separated Vested: 19%.
Year: 1995;
Active: 52%;
Retired: 29%;
Separated Vested: 19%.
Year: 1996;
Active: 52%;
Retired: 29%;
Separated Vested: 19%.
Year: 1997;
Active: 52%;
Retired: 29%;
Separated Vested: 19%.
Year: 1998;
Active: 51%;
Retired: 30%;
Separated Vested: 18%.
Year: 1999;
Active: 51%;
Retired: 31%;
Separated Vested: 19%.
Year: 2000;
Active: 51%;
Retired: 30%;
Separated Vested: 19%.
Year: 2001;
Active: 50%;
Retired: 30%;
Separated Vested: 21%.
Year: 2002;
Active: 48%;
Retired: 30%;
Separated Vested: 22%.
Year: 2003;
Active: 47%;
Retired: 30%;
Separated Vested: 23%.
Year: 2004;
Active: 46%;
Retired: 31%;
Separated Vested: 23%.
Year: 2005;
Active: 46%;
Retired: 31%;
Separated Vested: 24%.
Year: 2006;
Active: 45%;
Retired: 31%;
Separated Vested: 24%.
Year: 2007;
Active: 45%;
Retired: 31%;
Separated Vested: 24%.
Source: PBGC annual Pension Insurance Data Books.
[End of figure]
The future growth of multiemployer plans is largely predicated on
growth of collective bargaining. Yet collective bargaining has
declined in the United States since the early 1950s. According to
recent data from the Bureau of Labor Statistics (BLS), union
membership--a proxy for collective bargaining coverage--accounted for
7.2 percent of the U.S. private-sector labor force in 2009. In
contrast, in 1990, union membership in the private sector accounted
for about 12 percent, and in 1980, about 20 percent. While union
membership has trended downward in most industries, it has remained
relatively high in the transportation sector. (See figure 6.)
Figure 6: Private Sector Union Affiliation, by Industry, 2000 through
2009:
[Refer to PDF for image: multiple line graph]
Year: 2000;
Private Sector Total: 9%;
Construction: 17.5%;
Manufacturing: 14.9%;
Retail Trade: 6.1%;
Transportation: 26%;
Other Industries: 8.5%.
Year: 2001;
Private Sector Total: 8.9%;
Construction: 16.9%;
Manufacturing: 14.7%;
Retail Trade: 6%;
Transportation: 25.3%;
Other Industries: 8.5%.
Year: 2002;
Private Sector Total: 8.6%;
Construction: 16.7%;
Manufacturing: 14.6%;
Retail Trade: 6.1%;
Transportation: 24.7%;
Other Industries: 7.8%.
Year: 2003;
Private Sector Total: 8.2%;
Construction: 16%;
Manufacturing: 13.5%;
Retail Trade: 6.4%;
Transportation: 26.2%;
Other Industries: 7.4%.
Year: 2004;
Private Sector Total: 7.9%;
Construction: 14.7%;
Manufacturing: 12.9%;
Retail Trade: 5.7%;
Transportation: 24.9%;
Other Industries: 8.1%.
Year: 2005;
Private Sector Total: 7.8%;
Construction: 13.1%;
Manufacturing: 13%;
Retail Trade: 5.2%;
Transportation: 24%;
Other Industries: 7.6%.
Year: 2006;
Private Sector Total: 7.4%;
Construction: 13%;
Manufacturing: 11.7%;
Retail Trade: 5%;
Transportation: 23.2%;
Other Industries: 6.7%.
Year: 2007;
Private Sector Total: 7.5%;
Construction: 13.9%;
Manufacturing: 11.3%;
Retail Trade: 5.3%;
Transportation: 22.1%;
Other Industries: 7%.
Year: 2008;
Private Sector Total: 7.6%;
Construction: 15.6%;
Manufacturing: 11.4%;
Retail Trade: 5.2%;
Transportation: 22.2%;
Other Industries: 6.9%.
Year: 2009;
Private Sector Total: 7.2%;
Construction: 14.5%;
Manufacturing: 10.9%;
Retail Trade: 5.3%;
Transportation: 22.2%;
Other Industries: 6.2%.
Source: GAO analysis of BLS data.
Note: The "Other industries" category includes the following
industries: Agriculture, Mining, Information, and Wholesale Trade.
[End of figure]
Some experts told us that some industries within which multiemployer
plans operate were already in decline--such as the printing and
trucking industries--and that their situation was likely exacerbated
by the economic downturn. They also noted that other plans, while
facing short-term funding deficiencies, belonged to industries that
remained strong--such as the construction and entertainment
industries--and were likely to improve their funded status as the
economy improved.[Footnote 19]
PBGC's ability to assist multiemployer plans is contingent upon its
insurance program having sufficient funds to do so. The net position
of PBGC's multiemployer pension insurance program has steadily
declined since its highest point in 1998 as program liabilities
outpaced asset growth. (See figure 7.) The program's net position went
negative in 2003 and by 2009 the multiemployer program reported an
accumulated deficit of $869 million.
Figure 7: PBGC Multiemployer Insurance Program Assets, Liabilities,
and Net Position, Fiscal Years 1980 through 2009:
[Refer to PDF for image: combined vertical bar and line graph]
Year: 1980;
Liabilities: $30 million;
Assets: $21 million;
Net position: -$9 million.
Year: 1981;
Liabilities: $29 million;
Assets: $28 million;
Net position: -$1 million.
Year: 1982;
Liabilities: $29 million;
Assets: $40 million;
Net position: $11 million.
Year: 1983;
Liabilities: $46 million;
Assets: $52 million;
Net position: $6 million.
Year: 1984;
Liabilities: $44 million;
Assets: $61 million;
Net position: $17 million.
Year: 1985;
Liabilities: $52 million;
Assets: $78 million;
Net position: $27 million.
Year: 1986;
Liabilities: $54 million;
Assets: $98 million;
Net position: $45 million.
Year: 1987;
Liabilities: $45 million;
Assets: $114 million;
Net position: $68 million.
Year: 1988;
Liabilities: $37 million;
Assets: $129 million;
Net position: $92 million.
Year: 1989;
Liabilities: $37 million;
Assets: $161 million;
Net position: $123 million.
Year: 1990;
Liabilities: $58 million;
Assets: $190 million;
Net position: $132 million.
Year: 1991;
Liabilities: $75 million;
Assets: $238 million;
Net position: $163 million.
Year: 1992;
Liabilities: $114 million;
Assets: $283 million;
Net position: $169 million.
Year: 1993;
Liabilities: $131 million;
Assets: $407 million;
Net position: $276 million.
Year: 1994;
Liabilities: $181 million;
Assets: $378 million;
Net position: $197 million.
Year: 1995;
Liabilities: $285 million;
Assets: $477 million;
Net position: $192 million.
Year: 1996;
Liabilities: $381 million;
Assets: $505 million;
Net position: $124 million.
Year: 1997;
Liabilities: $377 million;
Assets: $596 million;
Net position: $219 million.
Year: 1998;
Liabilities: $404 million;
Assets: $745 million;
Net position: $341 million.
Year: 1999;
Liabilities: $493 million;
Assets: $692 million;
Net position: $199 million.
Year: 2000;
Liabilities: $427 million;
Assets: $694 million;
Net position: $267 million.
Year: 2001;
Liabilities: $691 million;
Assets: $807 million;
Net position: $116 million.
Year: 2002;
Liabilities: $786 million;
Assets: $944 million;
Net position: $158 million.
Year: 2003;
Liabilities: $1.26 billion;
Assets: $1.0 billion;
Net position: -$261 million.
Year: 2004;
Liabilities: $1.31 billion;
Assets: $1.07 billion;
Net position: -$236 million.
Year: 2005;
Liabilities: $1.50 billion;
Assets: $1.16 billion;
Net position: -$335 million.
Year: 2006;
Liabilities: $1.91 billion;
Assets: $1.17 billion;
Net position: -$739 million.
Year: 2007;
Liabilities: $2.15 billion;
Assets: $1.20 billion;
Net position: -$955 million.
Year: 2008;
Liabilities: $1.80 billion;
Assets: $1.33 billion;
Net position: -$463 million.
Year: 2009;
Liabilities: $2.33 billion;
Assets: $1.46 billion;
Net position: -$869 million.
Source: PBGC annual Pension Insurance Data Books.
[End of figure]
The demographic challenges that multiemployer plans face also affect
PBGC's ability to assist them. Plans pay PBGC an annual flat rate
premium per participant. Similarly, contributions by employers in a
multiemployer plan are generally paid on a per work-hour basis.
Consequently, declines in the number of plan participants during
periods of high unemployment and long-standing reductions in
collective bargaining can result in less premium income to PBGC and an
increased probability of PBGC-insured multiemployer plans requiring
financial assistance.
PBGC Monitors the Health of Multiemployer Plans, but Does Not Assist
Troubled Plans on an Ongoing Basis:
Monitoring Plan Insolvency Risk:
PBGC monitors the financial condition of its insured multiemployer
plans to identify plans that are more likely to become insolvent and
require financial assistance from the multiemployer insurance program.
To identify the universe of multiemployer plans, PBGC maintains a
database that matches a plan's annual premium filings with its
financial information reported on its annual Form 5500 filings.
[Footnote 20] PBGC then uses multiemployer plans' annual Form 5500
filings, critical and endangered status notices, and other information
to generate a contingency list of plans that have an increased risk of
insolvency and making a claim to the PBGC's multiemployer insurance
program or terminating altogether. PBGC classifies plans into several
categories on this contingency list, depending on the plan's
likelihood of a PBGC claim. (See table 4.)
Table 4: Classification of Plans on PBGC's Contingency List:
Classification: Current probable;
Definition: A plan that is known to be insolvent and has received or
will begin receiving financial assistance from PBGC.
Classification: Terminated future probable;
Definition: A plan that may still have assets but the combination of
plan assets and collectible payments of withdrawal liability are
projected to be insufficient to cover plan benefits plus expenses.
Classification: Ongoing future probable;
Definition: An ongoing plan with a projected date of insolvency within
10 years.
Classification: Reasonably possible;
Definition: An ongoing plan with a projected insolvency date between
10 and 20 years away.
Classification: Remote watch list;
Definition: Any plan that is not classified as probable or reasonably
possible, but has a smaller probability of future liability to PBGC.
Source: PBGC.
[End of table]
To determine which multiemployer plans belong in each of these
categories, PBGC uses an automated screening process that measures the
financial health of plans. The variables that PBGC reviews are:
* ratio of active participants (those for whom employers are
continuing to make contributions) to other participants (those for
whom plans are making benefit payments);
* ratio of assets to the present value of vested benefits accrued by
participants;
* ratio of plan assets to annual benefit payments to retirees;
* ratio of annual contributions to carrying costs (i.e., normal cost
and interest on unfunded liability);
* ratio of annual contributions from employers to the benefit
distributions to retirees; and:
* ratio of plan assets to the present value of retired participants'
accrued benefits.
PBGC also monitors plans to assess their risk of insolvency and the
effect of insolvency on PBGC's multiemployer program. PBGC determines
expected claims on the multiemployer insurance program based on two
factors, the amount of underfunding in the plans and the likelihood
that the plans will become insolvent or face a mass withdrawal of
contributing employers from a plan. PBGC also analyzes ongoing
multiemployer plans (i.e., plans that continue to have employers
making regular contributions for covered work) to determine whether
they pose probable or possible claims on the insurance program. In
conducting this periodic analysis, PBGC examines plans that are
chronically underfunded, have poor cash flow, have a falling
contribution base, or lack an asset cushion to temporarily weather
income losses. A combination of any one of these factors may prompt
PBGC to conduct a more detailed analysis of the plan's funding and the
likelihood that the contributing employers will be able to maintain
the plan. Since 2002, the number of plans classified as probable or
placed on the watch list has steadily increased while the number of
plans classified as reasonably possible has remained about the same.
(See figure 8.)
Figure 8: PBGC-Insured Multiemployer Plans on PBGC's Contingency List,
Fiscal Years 2000 through 2009:
[Refer to PDF for image: multiple line graph]
Number of plans:
Year: 2000;
Probable: 47;
Reasonably Possible: 2;
Watch List: 52.
Year: 2001;
Probable: 56;
Reasonably Possible: 1;
Watch List: 49.
Year: 2002;
Probable: 58;
Reasonably Possible: 2;
Watch List: 47.
Year: 2003;
Probable: 62;
Reasonably Possible: 3;
Watch List: 62.
Year: 2004;
Probable: 67;
Reasonably Possible: 4;
Watch List: 65.
Year: 2005;
Probable: 77;
Reasonably Possible: 3;
Watch List: 113.
Year: 2006;
Probable: 85;
Reasonably Possible: 2;
Watch List: 115.
Year: 2007;
Probable: 94;
Reasonably Possible: 2;
Watch List: 131.
Year: 2008;
Probable: 90;
Reasonably Possible: 1;
Watch List: 127.
Year: 2009;
Probable: 104;
Reasonably Possible: 9;
Watch List: 157.
Source: GAO analysis of PBGC data.
[End of figure]
Providing Financial Assistance to Plans:
PBGC provides insolvent multiemployer plans with financial assistance
in the form of loans to provide beneficiaries with the PBGC-
guaranteed benefit and for reasonable administrative expenses. PBGC
considers a plan insolvent if it does not have enough assets to pay
the PBGC guaranteed benefits for a full plan year.[Footnote 21] An
insolvent plan can obtain the loan by filing a claim with PBGC's
multiemployer insurance program. PBGC can set the conditions under
which it provides plans with this financial assistance. For example,
PBGC can require that:
* a loan be repaid if the recipient plan's financial condition
improves,
* a loan be collateralized by employer contributions, withdrawal
liability payments, and other plan assets, and:
* PBGC be given broad audit authority over the plan.
In addition, PBGC must require payment of benefits at the guaranteed
benefit level.
PBGC provides financial assistance to plans that can no longer make
benefit payments. Once begun, these loans generally continue year
after year until the plan no longer needs assistance or has paid all
promised benefits at the guaranteed level. Although called "loans" in
statute, these funds are provided to plans that have a declining asset
base, making them unlikely to be repaid. To date, only 1 of the 62
plans that received PBGC financial assistance between 1981 and 2009
has ever repaid its loan.
While the number of plans receiving financial assistance has risen
steadily since 1981, the amount paid has peaked twice in the past
decade. In fiscal year 2009, PBGC paid $85.6 million in financial
assistance to 43 insolvent plans. (See figure 9.)
Figure 9: Multiemployer Plans Receiving PBGC's Financial Assistance
and Amounts Received, 1981 through 2009:
[Refer to PDF for image: combined vertical bar and line graph]
Year: 1981;
Total amount of financial assistance: $311,000;
Plans: 1.
Year: 1982;
Total amount of financial assistance: $1.0 million;
Plans: 1.
Year: 1983;
Total amount of financial assistance: $6.2 million;
Plans: 2.
Year: 1984;
Total amount of financial assistance: $5.8 million;
Plans: 2.
Year: 1985;
Total amount of financial assistance: $1.3 million;
Plans: 3.
Year: 1986;
Total amount of financial assistance: $2.2 million;
Plans: 5.
Year: 1987;
Total amount of financial assistance: $1.6 million;
Plans: 6.
Year: 1988;
Total amount of financial assistance: $1.5 million;
Plans: 3.
Year: 1989;
Total amount of financial assistance: $1.3 million;
Plans: 3.
Year: 1990;
Total amount of financial assistance: $1.0 million;
Plans: 3.
Year: 1991;
Total amount of financial assistance: $2.0 million;
Plans: 5.
Year: 1992;
Total amount of financial assistance: $4.0 million;
Plans: 6.
Year: 1993;
Total amount of financial assistance: $4.0 million;
Plans: 6.
Year: 1994;
Total amount of financial assistance: $3.9 million;
Plans: 8.
Year: 1995;
Total amount of financial assistance: $4.3 million;
Plans: 9.
Year: 1996;
Total amount of financial assistance: $4.0 million;
Plans: 12.
Year: 1997;
Total amount of financial assistance: $4.5 million;
Plans: 14.
Year: 1998;
Total amount of financial assistance: $5.4 million;
Plans: 18.
Year: 1999;
Total amount of financial assistance: $19.2 million;
Plans: 21.
Year: 2000;
Total amount of financial assistance: $91.0 million;
Plans: 21.
Year: 2001;
Total amount of financial assistance: $4.5 million;
Plans: 22.
Year: 2002;
Total amount of financial assistance: $4.9 million;
Plans: 23.
Year: 2003;
Total amount of financial assistance: $5.0 million;
Plans: 24.
Year: 2004;
Total amount of financial assistance: $10.1 million;
Plans: 27.
Year: 2005;
Total amount of financial assistance: $13.8 million;
Plans: 29.
Year: 2006;
Plans:
Total amount of financial assistance: $70.1 million;
Plans: 33.
Year: 2007;
Total amount of financial assistance: $71.9 million;
Plans: 36.
Year: 2008;
Total amount of financial assistance: $84.6 million;
Plans: 42.
Year: 2009;
Total amount of financial assistance: $85.6 million;
Plans: 43.
Source: PBGC annual Pension Insurance Data Books.
[End of figure]
Projecting Future Claims to PBGC:
Since 1998, PBGC has assessed the long-term risk to the single-
employer insurance program using its Pension Insurance Modeling System
(PIMS), a stochastic simulation model designed to quantify the amount
of risk facing the programs. According to PBGC, the model helps PBGC
assess its financial vulnerability from future events that may be
significantly different from past events.
Over time PBGC realized that a separate multiemployer plan model was
needed to account for the unique factors that make up multiemployer
plans, such as the role and number of unions and the role of
negotiations in developing collective bargaining agreements. Following
the enactment of PPA in 2006, PBGC developed a specific multiemployer
PIMS model (ME-PIMS) that used data from a stratified sample of 132
plans that included the top 20 in terms of total underfunding. For
these selected plans, PBGC uses data from the Form 5500 Schedule MB
(and formerly Schedule B) and other sources to look at benefit levels,
how benefits were accrued, and how fast they accrued. PBGC then
estimated compensation levels and funding targets. According to PBGC
officials, the model is weighted toward the bigger plans because that
is where most of PBGC's risks lie. The model can project up to 20
years in the future, but the typical simulation is no longer than 10
years. As the projection period is extended, the simulation becomes
less reliable.
ME-PIMS takes into account the different funding rules, nature of
exposure, and possible future outcomes of multiemployer plans. The
model anticipates that individual plans have various probabilities of
positive and negative experiences, and that these probabilities can
change significantly over time. Using the ME-PIMS model, PBGC projects
interest rates, stock returns, and related variables; asset returns;
plan demographics; plan size; plan benefit level and employer
contribution increases; and a plan's probability of mass withdrawal.
PBGC stresses that ME-PIMS is not a predictive model but instead
simulates the flow of claims that could develop under hundreds of
combinations of economic parameters and extrapolations of plans'
respective historical patterns. ME-PIMS cannot model for the financial
condition of individual employers or industries in part because, until
recently, PBGC has not had access to information at the contributing
employer level. PBGC uses ME-PIMS to report the agency's liabilities
and exposure to losses under the multiemployer program in its annual
reports. According to PBGC's 2009 annual report, ME-PIMS showed the
median amount of claims over the next 10 years to be about $5.5
billion and a median net position outcome of $2.4 billion.
Data That PBGC Uses Are Outdated:
While PBGC officials told us that they could benefit from having more
current data than are available on the Form 5500, they prefer using
Form 5500 data on multiemployer plans because these older data are the
most comprehensive, the agency's monitoring system is designed for it,
the data are audited, and most private plans are required by law to
file the form on an annual basis. Officials told us that, given the
current Form 5500 reporting schedule, even with the data capture
capabilities of the new EFAST2 system, they cannot make up for the
time lag in plan filing and, as a result, its monitoring suffers.
[Footnote 22] Officials told us that the time lag made it difficult to
detect when a plan was in trouble and what steps could be taken to
avert greater problems. PPA generally requires multiemployer plans to
provide more timely financial information to PBGC. (See table 5.)
Table 5: Multiemployer Plan Information Filed with PBGC:
Notice, report, or filing item: Form 5500 (including Schedules MB and
R) for annual certification by plan actuary;
Time frame: By the last day of the 7th calendar month following the
end of a plan year. Plans may also apply for a one-time filing
extension of up to 2½ months;
Plans required to file: All multiemployer plans.
Notice, report, or filing item: Annual funding notice;
Time frame: 120 days from end of plan-year for large plans. Small
plans with 100 or fewer participants must file either with their
annual report or before the annual report filing deadline;
Plans required to file: All PBGC-insured plans.
Notice, report, or filing item: Notices of critical or endangered
status;
Time frame: 30 days after the date of certification;
Plans required to file: All plans that certified with IRS that they
are in critical or endangered zone status.
Notice, report, or filing item: Plan actuarial valuations;
Time frame: Upon request;
Plans required to file: PBGC asks for but cannot compel plans on its
contingency list to provide.
Notice, report, or filing item: PBGC premium filings;
Time frame: By last day of the 16th full calendar month following end
of the preceding premium payment year (e.g., April 30, 2009, for 2008
calendar-year plans) for plans with fewer than 100 participants. By
15th day of the 10th full calendar month following end of prior plan
year (e.g., October 15, 2008, for 2008 calendar-year plans) for plan
with 100 or more participants;
Plans required to file: All PBGC-insured plans.
Source: GAO analysis of certain reporting requirements for
multiemployer plans under ERISA and the Internal Revenue Code of 1986
(the Code).
[End of table]
In addition to Form 5500 data, PBGC-insured multiemployer plans are
required to submit annual funding notices (AFN) to PBGC. The AFN must
include, among other things, the plans' identifying information and
funded percentage for the plan year, a statement of the market value
of the plan's assets as of the end of the year, a statement of the
number of retired, separated vested, and active participants under the
plan, and whether any plan amendment, or scheduled benefit increase or
reduction has a material effect on plan liabilities. PBGC officials
told us they do not use the AFNs they receive to determine the overall
health of the universe of multiemployer plans, but may look at the
market valuation of assets on the AFN of a specific plan once it has
been identified through Form 5500 data as a potential candidate for
the watch list. PBGC officials also told us they do not use the AFN in
developing data for model simulation, annual reports, or data books.
PBGC also receives annual notices of critical or endangered status
from plans within 30 days of plans certifying their funding zone
status with IRS, as required by PPA. PBGC officials said they compare
the information in the notices--which alert recipients of the plan's
funding zone status and the reasons for it--with the plan's Form 5500
filings to determine whether to place a plan on its contingency list.
Plans on the list are asked to provide their current actuarial
valuations so PBGC can monitor plans going forward. PBGC officials
stated that, while plans are not required to provide this information,
they are typically willing to cooperate with the requests.
PBGC Provides Non-Financial Assistance to Troubled Plans on an Ad Hoc
Basis:
In addition to providing financial assistance, PBGC can assist
troubled plans with technical assistance, facilitate mergers, and
partition the benefits of participants orphaned by employers who filed
for bankruptcy. Generally, it is up to plans to request these kinds of
assistance. Occasionally, PBGC is asked to serve as a facilitator and
work with all the parties to a troubled plan to improve a plan's
financial status. Plan administrators can request PBGC's help to
improve funding status of plans or provide assistance on other issues.
They may contact PBGC's customer service representatives to obtain
assistance on premiums, plan terminations, and general legal questions
related to PBGC programs. PBGC has also assisted in the orderly
shutdown of plans. The plans involved in these actions either merged
with other multiemployer plans or purchased annuities from private-
sector insurers for their beneficiaries. For example, PBGC facilitated
the closeout of seven small multiemployer plans in 2010 that were
receiving or expected to receive future financial assistance payments
from PBGC and identified two additional plans for closeout in the
future. According to PBGC, these small plan closeouts are part of an
ongoing effort to reduce plan administrative costs borne by PBGC's
multiemployer program.
PBGC can also facilitate mergers between two or more multiemployer
plans. According to PBGC officials, PBGC has received notice of 303
mergers since 2000, 5 of which PBGC facilitated by paying $8.5 million
from the multiemployer insurance program to the merged plans. Plans
considering a merger must request approval from PBGC and typically
involve merging a plan with a low funding level with a plan having a
more favorable asset-to-liability ratio. PBGC officials told us that
they carefully consider each merger request to ensure that the merger
creates a stronger plan that will sustain operations indefinitely.
They further noted that PBGC wanted to be sure that plans that
received funds in a facilitated merger did not end up accepting the
money only to become a liability to PBGC in the near future, in effect
causing PBGC to make loans twice to poorly managed plans.
PBGC can also partition the benefits of certain participants from a
financially weak multiemployer plan under certain circumstances.
Partition is a statutory mechanism that permits financially healthy
employers to maintain a plan by carving out the plan liabilities
attributable to participants "orphaned" by employers who filed for
bankruptcy.[Footnote 23] Under ERISA, PBGC has the authority to order
the partition of a plan's orphaned participants either upon its own
motion or upon application by the plan sponsor. Once a plan is
partitioned, PBGC assumes the liability for paying benefits to the
orphaned participants. ERISA specifies four criteria that dictate when
PBGC can utilize its partitioning authority.[Footnote 24] PBGC may
order a partition if:
* the plan experiences a substantial reduction in the amount of
contributions that has resulted or will result from a case or
proceeding under Chapter 11 bankruptcy with respect to an employer;
* the plan is likely to become insolvent;
* contributions will have to be increased significantly in
reorganization to meet the minimum contribution requirement and
prevent insolvency; and:
* partition would significantly reduce the likelihood that the
partitioned plan will become insolvent.
Like all multiemployer plans, the partitioned participants are
subjected to ERISA's multiemployer guaranteed benefit limits.
PBGC may order the partition of a plan after notifying plan sponsors
and participants, whose vested benefits will be affected by the
partition. Since the implementation of MPPAA in 1980, PBGC has
partitioned two plans.[Footnote 25] In the most recent partition in
July 2010, PBGC said it approved the move because, by removing 1,500
orphaned participants from the plan, PBGC was able to delay plan
insolvency for at least 6 additional years and preserve full benefits
for the approximately 3,700 workers and retirees of firms still
contributing to the plan. Without partition, the plan would have
become insolvent sooner and the federal benefit limits would have
applied to all its retirees.
Pension Structures in Other Countries Provide Multiemployer Plans with
Options to Improve Funding:
The private pension systems in the countries we studied--the
Netherlands, Denmark, the United Kingdom, and Canada--support
industrywide, employer-based pension plans that share some common
attributes with U.S. multiemployer plan structure. Each of the
countries is a member of the Organisation of Economic Co-operation and
Development (OECD) and supports a three-pillar pension system that
consists of a basic state pension (e.g., similar to Social Security),
private employer-based pensions (e.g., single-or multiemployer), and
individual retirement savings (e.g., independent retirement accounts).
While each of the countries we studied had a pension system with some
unique characteristics, pension officials in some countries told us
they faced common short-term and long-term challenges in securing
pension benefits for participants, including plan underfunding and an
aging workforce.[Footnote 26]
Multiemployer Plan Structures:
The scope and coverage of the studied countries' multiemployer pension
structures varied depending on a country's circumstances and plan
design. While none of the countries had as much invested in its
private pension systems as the United States, pension assets in the
Netherlands exceeded the country's gross domestic product in 2010,
according to OECD. Moreover, some countries with older workforces had
a higher density of active trade union workers to help pay for the
pensioner benefits. (See table 6.)
Table 6: Comparison of Select Economic and Demographic Characteristics
in the Studied Countries and the United States (2008):
Gross domestic product:
The Netherlands: $675.1 billion;
Denmark: $202.2 billion;
United Kingdom: $2.2 trillion;
Canada: $1.3 trillion;
United States: $14.4 trillion.
GDP per capita:
The Netherlands: $41,063;
Denmark: $36,808;
United Kingdom: $35,631;
Canada: $38,975;
United States: $47,186.
Total population:
The Netherlands: 16.4 million;
Denmark: 5.5 million;
United Kingdom: 61.4 million;
Canada: 33.1 million;
United States: 304.2 million.
Size of labor force (ages 25-64):
The Netherlands: 7.2 million;
Denmark: 2.4 million;
United Kingdom: 25.6 million;
Canada: 14.9 million;
United States: 126.0 million.
Trade union density Includes public:
The Netherlands: 18.9%;
Denmark: 67.6%;
United Kingdom: 27.1%;
Canada: 27.1%;
United States: 11.9%.
Effective retirement age (men/women)[A]:
The Netherlands: 62/61;
Denmark: 64/61;
United Kingdom: 63/62;
Canada: 63/62;
United States: 65/64.
Population over age 65:
The Netherlands: 14.9%;
Denmark: 15.9%;
United Kingdom: 16.2%;
Canada: 13.6%;
United States: 12.7%.
Population over age 65 (as % of labor force);
The Netherlands: 27.4%;
Denmark: 25.3%;
United Kingdom: 26.8%;
Canada: 21.1%;
United States: 20.8%.
Average overall life expectancy at age 65;
The Netherlands: 83.4;
Denmark: 82.7;
United Kingdom: 83.3;
Canada: 84.5;
United States: 83.6.
Source: OECD.
[A] Data on effective retirement age, which is the real age that
people retire, are reported from 2007.
[End of table]
Multiemployer plan structures in these countries did differ from those
in the United States in several important ways. (See table 7.) First,
like the United States, the United Kingdom provides some form of
government-sponsored pension insurance, but while the level of
compensation guaranteed is upwards of 90 percent, payouts only occur
when the last remaining employer becomes insolvent. Second, while the
United Kingdom and the Canadian province of Quebec assess withdrawal
liability to employers leaving a multiemployer plan in ways similar to
the United States, officials in the Netherlands, Denmark, and the
Canadian province of Ontario did not and several experts told us that
such assessments would discourage employers from remaining in
multiemployer plans. In the Netherlands and Denmark, collective
bargaining agreements apply to both union and nonunion workers in an
industry.
Table 7: Comparison of Multiemployer Plan Structures in the Studied
Countries and the United States:
Plan type:
The Netherlands: Collectively bargained, defined benefit plans;
Denmark: Collectively bargained, defined contribution plans;
United Kingdom: Collectively bargained, defined benefit plans;
Canada: Collectively bargained, defined benefit plans;
United States: Collectively bargained, defined benefit plans.
Affinity groups:
The Netherlands: Industry;
Denmark: Profession or trade group;
United Kingdom: Labor union;
Canada: Labor union;
United States: Labor union.
Application of collective bargaining agreement:
The Netherlands: Applies to union and nonunion employees in an
industry;
Denmark: Applies to union and nonunion employees in a profession or
trade group;
United Kingdom: Applies to union employees;
Canada: Applies to union employees;
United States: Applies to union employees.
Plan governance:
The Netherlands: Boards of trustees comprising equal representation of
employers and employees;
Denmark: Boards of trustees comprising equal representation of
employers and employees;
United Kingdom: Boards of trustees comprising representation of
employers and employees;
Canada: Boards of trustees typically comprising representation of
employers and employees;
some plans are union run;
United States: Boards of trustees comprising equal representation of
employers and employees.
Pension guarantees for employees:
The Netherlands: None;
Denmark: Pension contributions are guaranteed against any loss that
would result in the value of the benefits falling below the value of
the contribution;
United Kingdom: The Pension Protection Fund generally pays 100% of
compensation to retirees and up to 90% of compensation to participants
who have not yet reached retirement age;
Canada: None;
United States: PBGC provides a guaranteed benefit of $12,870 per year
for 30 years of service.
Withdrawal liability for employers:
The Netherlands: None;
Denmark: None;
United Kingdom: Withdrawing employers must pay proportionate share of
plan's unfunded liabilities;
Canada: None imposed on plans under federal jurisdiction;
in province of Quebec, withdrawing employers must pay proportionate
share of plan's unfunded liabilities. In province of Ontario,
employers may withdraw only with consent of the union(s);
United States: Withdrawing employers must pay allocable share of
plan's unfunded vested benefits.
Source: GAO analysis.
[End of table]
But, as in the United States, the recent economic downturn had a
negative impact on defined benefit plans, including multiemployer
plans, in three of the four countries we studied. The four countries
experienced double-digit declines in their pension investment returns
in 2008, according to OECD data,[Footnote 27] and all but one
experienced steep declines in the funded status of their multiemployer
plans. For example, in the Netherlands, the aggregate funded status
dropped below 100 percent for the first time, from 149 percent in 2007
to 89 percent in 2009.[Footnote 28] Similarly, the United Kingdom
reported that funded status for all DB plans fell from 102 percent in
2008 to 80 percent in 2009. Unlike the others, Denmark's plans
survived the crisis with little decline in overall funding, which
several plan officials attributed to changes that the pension
regulator made prior to the crisis, such as moving from actuarial to
market valuations of plan assets and liabilities. According to
officials that we spoke with, the Netherlands and Canada also
implemented funding relief measures to help plans address their
funding deficiencies, such as extending the length of plan recovery
periods. Officials at the Dutch Central Bank told us they hired
additional staff to handle the workload of increasing numbers of
recovery plans.
Other Countries' Plans Are Subject to a Range of Funding, Reporting,
and Regulatory Requirements:
Minimum Funding Requirements:
Three of the four countries that we studied reported they had recently
implemented some form of minimum funding requirements for
multiemployer plans, but the levels varied by country. Officials we
spoke with told us that plans that fell below these funding thresholds
were required to submit recovery plans to bring the funding levels
back above the minimum level. Canada, Denmark, and the Netherlands
required plans to be funded at a level of 100 percent or above. The
United Kingdom recently suspended its minimum funding requirements in
favor of plan-specific funding levels, and officials told us
regulators still sought to maintain an aggregate funding level of 110
percent. Also, plans in the Netherlands are required to build funding
reserves, or buffers, commensurate to the risk associated with their
investment policies. Officials at the Dutch Central Bank told us plans
must develop buffers for interest rate risk, private equity exposure,
and hedge fund exposure.
Reporting Requirements:
While the reporting requirements in these countries are not so
different from those in the United States, multiemployer plans in some
countries submit more frequent plan funding and actuarial reports to
regulators. For example, in the Netherlands and Denmark, all plans are
required to submit data on a quarterly and annual basis and plans in
recovery status had, in some countries, additional reporting
requirements. (See table 8.)
Table 8: Reporting Requirements for Multiemployer Plans in the Studied
Countries:
General reporting requirements for all plans:
The Netherlands: Annual financial reports; Quarterly financial reports;
A 15-year continuity analysis every 3 years;
Denmark: Annual financial and audit reports; Quarterly financial
reports, solvency assessments, and register of assets report;
United Kingdom: Actuarial valuation reports every 3 years;
Canada[A]: Actuarial valuation reports every 3 years.
Additional requirements for plans in recovery status:
The Netherlands: Recovery plan; Annual progress report on recovery
plan;
Denmark: Recovery plan; Daily market valuation reports; Monthly
progress reports on recovery plan;
United Kingdom: Recovery plan;
Canada[A]: Actuarial valuations at least every year.
Source: GAO analysis.
[A] This column summarizes only those multiemployer plans under
federal jurisdiction.
[End of table]
Some countries require plans to submit plan data electronically, which
officials said allowed for real-time monitoring and transparency. For
example, Danish plans are required to report market valuations of
their assets and liabilities, which regulators said allowed them to
identify plans at risk through market surveillance with minimal up-to-
date information. The regulators told us they can take action as soon
as a plan is in trouble and proactively notify plans of impending
financial problems. In the United Kingdom, plan trustees are required
to update their financial information electronically and can do so in
real-time on the regulator's information system. In the Netherlands,
the Dutch Central Bank updates the aggregate funded status of plans on
a quarterly basis and makes this information available on its public
Web site.
Monitoring:
These countries all monitored multiemployer plans for compliance and
to determine plan funding and solvency risk. While the Netherlands and
Denmark monitored the solvency risks of all plans, officials in both
countries told us they also plan to develop a risk-based monitoring
strategy, such as that used in the United Kingdom and Canada, which
would target monitoring to plans that represented the greatest risk.
Officials in these countries also had varying degrees of authority to
intervene in the operations of multiemployer plans. (See table 9.)
Table 9: Monitoring of Multiemployer Plans in the Studied Countries:
Regulatory authorities:
The Netherlands: Dutch Central Bank; The Netherlands Authority for the
Financial Markets;
Denmark: Financial Supervisory Authority;
United Kingdom: Pensions Regulator; Pension Protection Fund;
Department of Works and Pensions;
Canada[A]: Office of the Superintendent of Financial Institutions;
(federal).
Monitoring activities:
The Netherlands: Risk-based monitoring approach that includes review
of all plans' rules to see if they comply with legislation;
Denmark: Risk-based monitoring approach that includes review of all
plans and conducts formal periodic on-site audits to verify
information submitted by all plans. Employs a traffic light system
that determines the risks associated with each plan. Conducts stress
tests for specific market risks that have certain triggers--a 12%
decline in equities, 0.7% interest rate change; 8% decline in real
estate values--that alert it to plans that need to take further action.
Tracks whether employers made their required contributions to the
plans and assesses the quality of the board of trustees;
United Kingdom: Risk-based, plan-specific monitoring approach that
focuses on education and enablement, with enforcement where
appropriate. Reviews annual report and meets with plan sponsor to
discuss the information provided. Assigns permanent case managers to
the largest plans;
Canada[A]: Risk-based supervisory framework that identifies plans at
high risk. Reviews plans for key plan risks, including investment
portfolio, actuarial assumptions, plan administration, and the
likelihood of continued sponsor funding. Conducts on-site visits to a
number of plans usually in response to a complaint.
Intervention authorities:
The Netherlands: Can prescribe actions that plans must take and demand
plan disclosures to participants. Can appoint individuals to a plan's
board. Can suspend board. Can require plans to maintain financial
reserves commensurate with their investment risk;
Denmark: Can close down company. Can put company on administration.
Can remove board members;
United Kingdom: Can compel contributions, remove plan trustees,
require a recovery plan, terminate a plan, and force debt onto an
employer;
Canada[A]: Can force disclosure of information from plans if solvency
ratio falls below certain thresholds; Can terminate plans; Must
approve any plan terminations, reductions in accrued benefits,
distributions of surplus, and transfers of assets between plans.
Source: GAO analysis.
[A] This column summarizes only those multiemployer plans under
federal jurisdiction.
[End of table]
Plans in Other Countries Have Options to Improve Funded Status:
Multiemployer plans in the countries we studied have a number of
options to improve and maintain their funded status, and a specific
length of time allotted to recovery. (See table 10.) Some of the
countries allow plans to increase contributions and reduce the rate of
benefit accruals. In Denmark, regulators told us that plans that fail
stress tests must adjust investments to resolve funding deficiencies
within 6 months. The Netherlands, United Kingdom, and Canada have
longer recovery periods and the Netherlands and Canada allow plans to
reduce accrued benefits, including the benefits of retirees, although
this step is seen as a measure of last resort.
Table 10: Recovery Periods and Tools Available to Improve Plan Funded
Status in the Studied Countries:
Length of recovery period;
The Netherlands: Plans must return to minimum funding level (105%) in
5 years and 125% funded in 15 years;
Denmark: Plans expected to resolve funding deficit within 6 months;
United Kingdom: There is no formula for recovery;
it is a plan-specific approach; Recovery period varies by plan,
generally within 10 years;
Canada[A]: Plans must resolve solvency deficits within 5 years.
Tools available to assist recovery;
The Netherlands: Increase contributions, reduce or suspend indexation,
reduce benefit accrual rate and accrued benefits;
Denmark: Increase contributions and adjust plan's risk exposure;
United Kingdom: Increase contributions and reduce benefit accrual rate;
Canada[A]: Increase contributions, reduce benefit accrual rate and
accrued benefits.
Source: GAO analysis.
[A] This column summarizes only those multiemployer plans under
federal jurisdiction.
[End of table]
Plans may also seek out mergers to reduce administrative costs and
indirectly help preserve their funded status. Most of the countries we
studied allow plan mergers, but some officials told us that they were
infrequent. Canadian officials told us mergers of multiemployer plans
would be difficult because plan membership is based on profession and
multiemployer plans do not want to lose control of plan policy and
governance, even if the plan would be financially better off after a
merger. In Canada, when full mergers do occur, they said, they tend to
result from a merger of unions. In the Netherlands, mergers occur, but
the industry identification of multiemployer plans limits merger
activity to plans in the same industry. In Denmark, single-employer
plans can choose to merge with multiemployer plans even if the
participants are not affiliated with the plan's employer organization
to take advantage of lower administrative fees. In the United Kingdom,
there is a large trust that combines many single-employer and several
multiemployer plans, benefiting all participating plans with lower
costs and better investment opportunities.
Changes to U.S. Multiemployer Plan Framework Could Help to Protect
Pension Benefits:
Lack of Timely, Complete, and Accurate Information Hinders Ongoing
Assessments of Multiemployer Plans:
PPA requires multiemployer plans to file numerous notices with EBSA,
IRS, and PBGC regarding their funded status. Our review of filings
received by the three agencies found that plans are not all complying
with these requirements. Moreover, we found that plans that did comply
filed notices that varied in form and content. While current reporting
requirements, if followed, would provide federal agencies with the
data needed to monitor plan health, the current multiemployer plan
framework requires plans to submit these data in a fractured format to
three different agencies that do not share the information they
receive. As a result, federal officials told us that their agencies
are limited in their ability to assess the current and recent health
of multiemployer plans.
Plans are required to certify their funding zone status each year with
IRS, but they are not required to include their current funded
percentage in this report, which would be helpful to officials
determining the gravity of plans' funding deficiencies. Also, IRS
officials told us that some plans provided a brief letter identifying
the zone status, while other plan's submitted lengthy reports that
detailed the assumptions and calculations used to determine the plan's
zone status. IRS officials told us that, while some plans provided
their funded percentage in the certification notice, the agency did
not track this information nor share the list of certifying plans with
any other federal agency.
Within 30 days of certifying their funding zone status with IRS, PPA
requires plans in critical or endangered status to submit a notice of
their status to PBGC and EBSA, among others.[Footnote 29] In our
review of data from 2008 and 2009 obtained from the three agencies, we
found large discrepancies in the number of plans certifying with IRS
and the number of plans submitting notices of critical or endangered
status to PBGC and EBSA. For example, IRS data show that 461 of the
1,331 plans certified in critical status in 2009, but only 132 plans
provided notices of their certified status to EBSA. Similarly, some
plans that elected to freeze their current funding status did not file
notices of this election with PBGC and EBSA, as required. (See table
11.)
Table 11: Comparison of Multiemployer Plan Status Information Received
by Federal Agencies, 2008 and 2009:
Number of plans certifying zone status with IRS;
2008: 1,347;
2009: 1,331.
Number of plans indicating critical status:
Agency notified: IRS;
2008: 138;
2009: 461.
Agency notified: PBGC;
2008: 111;
2009: 296[A].
Agency notified: EBSA;
2008: 100[B];
2009: 132[C].
Number of plans indicating endangered status:
IRS;
2008: 175;
2009: 444.
PBGC;
2008: 155;
2009: 317[D].
EBSA;
2008: 128[E];
2009: 83[F].
Number of plans indicating their election to freeze funding status in
2008 or 2009:
IRS;
2009: 745.
PBGC;
2009: 408.
EBSA;
2009: 309[G].
Source: GAO analysis of EBSA, IRS, and PBGC data.
Note: EBSA data analyzed by GAO was taken from the EBSA Web site on
August 19, 2010. Also, the endangered status category includes
Endangered Status Notices and Seriously Endangered Status Notices.
[A] PBGC received 304 Critical Status Notices for 2009, which included
2 duplicate notices and 6 other notices.
[B] EBSA posted 102 Critical Status Notices for 2008, which included 2
duplicate notices.
[C] EBSA posted 140 Critical Status Notices for 2009, which included 7
duplicate notices and 1 other notice.
[D] PBGC received 323 Endangered Status Notices for 2009, which
included 6 duplicate notices.
[E] EBSA posted 133 Endangered Status Notices for 2008, which included
4 duplicate notices and 1 other notice.
[F] EBSA posted 102 Endangered Status Notices for 2009, which included
8 duplicate notices and 11 other notices.
[G] EBSA posted 323 WRERA Notices for 2009, which included 14
duplicate notices.
[End of table]
In addition, for plan years beginning after December 31, 2007, all
defined benefit plans are required to provide an additional notice--an
annual funding notice--to PBGC, plan participants and beneficiaries,
labor organizations, and, in the case of multiemployer plans, also to
each participating employer. Like the notice of critical or endangered
status, this notice must be provided within 120 days following the end
of each plan year. EBSA can assess a civil penalty of $110 per day per
participant against the plan administrator for failure to submit the
plan's annual funding notice to participants and beneficiaries. Among
other things, the AFN provides recent information on a plan's funded
status, actuarial valuations of assets and liabilities, market
valuations of assets, and a plan's asset allocation. According to PBGC
officials, only half of multiemployer plans filed these notices in the
2008 plan year and many plans had failed to file notices for the 2009
plan year within the 120-day statutory timeline. PBGC officials could
not explain why plans failed to file the notices with PBGC. But while
EBSA can assess a civil penalty for failure to submit an annual
funding notice, PBGC officials did not share any information on plans'
annual funding notices with EBSA, making it unlikely that EBSA would
have the information necessary to assess such a penalty.
Industry experts told us that the reporting requirements for
multiemployer plans are confusing and duplicative, and that further
consolidation of notices is needed. They noted that plan reporting
requirements have increased significantly and become burdensome for
plans to administer with each notice having a different recipient and
due date. Even if participant notices were more clearly written, one
expert said, there is nothing that an individual can do to address the
critical or endangered status because benefits are collectively
bargained. Moreover, participants do not need multiple notices each
time an event occurs to change the long-term projections of their
plan's standing.
Current Multiemployer Framework Faces Challenges in Assisting Plans in
Need:
The statutory and regulatory framework guiding multiemployer plans is
not structured to assist troubled plans, limits the actions agencies
can take, and promotes little interaction among federal agencies that
bear joint responsibility for monitoring and assisting these plans and
their participants. We found that EBSA, IRS, and PBGC do not work
together to share information received from plans and cannot determine
whether all multiemployer plans are meeting applicable legal
requirements.
First, PBGC's involvement with multiemployer plans is mostly limited
to the plans on its contingency list that are already insolvent and
receiving financial assistance or pose a potential risk for future
claims against PBGC. PBGC has authority to interact with plans on an
ongoing basis, but has done so infrequently to date. For example, at a
recent testimony before Congress, an EBSA official stated that one
large multiemployer plan, the Central States Southeast and Southwest
Pension Fund, did not meet the criteria for partition, despite having
$2.1 billion in unfunded liabilities in 2009 and reportedly paying
over 40 cents on every dollar to beneficiaries whose employers left
the plan without covering their obligations. In fact, PBGC has only
used its partition authority twice in its history and facilitated five
plan mergers since 2000. Experts told us that plans could benefit from
a greater level of PBGC interaction and a more flexible application of
the tools available to PBGC. (See table 12.)[Footnote 30]
Table 12: Experts' Suggestions to Improve PBGC's Assistance to Plans:
Issue: Level of PBGC involvement;
Experts' description of the problem: While the multiemployer structure
was designed to limit PBGC's exposure and let the employers serve as
principal guarantors, PBGC is typically viewed as the guarantor of
last resort for multiemployer plans. In the current system, PBGC
provides little assistance to multiemployer plans prior to insolvency
and focuses on limiting the government's exposure instead of ensuring
that participants receive the benefits they deserve. PBGC waits too
long to intervene and provide assistance to troubled plans. Plans on
the path to insolvency can only watch and wait until PBGC finally gets
involved;
Options suggested by experts: Through more aggressive plan monitoring,
PBGC could intervene as soon as a plan is in trouble, rather than
waiting for a plan to become insolvent. PBGC could step in before
plans reach the point of having to assess mass withdrawal liability,
at which point all employers are committed to simultaneously
withdrawing from a plan. PBGC could benefit from a continuous dialogue
with pension plans--a "case worker" model in which PBGC staff provide
actuarial or technical assistance to plans on an ongoing basis instead
of waiting until the plans are unsalvageable.
Issue: Plan partitioning;
Experts' description of the problem: In some mature plans, benefit
payments to orphaned participants make up the majority of plan
liabilities. PBGC has the authority to partition plan liabilities, but
it is limited to orphaned pensioners coming from bankrupt companies
and PBGC has been hesitant to use it;
Options suggested by experts: PBGC's partition authority could be
expanded to preserve the healthy part of a plan. Partition should
apply to situations other than bankruptcy, but the agency should
exercise caution and use partitioning as a tool of last resort. A high
qualification threshold needs to be set for such intervention to
ensure it was reserved for plans in the worst condition. Expansion of
this authority would benefit about a dozen plans, most of them in the
mining and trucking industries. Giving PBGC the ability to take over
the sick part of a troubled plan so the healthy part could remain
viable would benefit taxpayers in the long term because, if the plan
became insolvent, PBGC would be responsible for paying benefits to all
beneficiaries and not just the orphaned participants. Partition should
be coupled with a requirement that the healthy part of a partitioned
plan "de-risk" its investment strategies to prevent a repeat of
financial trouble.
Issue: Plan mergers;
Experts' description of the problem: The current economic climate has
made mergers more difficult because all plans are on unsure footing
caused by the market collapse. Under the standard fiduciary rules,
trustees of healthy plans may be less willing to merge with unhealthy
plans for fear that they could be challenged for breach of fiduciary
trust for assuming the liabilities of the weaker plan;
Options suggested by experts: PBGC could be more active in
facilitating mergers between healthy plans and unhealthy plans to
maintain solvency and protect the agency from payouts. PBGC could
alleviate the healthier plans' concerns by stepping in to provide
incentives and financial assistance to allow these plans to make wise
fiduciary decisions and support the smaller plans. PBGC could seek
opportunities to promote mergers among different affinity groups
because multiemployer plans are willing to consider branching out to
find ways to preserve the plan and secure their participants'
retirement future. PBGC would need a funding stream in addition to
premiums to be able to support merger activity.
Source: GAO analysis of information collected from pension experts and
plan practitioners.
[End of table]
Second, the Employee Plans Compliance Unit (EPCU) at IRS, which is
responsible for verifying that all multiemployer plans file annual
actuarial certifications of funded status and confirming that the
certifications are filed in a complete and timely manner,[Footnote 31]
does not have the capacity to identify plans that fail to file or
verify that all plans submitting certifications are indeed
multiemployer plans. IRS officials told us they could not determine
whether all multiemployer plans filed their actuarial certifications
because they did not know the universe of multiemployer plans.
Specifically, they said they did not have a complete list of all
multiemployer plans in part because the data they use is taken from
the plans' Form 5500 filings, which included plans that had identified
themselves as multiemployer plans but, judging from the plan name,
were not (e.g., dental offices or 401(k) plans). Officials told us
they hoped to get a more accurate data set in the future, but it would
take several years before this would happen.
EPCU officials told us plan filings vary widely in scope and length.
For example, some plans send a brief memo indicating their funding
zone status; others send a long report detailing each of the actuarial
assumptions used to determine the zone status. IRS officials told us
some plans provided funded status as a percentage while others
reported only zone status. IRS currently collects paper copies of the
annual certifications. Officials said the annual certification notices
required the same kind of information as the WRERA notices, which can
be filled out and filed electronically on the IRS Web site. In March
2008, IRS proposed guidance to plans on the preferred format or
content for the annual certification notices, but this guidance has
not been finalized.
EPCU officials told us that they did not interact with either EBSA or
PBGC with regard to the filing of certification notices. They said in
the past they sent a few short summaries about the funding zone status
certifications to IRS headquarters, but did not interact directly with
EBSA or PBGC officials regarding the annual certifications. Moreover,
IRS did not make certification data available to either EBSA or PBGC
so they could reconcile the critical or endangered status notices with
the number of certifications to determine if plans were complying with
the law. EPCU officials said it would be beneficial for them to have
direct contact with other federal agencies to share information on
multiemployer plans.
Third, EBSA, which is responsible for assessing civil penalties for
reporting violations against plans that do not file annual actuarial
certifications of funded zone status, does not receive or actively
seek out information from PBGC and IRS to enforce this penalty. PPA
also requires plans that certify their funding zone status as either
critical or endangered to send notices of endangered and critical
funding status to EBSA, among others, but, unlike the annual
certification of a plan's status, there are no penalties associated
with the failure to furnish endangered or critical status notices.
EBSA's Office of Participant Assistance scans the notices it receives
and posts them on its Web site. Officials from EBSA's Office of
Regulations and Interpretation and the Office of Enforcement said they
make no attempt to reconcile the status notices with the
certifications filed with IRS. They said they had no interaction with
IRS officials on these matters and noted some utility if IRS were to
share certification data with EBSA.[Footnote 32]
Elements of Multiemployer Framework May Limit Protection of Benefits:
The pension experts and plan practitioners that we interviewed
identified several elements of the multiemployer framework that were
restrictive and had the potential to affect plans' ability to keep the
pension promise to beneficiaries. These experts noted that each of
these elements had unintended consequences made evident by the recent
economic downturn. (See table 13.)[Footnote 33]
Table 13: Experts' Suggestions to Improve the Multiemployer Framework:
Issue: Modifying accrued benefits;
Experts' description of the problem: Under current law, trustees
cannot adjust retirement age or accrued benefits, even if the plan is
in critical status. If plans in endangered or critical status could
make such adjustments, they would have more tools at their disposal to
close their funding gaps. Mature plans with high retiree liability
cannot make any further benefit cuts. Much of a plan's liabilities lie
in accrued benefits, plans need to be able to cut both future and
accrued benefits, as well as increase contributions. Most plans with a
small active participant base have no tools to address asset losses.
They need a way to reduce accrued benefits to retirees. As it now
stands, the inability for multiemployer plans to adjust accrued
benefits creates intergenerational inequity and leaves plans with few
options to address funding deficiencies;
Options suggested by experts: Benefits need to be aligned with plan
funding so incremental benefit cuts can be made, if necessary, to
preserve plan assets longer. Plans need to strike a compromise between
active workers and retired beneficiaries to spread the risk. PBGC may
need to look into whether it can reduce benefits for retirees to help
plans spread the risk evenly among all participants--active and
inactive. Decreasing accrued benefits would require legislative
changes.
Issue: Withdrawal liability;
Experts' description of the problem: Withdrawal liability discourages
employers from leaving a plan; it also discourages new employers from
joining a plan, especially one with unfunded liabilities, because they
assume partial responsibility for the unfunded liability of all
employers in the plan. New employers are afraid to join a
multiemployer plan due to the burden of the withdrawal liability that
would befall them after they joined. Without new participants,
however, there will be no growth in multiemployer plans;
Options suggested by experts: A plan's current unfunded liability
should stay with the plan's current employers. A withdrawing employer
should pay his share of the unfunded liability when withdrawing so as
to not unfairly pass it onto employers who were not in the plan when
those debts were incurred.
Issue: Endangered status designation;
Experts' description of the problem: Plans in endangered status have
insufficient tools to address their funding deficiencies. The
endangered status designation had been a mistake in that it set plans
up for failure. Plans in endangered status find themselves in a
"purgatory" forced to face many challenges with limited tools. Some
plans must wait and watch as their funding status deteriorates to the
critical level, at which time they can choose from myriad tools to
address their funding deficiency;
Options suggested by experts: There is no need for the endangered
status and it would be best if plans were considered to be either safe
or critical. Most plans would prefer the safety valves built into
critical status. Some plans are certifying in critical status--
bypassing endangered status--to take advantage of the additional
tools. Eliminating the endangered status would require legislative
changes.
Issue: PBGC guarantee level;
Experts' description of the problem: The PBGC guaranty level is low
and many participants would lose a considerable amount in unguaranteed
benefits if their plans were to become insolvent. Trustees are aware
that the best way to insure benefits is to avoid insolvency, thereby
reducing the liabilities for PBGC. The significant increase in
premiums since 2005 did not coincide with a comparable rise in the
benefit guaranty;
Options suggested by experts: Raising the guarantee would give
participants more insurance against underfunding because PBGC's
guaranty would cover more of their benefits if their plan became
insolvent. The benefit guarantee needs to be indexed to inflation.
Establishing a benefits-related premium so plans that provided
participants with larger benefits would pay higher premiums.
Establishing a risk-based premium structure would be a good idea in
the future if it were applied to plans with only active employers and
workers. However, under current conditions, such a structure is not
feasible as it would require underfunded plans to pay additional
premiums at a time when they could least afford it. Increasing the
PBGC guarantee level indexing it to inflation, and adding a risk-based
guarantee would require legislative changes.
Source: GAO analysis of information collected from pension experts and
plan practitioners.
[End of table]
Conclusions:
For decades, multiemployer plans have secured and provided an
uninterrupted stream of pension benefits to millions of U.S. workers
and retirees. Through collective bargaining, employers and employees
worked to maintain their pension benefits despite changing economic
climates and financial challenges. As a result, the vast majority of
plans have remained solvent and relatively few plans have made claims
for financial assistance from PBGC's insurance program since its
inception in 1980.
However, the recent economic downturn revealed that multiemployer
plans, like most pension plans, were vulnerable to sudden economic
changes and had few options to respond to the funding challenges
highlighted by these economic conditions. The result was a steep
decline in the funded status of most multiemployer plans--now below 70
percent in aggregate. In the short term, the majority of plans will
have to make difficult decisions to improve their funding and protect
against future declines. The multiemployer plan universe represents
diverse groups of employers, participants and industries some of which
may be better prepared to meet their future funding obligations. While
some plans may be able to improve their funded status as the economy
improves, plans in the worst condition may find that the current
options of increasing employer contributions or reducing benefit
accruals are insufficient to overcome the funding and demographic
challenges they face. For these plans, the combination of the effects
of the economic downturn, the decline in collective bargaining, the
withdrawal of contributing employers, and an aging workforce has
likely accelerated their path to insolvency. Without additional
options to address their underfunding, or new employers joining the
plans to replenish the contributions, many plans may find themselves
at greater risk of insolvency and more likely to need PBGC financial
assistance sooner rather than later. Such a situation would put
additional stress on PBGC's insurance program that, already in
deficit, it can ill afford.
The current statutory and regulatory framework for multiemployer plans
is not structured to assist troubled plans on an ongoing basis. PBGC,
Labor and IRS are all required by law to collect various funding data
from plans, and these data are often duplicative. Moreover, these
agencies are not making full use of these data to mitigate the risks
to participants or to enforce plan discipline. While PBGC monitors
plans on an ongoing basis, it focuses on the short-term risks to the
trust funds rather than outward on the long-term risks to participants
or the impact on their benefits if their plans cannot pay the benefits
they promised.
There are other approaches to consider. While some practices in the
countries we studied, such as mandatory employer participation, would
not be feasible in the U.S. context; others may have more ready
application for addressing some challenges that U.S. multiemployer
plans face. For example, the countries that we studied had pension
regulators that interacted with plans on a frequent basis, collected
timely and detailed plan information, provided a range of tools to
plans to address plan underfunding and made information on the funded
status of plans available to the public. Yet, there is no one-size-
fits-all solution. For example, some plans' greatest challenges may be
their aging workforce or vulnerability to economic volatility, while
others may face challenges inherent to the industries and geographical
regions they serve.
Without more timely and accurate information on plan health, PBGC and
other federal agencies can do little to help plans to respond to
circumstances like the ones they experienced in the recent economic
downturn. But collecting this information is not enough. The agencies
must also incorporate this information into their monitoring and
oversight efforts and use the most current data to inform their
policies and risk assessments. To do this, the agencies responsible
for multiemployer plans must work together to provide greater security
for multiemployer plans, which for decades have limited the exposure
to PBGC and the taxpayer.
Matters for Congressional Consideration:
To provide greater transparency of the current status of multiemployer
plans, assist federal monitoring efforts, and help plans address their
funding deficiencies, Congress should consider:
* consolidating the annual funding notices and the PPA notices of
critical or endangered status to eliminate duplicative reporting
requirements; and:
* requiring IRS, EBSA, and PBGC to establish a shared database
containing all information received from multiemployer plans.
Recommendations for Executive Action:
1. To improve the quality of information and oversight of
multiemployer plans, we recommend that EBSA, IRS, and PBGC amend
existing interagency memoranda of understanding to address, among
other things, the agencies' plans for sharing information they collect
on multiemployer plans on an ongoing basis. Specifically, the agencies
should address how they will share data:
* To identify the universe of multiemployer plans.
* To reconcile similar information received by each agency.
* To identify possible reporting compliance issues and take
appropriate enforcement action.
The agencies should revisit this agreement periodically to determine
whether modifications are required to ensure that each agency is able
to carry out its responsibilities.
2. To collect more useful information from plans, the Secretary of the
Treasury should direct the IRS to develop a standardized electronic
form for annual certifications that requires plans to submit their
funded percentage.
3. To implement better and more effective oversight practices, the
Director of the PBGC should develop a more proactive approach to
monitoring multiemployer plans, such as assigning case managers to
work with the plans that pose the greatest risk to the agency and
provide non-financial assistance to troubled plans on an ongoing basis.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Secretary of Labor, the
Secretary of the Treasury, and the Director of PBGC for review and
comment. Each agency provided us with written comments, which we
reprinted in appendixes II, III, and IV of this report. In responding
to the draft report, the agencies acknowledged the vital role of these
plans in providing retirement security to millions of U.S. workers and
retirees. PBGC further noted that the agency has limited information
to analyze the health of multiemployer plans, and that additional
information is needed to monitor plan health.
The three agencies also generally agreed with our recommendations to
improve interagency information sharing and to take steps to acquire
more current and accurate data on the status of multiemployer plans.
The agencies noted, however, that in their view a new interagency MOU
was unnecessary. The Department of the Treasury highlighted actions
that the agency currently takes to coordinate with the other agencies.
The Department of Labor provided an updated status of the actions that
the agency has taken with regard to multiemployer plans. For example,
EBSA said it recently initiated contact with IRS to begin work on
reconciling certain multiemployer data. IRS and PBGC further stated
that memoranda were already in place that could be amended to allow
for better information sharing. While we are encouraged by these
developments, we do not believe that separate arrangements among
agencies will produce the kind of interagency cooperation needed to
facilitate information sharing and effective ongoing monitoring of the
health of multiemployer plans. Therefore, we continue to believe that,
in order to foster meaningful interagency coordination, the agencies
should either amend existing agreements or enter into new ones, as we
are recommending. EBSA and PBGC also provided technical comments,
which we incorporated in this report, as appropriate.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issue date. At that time, we will send copies of this report
to relevant congressional committees, PBGC, the Secretary of Labor,
the Secretary of the Treasury, and other interested parties. In
addition, the report will be made available at no charge on the GAO
Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7215 or bovbjergb@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made contributions to
this report are listed in appendix V.
Sincerely yours,
Signed by:
Barbara D. Bovbjerg:
Managing Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
We were asked to answer the following research questions: (1) What is
the current status of the nation's multiemployer pension plans? (2)
What steps does PBGC take to monitor the health of these plans? (3)
What is the structure of multiemployer plans in other countries? (4)
What statutory and regulatory changes, if any, are needed to help
plans to continue to provide participants with the benefits due to
them?
To identify the current status of the nation's multiemployer pension
plans, we interviewed officials and analyzed data and documents from
PBGC, the Department of Labor's Employee Benefits Security
Administration (EBSA) and the Department of the Treasury's Internal
Revenue Service (IRS), and reviewed relevant industry studies and
literature on multiemployer plans. To determine the recent funding
status of multiemployer plans, we analyzed historical summary data
published in PBGC's annual data books and summary data from IRS on the
annual notices of funding status certification submitted in 2008 and
2009. To corroborate these data, we analyzed notices of critical and
endangered status and WRERA notices sent to PBGC and EBSA and
published on EBSA's Web site. To identify the demographics of
multiemployer plans, including the number of plans, number of
participants, and industry concentration of plans, we analyzed data
published in PBGC's annual reports and data books. To determine
private-sector union affiliation, we analyzed data from the Bureau of
Labor Statistics. We assessed the reliability of the selected data
that we used from these sources by comparing the number of plans
filing reports to federal agencies. We determined that, although the
data were incomplete and had certain limitations, which we present in
our report, they were sufficiently reliable for the purpose of making
clear which federal agencies collect data and showing how these data
are similar and how they differ. To supplement this quantitative
analysis, we interviewed EBSA, IRS, and PBGC officials; and a diverse
range of pension experts and multiemployer plan practitioners. We
selected experts based on those who had published on multiemployer
plans or whose names were referred to us by other interviewees, and we
spoke to 48 experts. We analyzed their responses on the current status
of plans, the impact of the recent recession, and the future outlook
of multiemployer plans. As appropriate, we reviewed relevant federal
laws and regulations that pertain to multiemployer plans.
To determine the steps PBGC takes to monitor the health of
multiemployer plans, we interviewed PBGC officials and reviewed
documentation on PBGC's multiemployer plan monitoring, modeling, and
assistance policies and procedures. We also reviewed relevant
statutory and PBGC regulatory requirements with regard to
multiemployer plans.
To understand the structure of multiemployer plans in other countries,
we reviewed four countries selected because of their comparable
multiemployer plan frameworks--the Netherlands, Denmark, United
Kingdom, and Canada--and interviewed government officials, plan
administrators and trustees, employer and union representatives, and
other pension experts. We selected these countries after completing an
initial review of employer-sponsored pension plan designs in
Organisation for Economic Co-operation and Development (OECD)
countries. We focused on OECD countries in order to increase our
opportunity to identify practices used in countries with well-
developed capital markets and regulatory regimes comparable, if not
always similar, to the United States. We acknowledge that there may be
relevant plan design features from a non-OECD country that we did not
address in this report. Although we did not independently analyze each
country's laws and regulations, we collected information about each
country's multiemployer plan structure and interviewed government
officials and pension experts and in each country. We relied on the
expertise of staff in the U.S. State Department to identify potential
interviewees in these countries and to schedule the interviews. We did
not review the laws or requirements of those foreign countries
mentioned in this report. Rather, we relied upon the descriptions and
materials furnished by officials and experts of these countries.
To identify what statutory and regulatory changes, if any, are needed
to help plans continue to provide participants with the benefits due
to them, we reviewed pension literature and interviewed a variety of
experts on multiemployer plans, including officials from EBSA, IRS,
and PBGC; pension experts; and practitioners representing a range of
industries and plan sizes. We selected experts based on those who had
published on multiemployer plans or whose names were referred to us by
other interviewees, and we spoke to 48 experts.
We conducted this performance audit from September 2009 through
October 2010,[Footnote 34] in accordance with generally accepted
government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
[End of section]
Appendix II: Comments from the Department of Labor:
U.S. Department of Labor:
Assistant Secretary for Employee Benefits:
Security Administration:
Washington, D.C. 20210:
September 16, 2010:
Ms. Barbara D. Bovbjerg:
Director Education, Workforce and Income Security Issues:
United States Government Accountability Office:
Washington, DC 20548:
Dear Ms. Bovbjerg:
Thank you for the opportunity to review the Government Accountability
Office's (GAO) draft report entitled "Private Pensions: Changes Needed
to Better Protect Multiemployer Pension Benefits" (GA0-10-926). GAO,
in relevant part, is recommending that the Employee Benefits Security
Administration (EBSA), the Internal Revenue Service (IRS), and the
Pension Benefit Guaranty Corporation (PBGC) enter into a memorandum of
understanding that addresses, among other things, the agencies' plan
for sharing information they collect on multiemployer plans on an
ongoing basis. The memorandum should address how data will be shared
to: (i) identify the universe of multiemployer plans; (ii) reconcile
similar information received by each agency; and (iii) identify
possible reporting compliance issues and take appropriate enforcement
action. We agree with GAO that an effective information-sharing
mechanism among the agencies is needed in this area and will work with
the IRS and PBGC to establish such a mechanism. We believe, however.
that this may be accomplished without the necessity of a formal
memorandum of understanding.
The Department of Labor, through EBSA, is responsible for
administering and enforcing the fiduciary, reporting, and disclosure
provisions of Title I of the Employee Retirement Income Security Act
of 1974 (ERTSA). ERISA covers approximately 1,500 defined benefit
pension plans covering more than 10.4 million workers and retirees. As
you know, recently, ERISA and the Internal Revenue Code were
substantially amended by the Pension Protection Act of 2006 (PPA),
with many of the more significant PPA amendments relating to
multiemployer plans. Shortly after the PPA, the Congress enacted the
Worker, Retiree, and Employer Recovery Act of 2008, which amended a
number of the PPA amendments affecting multiemployer plans. As the
legal landscape has and continues to evolve, EBSA, nonetheless, has
and continues to commit significant resources to implementing the many
new or revised requirements applicable to multiemployer plans. Set
forth below is a description of the status of a number of these items
which were discussed in GAO's report.
Annual Reporting by Multiemployer Plans:
EBSA recently completed a multi-year overhaul of the filing system for
ERISA's annual return/report (Form 5500) by moving to an all
electronic system. The move to the all-electronic EFAST2 Form 5500
filing system was intended not only to make Form 5500 filing data
available to the government and the public faster and improve the
quality of data collected, but also to satisfy the PPA requirement
that the Department make available electronically on its website
certain actuarial information filed as part of the Form 5500. To
reflect both the changes in the reporting requirements and in the
funding rules established by the PPA, the agencies (EBSA, IRS, and
PBGC) created the new, separate schedule for multiemployer defined
benefit pension plans (Schedule MB) and added questions to the
Schedule R (Retirement Plan Information) to collect information
specifically about multiemployer plans, including contribution amounts
and rates for employers contributing more than five percent of total
contributions to the plan and the number of employers withdrawing from
the plan during the preceding plan year, along with aggregate amount
of withdrawal liability assessed or estimated to be assessed against
the withdrawn employers.
Model Notices for Multiemployer Plans in Critical Status:
On March 25, 2008, EBSA published in the Federal Register a model
notice intended to assist multiemployer plans in complying with the
notification requirement under section 305(b)(3)(D)(i) of ERISA.
Section 305(b)(3)(D)(i) of ERISA provides that, in any case in which
it is certified under section 305(b)(3)(A) that a multiemployer plan
is or will be in endangered or in critical status for a plan year, the
plan sponsor shall, not later than 30 days after the date of the
certification, provide notification of the endangered or critical
status to participants and beneficiaries, the bargaining parties, the
PBGC, and the Secretary of Labor. Model notices of this type promote
uniform disclosure and often result in reduced administrative burdens
to plans. EBSA receives, logs, and posts critical and endangered
status notices on EBSA's website. EBSA's Office of Participant
Assistance executes quality control checks regularly to avoid
duplicative postings. EBSA is not a statutory recipient of annual
actuarial certifications and, accordingly, does not post such
certifications to its website.
Annual Funding Notices:
On February 10, 2009, EBSA issued Field Assistance Bulletin 2009-01
(FAB) as interim guidance under section 101(f) of ERISA. Section 101(0
of ERISA generally requires the administrators of all defined benefit
plans, including multiemployer plans, to furnish an annual notice to
the PBGC, participants, beneficiaries, and certain other persons. A
funding notice must include, among other information, the plan's
funded percentage, over a three-year period, as well as other
information relevant to the plan's funded status. Pending further
guidance, the Department will, as matter of enforcement policy, treat
a plan administrator as satisfying the requirements of section 101(0
of ERISA, if the administrator has complied with the guidance
contained in the FAB and has acted in accordance with a good faith,
reasonable interpretation of those requirements with respect to
matters not specifically addressed in the FAB. The FAB contains a
model notice for multiemployer plan administrators and while not
mandatory, use of an appropriately completed model will, as a matter
of Department enforcement policy, satisfy the content requirements of
section 101(t) of ERISA. On August 10, 2010, EBSA transmitted a
proposed regulation under section 101(f) to the Office of Management
and Budget for review under Executive Order 12866. The proposal will
establish uniform content standards and include a model annual funding
notice that multiemployer plans may use to satisfy their disclosure
requirements under section 101(f) of ERISA.
EBSA does not have the authority to assess civil monetary penalties
against a plan administrator that violates the annual funding notice
requirements. Instead, under section 502(c)(1) of ERISA, a plan
administrator who fails to meet the requirements of section 101(f) of
ERISA with respect to a participant or beneficiary may, in the court's
discretion, be personally liable to such participant or beneficiary in
the amount of up to $110 a day from the date of such failure. Under
section 502(a)(8) of ERISA, however, a civil action may be brought by
the Secretary of Labor or a person entitled to receive an annual
funding notice (e.g., PBGC) to enjoin any act or practice which
violates section 101(f) or obtain appropriate equitable relief.
ERISA Civil Monetary Penalties for Failure to Adopt a Funding
Improvement/Rehabilitation Plan:
On February 26, 2010, EBSA published a final regulation that
establishes procedures relating to the assessment of civil penalties
by the Department of Labor under section 502(c)(8) of ERISA. This
provision authorizes the Secretary of Labor to assess a civil penalty
of up to $1,100 a day against the plan sponsor for each violation of
the requirement under section 305 of ERISA to timely adopt a funding
improvement or rehabilitation plan for a multiemployer plan in
endangered or critical status. This regulation became effective on
March 29, 2010, and while EBSA has not yet assessed civil monetary
penalties under this provision, EBSA has undertaken compliance review
activities in this area. In FY 2010, for example, EBSA's Office of
Chief Accountant reviewed fifty plans for compliance and determined
that civil penalties were not warranted. EBSA will continue such
reviews on a regular basis. In conjunction with these reviews, EBSA
began, and will continue, working with the IRS to reconcile actuarial
certification and related zone status data, subject to any applicable
restrictions under section 6103 of the Internal Revenue Code, in order
to identify plan sponsors who failed to file actuarial certifications.
With accurate filing data, the agencies will be in a stronger position
to assess compliance with ERISA §305.
Conclusion:
Multiemployer defined benefit pension plans play a vital role in
providing retirement security to millions of American workers and
retirees. We agree with GAO's conclusion that a more effective
information-sharing mechanism among the agencies is necessary and will
continue to work with the IRS and PBGC to that end. We appreciate
having had the opportunity to review and comment on the draft report.
Please do not hesitate to contact us if you have questions concerning
this response or if we can be of further assistance.
Sincerely,
Signed by:
Phyllis C. Borzi:
Assistant Secretary:
[End of section]
Appendix III: Comments from the Department of the Treasury:
Department Of The Treasury:
Washington, D.C. 20220:
September 24, 2010:
Ms. Barbara D. Bovbjerg:
Managing Director:
Education, Workforce and Income Security:
United States Government Accountability Office:
441 "G" Street, NW:
Washington, DC 20548:
Dear Ms. Bovbjerg:
Thank you for the opportunity to review the Government Accountability
Office (GAO) draft report entitled "Private Pensions: Changes Needed
to Better Protect Multiemployer Pension Benefits" (GA0-10-926).
Multiemployer defined benefit pension plans play a vital role in
providing retirement security to millions of American workers and
retirees. Concern about the funded status of these plans led Congress
to enact, in the Pension Protection Act of 2006, a series of revisions
to the multiemployer pension funding and related rules.
Since enactment of that law, the three agencies that regulate these
plans -- the Employee Plans (EP) division within the Internal Revenue
Service, the Employee Benefits Security Administration (EBSA) within
the Department of Labor, and the Pension Benefit Guaranty Corporation
(PBGC) -- have been working together to issue interpretive guidance
and to implement the new rules. This is part of our longstanding
practice of coordinating oversight of defined benefit pension plans.
The three agencies' coordination efforts include the following:
* Mutual review of each agency's regulatory and other multiemployer
funding administrative guidance prior to publication;
* Joint development of the schedule MB and schedule R attachments to
the Form 5500;
* Discussion of multiemployer issues during bi-weekly three-agency
conference calls (and follow-up meetings on specific issues);
* Quarterly regional meetings between EP and EBSA area directors and
staff;
* Joint training and outreach efforts, including EP, EBSA, and PBGC
joint panels at national practitioner benefits conferences; and;
* Cross-agency internal training and information sharing, such as the
recent presentation by the manager of PBGC's Multiemployer Program
Division at a training session for EP examination agents in the
Multiemployer Audit Program.
Like many other defined benefit plans, multiemployer plans have been
under financial strain as a result of the 2008 turmoil in the
financial markets. As a result, the number of these plans that was
certified by the plan actuary to be in either endangered or critical
status increased dramatically from 2008 to 2009. The draft report
compares the number of plans that are certified in endangered status
or critical status for the 2008 and 2009 plan years with the number of
plans providing notice of their critical or endangered status to the
PBGC and Department of Labor. This leads the reader to draw the
inference that many plans in endangered or critical status are not
complying with the requirement to notify the PBGC and Department of
Labor of that status. However, that inference would be inaccurate to
the extent that plans took advantage of the election to "freeze" their
status (i.e., maintain their prior-year status) under section 204 of
the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA). If a
multiemployer plan that was neither in endangered nor in critical
status for 2008 but was certified by the plan actuary to be in
endangered or critical status for 2009 elects to "freeze' its status
pursuant to section 204 of WRERA for 2009, there will be a mismatch
between the notification of status sent to the IRS (which is the
actuary's actual certification of endangered or critical status) and
the requirement to notify the PBGC and Department of Labor if the
plan's status is endangered or critical (because notification to the
other agencies would take into account the plan's freeze election).
GAO's draft report recommends that the agencies enter into a
memorandum of understanding (MOU) that addresses, among other things,
the agencies' plans for sharing information they collect on
multiemployer plans on an ongoing basis. The draft report recommends
that the MOU address how data will be shared to (i) identify the
universe of multiemployer plans; (ii) reconcile similar information
received by each agency; and (iii) identify possible reporting
compliance issues and take appropriate enforcement action.
In fact MOUs that provide for the sharing between agencies of taxpayer
information, including information on multiemployer plans, are
currently in force between the IRS and EBSA and between the IRS and
PBGC. In addition, the IRS shares taxpayer information, including
information on multiemployer plans, with the Department of Labor and
PBGC pursuant to annual requests under section 6103(1)(2) of the
Internal Revenue Code. These MOUs and annual request letters describe
the purposes for which information may be requested, and also detail
information-sharing procedures, including the safeguarding of taxpayer
data.
We agree that the agencies should periodically consider modifying the
MOUs and related documents to ensure that cooperation and sharing of
information continues efficiently, particularly in light of the
changes to the funding rules for multiemployer plans enacted in recent
years. Accordingly, the IRS will be working with EBSA and PBGC to
consider necessary and useful changes to the MOUs and related
documents.
GAO's draft report also recommends that the IRS develop a standardized
electronic form for annual certifications that would require plans to
disclose their funded percentage. In March 2008, the IRS issued
proposed regulations specifying the information that multiemployer
plans must include as part of the annual certification of their plans'
funded status under section 432 of the Internal Revenue Code. Those
proposed regulations would not require that multiemployer plans
present this information on a specific form or in a specific format
and do not specifically require disclosure of plans' funded
percentage. However, as part of the process of finalizing those
proposed regulations, Treasury and the IRS will take into account, in
developing future guidance, GAO's recommendation that disclosure of a
plan's funded percentage be included as part of the certification. We
also appreciate the rationale for GAO's recommendation to create a
form for this purpose, and EP will discuss with the IRS's governing
council on electronic filing the feasibility of developing an
electronic filing program for such a form.
Restoring the financial health of multiemployer plans is an important
part of improving the retirement security of our country. However, it
will not be an easy task. GAO has performed a useful service in
identifying possible approaches to improve the situation.
We appreciate having had the opportunity to review and comment on the
draft report. Please do not hesitate to contact us if you have
questions concerning this response or if we can be of further
assistance.
Sincerely,
Signed by:
J. Mark Iwry:
Senior Advisor to the Secretary:
Deputy Assistant Secretary for Retirement and Health Policy:
United States Department of the Treasury:
[End of section]
Appendix IV: Comments from the Pension Benefit Guaranty Corporation:
PBGC Pension Benefit Guaranty Corporation:
Protecting America's Pensions:
Office of the Director:
1200 K Street, N.W.
Washington, D.C. 20005-4026:
September 24, 2010:
Barbara D. Bovbjerg:
Managing Director, Education, Workforce and Income Security Issues:
U.S. Government Accountability Office:
Washington, DC 20548:
Re: "Private Pensions: Changes Needed to Better Protect Multiemployer
Pension Benefits"
Dear Ms. Bovbjerg:
Thank you for the opportunity, both to work with your team and to
comment on your draft report, "Private Pensions: Changes Needed to
Better Protect Multiemployer Pension Benefits."
PBGC is grateful that GAO is continuing to focus on multiemployer
plans. They are undeniably important. Multiemployer plans provide
retirement security for some 10 million Americans. Furthermore, as the
report notes, many of these plans are significantly underfunded.
Given GAO's impartial position, longstanding interest and expertise in
these complex and difficult subjects, we view your report as a step to
improve public understanding and hope you will continue your efforts
in future reports.
This report begins with four important questions:
1. What is the current status of the nation's multiemployer pension
plans?
2. What steps does the PBGC take to monitor the health of these plans?
3. What is the structure of multiemployer plans in other countries?
4. What statutory and regulatory changes, if any, could help plans to
continue to provide participants the benefits due them?
It then proceeds, using the limited information presently available,
to describe what is known about the health of multiemployer plans. It
also reports, in impressive detail, how PBGC monitors the health of
such plans, as well as the limited authorities that PBGC has to assist
them. Finally, the draft report describes multiemployer plans in other
nations, and how other nations have taken steps to safeguard them.
We would value and welcome future GAO analysis relating to the fourth
question raised by the draft report, to describe some of the choices
plans may need to make, of potentially desirable changes to the
statutory or regulatory structure, and perhaps identify measures used
by multiemployer plans in other countries that might be considered in
the United States.
I hasten to note that neither PBGC nor the Administration has yet
formed any policy views about whether statutory or regulatory changes
are appropriate and, if so, what they should be. We are not yet in a
position to do so. Under the Pension Protection Act, the three ERISA
agencies have been directed to report, by the end of 2011, on the
operation and funding status of multiemployer plans. In the context of
that report, we should be able to consider whether changes are
appropriate.
Our efforts to analyze these important issues are, however, hamstrung
by the limited information we possess concerning both multiemployer
plans and their participating employers. As we noted in conversations
with GAO staff, neither PBGC nor other federal agencies has sufficient
information to determine the scope and nature of the challenges
multiemployer plans actually face, the extent to which plans have used
the tools that are already available, and the extent to which
additional measures are or are not justified.
As GAO knows, the primary responsibility for the health of pension
plans lies with plan sponsors. Under the Pension Protection Act of
2006, plans in critical status can reduce plan accruals and adjustable
benefits and increase contributions. Although PBGC does not administer
the Internal Revenue Code sections that govern these measures, we can
and do help plans address their funding-related concerns by reviewing
alternative withdrawal liability rules and discussing other ideas. We
spend a lot of time talking to plan professionals about how they can
help their plans. Nonetheless, multiemployer plans have no obligation
to work with PBGC or the other federal agencies. (Although there are
limited reporting requirements to PBGC, there is no sanction if plans
fail to comply and no requirement to work with PBGC if they do.)
Furthermore, as GAO knows from the notices we have received, some
plans are healthy while others are not. The healthy "green zone" plans
operated under the same rules (and in some cases in the same
industries) as plans that entered endangered or critical status. For
the most part, we do not have the information to know why: to what
extent have endangered or critical plans been affected by broad
economic factors, to what extent by unfortunate choices in investments
or benefit/accrual levels, or by other factors. We hope the final
report will mention these factors.
The Report's primary discussion about information deals with the
information that is already collected by IRS, DOL, or the PBGC. It
recommends that executive agencies coordinate and share the
information they already possess via a Memorandum of Understanding
(MOU). This is a useful recommendation, and one whose objective we
support. However, as the Treasury Department's response to the GAO
report notes, MOUs that provide for the sharing between agencies of
information on multiemployer plans are currently in force between IRS
and EBSA and IRS and PBGC. We can and will review these to ensure that
we take full advantage of the information already in our possession
that can be shared, but PBGC does not believe that this will be nearly
sufficient to prepare us for the challenges we face.
Without additional information on the current situation of plans ” not
just those that choose to file Annual Funding Notices ” and the
ability to obtain information in some cases on the economic condition
of major employer participants, we will neither be prepared to help
multiemployer plans nor be able to analyze whatever statutory changes
might ultimately be necessary to do so.
We hope GAO will consider these issues further. Ideally, this report
would recommend further analysis and data about multiemployer plans,
because Congress and the executive branch plainly need better
information about multiemployer plans than what we already have. It
would help both to note this and suggest what additional reporting may
be necessary. For example, should there be penalties for failing to
send PBGC critical or endangered status notices, or for failing to
send Annual Funding Notices?
The draft report also recommends that PBGC develop a more active
approach to monitoring multiemployer plans. We agree that our
multiemployer program will need more resources and a more robust
infrastructure. We have already begun to redirect some of our current
resources to the program, and have begun discussions about additional
program needs in the future. However, an active approach requires more
than just a willing staff, even as talented and hardworking a staff as
that of PBGC. It requires cooperation and information from the plans,
participants, and employers that we are trying to help.
Under separate cover, we have provided a list of suggested technical
corrections and other comments to clarify the draft report.
Again, we very much appreciate the opportunity you have given us to
comment on the draft report and to meet with your staff to discuss it.
We appreciate GAO's ongoing efforts to call attention to retirement
security issues and the role PBGC plays in protecting pension
benefits. And we look forward to working with you to help protect them
in the future.
Sincerely,
Signed by:
Joshua Gotbaum:
Director:
cc: Phyllis Borzi:
Department of Labor:
J. Mark Iwry:
U.S. Department of the Treasury:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Barbara Bovbjerg (202) 512-7215 or bovbjergb@gao.gov:
Staff Acknowledgments:
Individuals making key contributions to this report include David R.
Lehrer, Assistant Director; Jonathan S. McMurray, Analyst-in-Charge;
Robert Campbell; and Thanh Lu. Joseph Applebaum, Susan Aschoff, and
Roger J. Thomas also provided valuable assistance.
[End of section]
Footnotes:
[1] Collective bargaining has been the primary means by which workers
can negotiate, through unions, the terms of their pension plan. The
National Labor Relations Act (NLRA) required employers to bargain with
union representatives over wages and other conditions of employment,
and subsequent court decisions established that employee benefit plans
can be among those conditions.
[2] GAO, Private Pensions: Multiemployer Plans Face Short-and Long-
Term Challenges, [hyperlink, http://www.gao.gov/products/GAO-04-423]
(Washington, D.C.: Mar. 26, 2004), and GAO, Private Pensions:
Multiemployer Pensions Face Key Challenges to Their Long-Term
Prospects, [hyperlink, http://www.gao.gov/products/GAO-04-542T],
(Washington, D.C.: Mar. 18, 2004).
[3] GAO, Private Pensions: Long-standing Challenges Remain for
Multiemployer Pension Plans [hyperlink,
http://www.gao.gov/products/GAO-10-708T], (Washington, D.C.: May 27,
2010).
[4] Pub. L. No. 80-101.
[5] 29 U.S.C. § 1001 nt.
[6] The single-employer insurance program receives additional
financing from assets acquired from terminated single-employer plans
and by recoveries from employers responsible for underfunded
terminated single-employer plans. PBGC receives no funds from federal
tax revenues, but it is authorized under ERISA to borrow up to $100
million from the federal treasury if it has inadequate resources to
meet its responsibilities.
[7] Pub. L. No. 96-364.
[8] Vested benefits are benefits that are no longer subject to risk of
forfeiture. Unfunded vested benefits are the difference between the
present value of a plan's vested benefits and the value of plan assets
as determined in accordance with Title IV of ERISA.
[9] These liabilities are frequently referred to as orphaned
liabilities.
[10] Pub. L. No. 109-280.
[11] Under PPA, a plan is considered to be in endangered status if it
is less than 80 percent funded or if the plan is projected to have a
funding deficiency within 7 years. A plan that is less than 80 percent
funded and is projected to have a funding deficiency within 7 years is
considered to be seriously endangered. A multiemployer plan is
considered to be in critical status if (1) it is less than 65 percent
funded and has a projected funding deficiency within 5 years or will
be unable to pay benefits within 7 years; (2) it has a projected
funding deficiency within 4 years or will be unable to pay benefits
within 5 years (regardless of its funded percentage); or (3) its
liabilities for inactive participants are greater than its liabilities
for active participants, its contributions are less than carrying
costs, and a funding deficiency is projected within 5 years.
[12] 26 U.S.C. § 432(e).
[13] PPA specified that plans in critical status may include in their
rehabilitation plans reductions in plan expenditures (including plan
mergers and consolidations), reductions in future benefit accruals, or
increases in contributions.
[14] Pub. L. No. 110-458.
[15] Section 204(b) of WRERA provides a special rule for multiemployer
plans that would be in critical status for the election year if they
had not elected to freeze the plan's funded status. In particular, if
the plan has been certified by the plan actuary to be in critical
status for the election year, then the plan is treated as being in
critical status for that year for purposes of applying the excise tax
exception under section 4971(g)(1)(A) of the Internal Revenue Code.
[16] See the Segal Company, Winter 2010 Survey of Plans' 2009 Zone
Status and, the International Foundation of Employee Benefit Plans,
Multiemployer Pension Funding Status and Freeze Decisions.
[17] See National Coordinating Committee for Multiemployer Plans,
Multiemployer Pension Plans, Main Street's Invisible Victims of the
Great Recession of 2008 (Washington, D.C.: April 2010).
[18] A separated vested participant is one who has earned a
nonforfeitable pension benefit but is no longer accruing benefits
under the plan and has not yet started receiving benefits.
[19] Although the construction industry has the highest liabilities,
plans in this industry, one expert said, were more likely to attract
active participants and improve their funded status in periods of
economic growth.
[20] Each year, qualified DB pension plans are required to file a Form
5500 disclosure of financial information with IRS, EBSA, and PBGC.
Beginning with the 2009 reporting year, Form 5500 filing and
processing became wholly electronic. Filers are able to complete Form
5500 online or with third-party software using a new Web-based
interface called ERISA Filing Acceptance System 2 (EFAST2) that EBSA
officials say has greater data capture accuracy than its paper-based
predecessor.
[21] An insolvent plan continues operations and PBGC provides
necessary financial assistance for payment of benefits at guaranteed
level and for reasonable administrative expenses.
[22] For 2008 and later plan years, plans are required to identify
whether they are making scheduled progress on their funding
improvement or rehabilitation plan on the Form 5500 Schedule MB. In
addition, plans are required to provide a summary of their funding
improvement or rehabilitation plan. PPA also requires multiemployer
plans to report the names of contributing employers that contribute 5
percent or greater of the total plan contributions for a plan year on
Form 5500-Schedule R.
[23] According to PBGC, orphaned participants may also include
participants whose employers withdrew from a plan without filing
bankruptcy. However, this group of participants would not be eligible
for partitioning.
[24] 29 U.S.C. § 1413.
[25] PBGC partitioned the pension plan of Council 30 of the Retail,
Wholesale and Department Stores Union and the Chicago Truck Drivers,
Helpers & Warehouse Workers Union Pension Plan.
[26] We did not review or attempt to verify the information or legal
requirements pertaining to plans maintained in these countries. We
relied upon the representations and materials furnished by government
officials in these countries and other experts.
[27] OECD reports the following returns on pension investments in
2008: The Netherlands (-16.9%); Denmark (-16.8%); United Kingdom
(-17.4%); Canada (-21.4%); and the United States (-26.2%).
[28] In the Netherlands, multiemployer plans share investment gains by
periodically adjusting the value of workers' benefits, known as
"indexation." According to officials, pension boards usually adjust
workers' and also retirees' benefits conditional on the pension fund's
overall funding level. If a plan's funding ratio is above the
established benchmark, benefits are indexed to reflect the growth in
wages or prices. However, if a plan's funding ratio is below the
established benchmark benefits may be only partially indexed or not
indexed at all. By law, employers are not allowed to provide full
indexation if the funded ratio is below 130 percent. According to
officials, most plans either paid partial indexation or none at all in
2009.
[29] This notification is filed with the EBSA, IRS, and PBGC and
furnished to plan participants, beneficiaries, and the bargaining
parties. 26 U.S.C. § 432(b)(3)(D)(i) and 29 U.S.C. § 1021(f)(3)(A).
[30] The suggestions in this table do not reflect GAO's views or the
views of other federal officials that we interviewed. We collected
this information interviewing a variety of experts. See appendix I for
more information about how we conducted this work.
[31] According to IRS, Section 432(b)(3) of the Code requires an
actuarial certification of whether or not a multiemployer plan is in
endangered status, and whether or not a multiemployer plan is or will
be in critical status, for each plan year. This certification must be
completed by the 90th day of the plan year and provided to the
Secretary of the Treasury and to the plan sponsor. Failure of the
plan's actuary to timely certify the plan's status is treated for
purposes of section 502(c)(2) of ERISA as a failure or refusal by the
plan administrator to file the annual report required to be filed
under section 101(b)(1) of ERISA. A penalty of up to $1,100 per day
may be assessed by the Secretary of Labor. Plans certified to be in
endangered status must adopt a funding improvement plan that is
reasonably expected to enable the multiemployer plan to achieve
certain funding improvements by the end of its funding improvement
period. Plans certified to be in critical status must adopt a
rehabilitation plan that is reasonably expected to enable the
multiemployer plan to emerge from critical status by the end of its
rehabilitation period. A funding improvement plan or rehabilitation
plan must be updated each year after the initial endangered or
critical year.
[32] PPA also gave Labor the authority to assess civil monetary
penalties of up to $1,100 per day against plan sponsors that fail to
timely adopt funding improvement or rehabilitation plans. However,
EBSA has not exercised this authority to date because IRS has yet to
finalize regulations regarding what the content of these plans should
be. As a result, EBSA has relied on plans to act in a good faith
compliance basis. According to EBSA, EBSA's Office of the Chief
Accountant is currently constructing a program to enforce the PPA
civil penalty provisions.
[33] The suggestions in this table do not reflect GAO's views or the
views of other federal officials that we interviewed. We collected
this information interviewing a variety of experts. See appendix I for
more information about how we conducted this work.
[34] Subsequent to sending a draft of this report to the agencies for
comment, the report's date of issuance was changed from fiscal year
2010 to fiscal year 2011. As a result, the number of the report was
changed from GAO-10-926 to GAO-11-79.
[End of section]
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