Testimony of 

Hon. Joshua Gotbaum, PBGC Director 

before the 

Health, Employment, Labor and Pensions Subcommittee 

House Committee on Education and the Workforce 

March 5, 2013 

Thank you for holding this hearing to continue discussions on efforts to strengthen 

multiemployer plans. 

On January 29, 2013, the three ERISA agencies sent Congress a report required by the Pension 

Protection Act of 2006, P.L. 109-280 (PPA). The report provides information and analysis on 

the actions taken by multiemployer plans under PPA to improve their funded status and the 

effects of those actions on the plans’ financial health. 

Also that day, PBGC sent to Congress two statutory reports on the agency’s multiemployer 

insurance program, the Five-Year Multiemployer Report on premium levels and the FY 2012 

Exposure Report on PBGC’s potential exposure under the single-employer and multiemployer 

programs. 

We hope these reports will be useful as this Committee evaluates the challenges that 

multiemployer plans face and the various options and proposals to address them. 

As expanded upon below, the multiemployer system was designed more than a generation ago; 

the world has changed but the system has not. The challenges facing the multiemployer system 

are complex and somewhat different from those faced by single-employer defined benefit plans. 

As with all pension plans, the last decade has seen many strains on pension funds and most 

multiemployer plans became underfunded. PPA and other legislation enacted since have 

provided much needed flexibility. Most of those plans have responded, taken advantage of selfhelp measures, and are on track to recover. This is, unfortunately, not true for all plans. Unless 

significant changes are made allowing them to take additional steps of self-help, a minority of 

multiemployer plans will fail. 

However, there is no silver bullet. Different plans are in different circumstances, and they will 

need a diverse set of tools, options and solutions and the flexibility of when and how to apply 

them. 

The PBGC, designed to be a safety net for failed plans, will also need changes if it is to fulfill its 

mission. Absent reforms, PBGC will continue to lack the tools to help plans improve and the 

resources to continue paying benefits for those that do fail. 

With the PPA sunset at the end of 2014, the next two years provide an opportunity for 

multiemployer plans, their participants, businesses, unions, and professionals to work together 

with Congress and the Administration to develop approaches that are flexible and practical, and 

that facilitate self-help. As it did in 2006, Congress can provide the tools and authorities to help 
Testimony of Hon. Joshua Gotbaum 

2

more than a thousand plans, hundreds of thousands of small businesses, and millions of 

American workers achieve a more secure retirement. 

Why Multiemployer Plans are Important 

Multiemployer defined benefit plans provide retirement security to more than 10 million 

participants and their families. Multiemployer plans help protect participants’ retirement 

benefits. They provide pension portability, allowing participants to accumulate benefits earned 

for service with different employers throughout their careers. They pool longevity risk, which 

provides much lower-cost annuities than those available in the individual market, and they 

spread the risk of any individual employer’s failure across many firms. 

Benefits to Employers 

Multiemployer plans have provided retirement annuities to millions of American workers for 

more than half a century. Among the advantages of this type of plan is that assets are pooled 

among employers in a single consolidated trust. Efficiencies of scale broaden and diversify 

investment opportunities and lessen the administrative and investment costs of operating a 

separate single-employer plan. Investment professionals manage the plans’ assets, helping to 

reduce risks for contributing employers, employees, and retirees. 

Importance to Small Businesses 

Hundreds of thousands of small businesses – doing business in every state – participate in 

multiemployer plans. Multiemployer plans enable employers to provide retirement benefits to 

their employees without imposing administrative burdens on any individual employer. 

Employers generally need only to remit contributions set by collective bargaining and are 

relieved from the responsibilities of operating a plan, which are handled by an independent joint 

board of trustees, consisting of equal representatives of labor and management. Consequently, 

these plans have historically offered employers, especially small businesses, an affordable way to 

provide pensions to their employees, without the administrative burdens. 

No Plan is “Typical”

There is a wide variety of multiemployer plans, in a wide variety of places, in a wide variety of 

industries, and in a wide variety of conditions. Multiemployer plans help small and large 

businesses and employees in many industries, including construction, transportation, retail food, 

manufacturing and services. Multiemployer plans vary in size from small local plans covering a 

few hundred participants to large regional or national plans covering hundreds of thousands of 

participants. There are businesses who contribute to multiemployer plans and multiemployer 

plan participants in every state.1

 

1

 The map below reflects the results of a survey by the National Coordinating Committee for Multiemployer Plans (NCCMP) of 

70 plans that provided information on the zip codes of companies contributing to their plans in 2011. These 70 plans 

received contributions from approximately 53,000 companies. 
Testimony of Hon. Joshua Gotbaum 

3

The Past Decade Has Been Difficult for All Plans 

In recent years, faltering markets and a weak economy exacerbated the effects of underfunding. 

If a plan has a small employer base and large accrued liabilities associated with a mature 

participant population, it can be difficult to make up funding shortfalls. The cost of contribution 

increases is borne by employers (through reductions to profit margin) and employees (through 

reductions to current pay or benefits). Finally, a plan’s underfunding increases the contingent 

liability of contributing employers should they withdraw from the plan, which can affect their 

creditworthiness and discourage new employers from joining the plan. 

The funding levels and demographics of these plans have changed dramatically over the years. 

Before the decade of the 2000s, single-employer and multiemployer defined benefit plans 

enjoyed historically high rates of return, which kept these plans well-funded without requiring a 

large ongoing contribution commitment from employers. Moreover, high investment returns 

financed benefit improvements: plans increased benefit accrual rates and granted past service 

credits; they adopted or continued early retirement subsidies, disability pensions, death benefits 

for non-spouse beneficiaries, and five- and ten-year certain and life guarantees.2 These new 

obligations compounded the plans’ liabilities during the 1990s. 

 

2

 Because of maximum deductible limits, some plans increased benefits during this period to avoid losing deductible treatment 

of employer contributions, which also contributed to longer-term costs. These limits were raised in the PPA. 
Testimony of Hon. Joshua Gotbaum

4

Like single-employer plans, multiemployer plans suffered significant market losses during the 

2000s, causing the value of plan assets to plummet. Multiemployer plans that had been nearly 

fully-funded often dropped to less than 50% funded. The average funded ratios of these plans 

(which the agency defines as the market value of assets divided by liabilities discounted using a 

standardized PBGC interest factor) exceeded 90% in the 1990s, hovered in the mid-60% range in 

the mid-2000s, and fell below 50% after the 2008 market crisis.3

This unexpected surge in underfunding put huge pressures on funding costs and contributions. 

Tightened PPA funding requirements had also taken effect, requiring plans for the first time to 

publicly certify their funding status. Employers and unions – which had come to depend on 

relatively stable contribution rates – were now asked to accept huge contribution rate increases, 

and plan trustees recommended benefit reductions. 

Employer contributions to multiemployer plans are generally based on number of hours worked 

by actively employed participants. The 2000s decade saw a decline in active participants as a 

percentage of total participants. Thirty years ago, three-quarters of all participants were active

and only one-quarter were retired or waiting to retire. Today, the situation is largely reversed: 

by 2010, 39% of participants were active and 61% were inactive. 

Contributing factors also include the relative decline in unionized employment and competitive 

pressures in some industries from non-unionized businesses, resulting in some employers with 

multiemployer plans going out of business. Thus, the burden of the recent increase in 

underfunding is borne by a smaller pool of employers and employees supporting the liabilities of 

much larger inactive populations. 

Plans Have Taken Advantage of PPA Funding Rules and Flexibility

When Congress enacted PPA in 2006, it anticipated the need for different plans with differing 

situations to address underfunding and other emerging problems in differing ways. Under PPA, 

plans were required (i) to certify their funded status each year according to statutory 

classifications of “endangered” or “critical” status (or neither); (ii) to implement funding 

improvement or rehabilitation plans that include contribution and benefit schedules designed 

actuarially to improve the plan’s funded status; and (iii) to achieve objective funding targets

within specified timeframes.

4

For the first time, plans in critical status were allowed to reduce certain previously earned 

benefits (e.g., early retirement benefits, retirement-type subsidies, optional forms of payment) 

 

3 Many plans in certain industries, such as manufacturing and retail trade and services, barely exceeded 50%. 

4 Endangered status is triggered if a plan has a funded percentage of less than 80% or projects a funding deficiency 

within seven years (if both triggers are met, the plan is in seriously endangered status); the plan’s target is to 

reduce the underfunding percentage by 33% in a 10-year period and to avoid a funding deficiency during the 

funding improvement period. Critical status is triggered if a plan has a funded percentage equal to or less than 

65% and projects a funding deficiency within five years or insolvency within seven years; or the plan projects 

insolvency within 5 years or a funding deficiency within 4 years; or normal cost and interest on unfunded 

liabilities exceeds contributions for the year, the present value of benefits for inactive participants exceeds that 

for active participants, and the plan projects a funding deficiency in 5 years. The plan’s target is to emerge from 

critical status using all reasonable measures in a 10-year period (if unfeasible, to emerge at a later time or 

forestall insolvency). 
Testimony of Hon. Joshua Gotbaum

5

that would otherwise be protected from such cutbacks by ERISA and the Internal Revenue Code. 

Participants who started receiving benefits before the plan’s notice of critical status are generally 

exempted from these “adjustable benefit” reductions.

5 Also, for the first time, plans in critical 

status were constrained by law from increasing benefits and from offering lump sum and similar 

benefit payments. 

After the 2008 financial crisis, when plans suffered investment losses of 20 to 30%, nearly 1,000 

plans, or two-thirds of all multiemployer plans, were certified to be in endangered or critical 

status. This loss in plan asset values caused a drop in the funded percentage of many plans, and 

shortened the projected insolvency dates of other plans. Possibly the most common trigger for 

endangered or critical status was higher minimum required contributions, which brought plans 

closer to a projected funding deficiency. 

In December 2008, Congress enacted the Worker, Retiree, and Employer Recovery Act of 2008, 

P.L. 110-458 (WRERA), to give plans respite from the effect of losses experienced during the 

2008 stock market decline. The majority of multiemployer plans elected WRERA funding relief 

in 2009 – freezing their prior year’s funding status and deferring any actions under a funding 

improvement or rehabilitation plan for one year. 

Nevertheless, more than 100 critical status plans in 2009 adhered to PPA strictures and reduced 

adjustable past benefits; plans reported reducing a total of nearly $800 million in liabilities. In 

addition, almost 200 plans in all status classifications in 2009 reduced future benefits, such as 

future accrual rates (one-half of these plans were in critical status). 

Congress then enacted the Preservation of Access to Care for Medicare Beneficiaries and 

Pension Relief Act of 2010, P.L. 111-192 (PRA 2010), to provide further funding relief from the 

significant investment losses that occurred in and around 2008. Plans extensively relied on PRA 

2010 funding relief, which enabled them to decrease minimum required contributions, increase 

credit balances, and improve funded certification statuses, alleviating pressures on contribution 

increases and benefit cuts. 

Nevertheless, 149 critical status plans in 2010 applied PPA provisions and reduced adjustable 

past benefits – including nearly 40% of all critical status plans in that year; plans reported 

reducing more than $2 billion in liabilities. In addition, more than 172 plans in all status 

classifications reported reducing future benefits (over 50% of these plans were in critical status). 

Employer contributions have also increased as a consequence of the financial turmoil of the 

2000s and PPA’s tightened funding requirements. Contributions climbed from $8 billion in 2000

and $16 billion in 2005, to $20 billion in 2009 and $20.5 billion in 2010. Average annual 

contributions per active participant rose $700 between 2008 and 2010 from $4,300 to $5,000. 

 

5 Generally, reductions of adjustable benefits for active participants arise from collective bargaining. The plan 

trustees provide to the bargaining parties one or more schedules showing revised benefit and/or contribution 

structures determined to be reasonably necessary for the plan to emerge from critical status. One schedule must 

be a default schedule, which assumes that benefits will be reduced to the maximum extent permitted by law 

before contribution increases are required. Although the default schedule is common in some critical status 

plans, in other critical status plans very few bargaining parties adopt the default schedule, choosing instead the 

preferred schedule which emphasizes contribution increases with limited reductions in benefits. 
Testimony of Hon. Joshua Gotbaum

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Endangered status plans had the highest average contributions per active participant ($7,500), 

while critical status plans had the lowest ($4,000). It is important to note, however, that 

contributions vary significantly from plan to plan, even among plans in the same industry (e.g., 

employers in one critical status plan reported contributions of $17,000 per active participant). 

Plans have also used the flexibility provided under PPA to relieve excessive pressure on 

employers and unions that could jeopardize their continued participation in the plan. For 

example, PPA eliminated the excise tax assessed on employers by the IRS when a critical plan 

incurs a funding deficiency.

6

The intent of the tax was to induce employers to contribute the 

required minimum to the plan. 

The tax has now been replaced by a PPA funding regime that makes similar demands on the 

bargaining parties. Minimum required contributions spiked after the asset losses of 2008, 

causing 90 plans to report funding deficiencies in 2010 – more than four times the annual 

average over the decade prior to 2008. These plans avoided an excise tax on funding 

deficiencies totaling nearly $2 billion in 2010. 

A second example of flexibility granted to plans under PPA is amortization extensions. To 

ensure pre-funding and require the recognition of costs upfront, PPA shortened the amortization 

periods for all types of unfunded liabilities to 15 years. However, plans also needed a safety 

valve in the event of unforeseen costs that the bargaining parties could not immediately afford. 

PPA permitted a plan that met certain solvency requirements to automatically extend 

amortization periods by five years if it projected a funding deficiency in the next nine years. 

This proved to be a popular form of relief: Whereas only six plans were operating under 

amortization extensions for the 2005 plan year – under strict statutory eligibility requirements 

requiring IRS approval – by 2009 there were 125 plans operating under automatic five-year 

extensions, and by 2010 nearly one-quarter of all critical and seriously endangered status plans 

were operating under amortization extensions (178 plans under automatic extensions and 12 

plans under approved extensions). 

Today the Financial Condition of Plans Varies Widely

Most plans can recover from the market collapses of the past decade on their own but, without 

changes, some severely distressed plans will not. 

Most Plans Are Recovering

Most plans appear to be recovering from the 2008 financial crisis and subsequent recession. 

Aggregate assets for all multiemployer plans have increased, from $327 billion at the beginning 

of the 2009 plan year to nearly $400 billion at the end of the 2010 plan year (a level last seen in 

2006). By 2011, 60% of all plans certified they were in non-distressed or “green” zone (i.e., 

 

6 Multiemployer plans must maintain a funding standard account to measure whether the funding requirements are 

met. If total charges to the funding standard account (normal cost, and amortization of net increase in unfunded 

past service liability, net experience loss or net loss from changes in actuarial assumptions) exceed employer 

contributions and total credits to the account (amortization of net decrease in unfunded past service liability, net 

experience gain or net gain from changes in actuarial assumptions), an accumulated funding deficiency results. 
Testimony of Hon. Joshua Gotbaum

7

neither endangered nor critical status), an improvement from just 32% in 2009. Endangered 

status plans fell from 34% to 16% of all plans between 2009 and 2011. 

But the financial condition of multiemployer plans today varies widely. Some have rebounded 

following the recovery in asset levels (and with the aid of funding relief). Many other plans 

remain substantially underfunded but are using the tools under PPA to gradually adjust income 

and expenses. As of the 2011 plan year, 40% of all multiemployer plans continued to be in

endangered or critical status, thus subject to additional funding rules under PPA. An initial 

review of 2012 PPA certifications to IRS indicates a slight increase in the numbers of plans in 

endangered or critical status for the 2012 plan year. PBGC estimates that currently just over half 

of multiemployer participants are in endangered or critical status plans. 

Overall, most multiemployer plans appear sustainable in the long-term, assuming they maintain a 

base of contributing employers able to support the plan’s unfunded liabilities and benefit 

disbursements and avoid significant investment or other actuarial losses. 

Challenges remain, however, in assessing the exact financial condition of many plans. Funding 

relief under PRA 2010 often results in plans overstating their financial health. Nearly 600 plans 

elected to recognize 2008 investment losses over a period of ten years (rather than the regular 

smoothing period of five years), but increasing a plan’s actuarial value of assets and funded 

percentage can cause the plan to have a higher PPA funded status than is warranted.

7

 More than 

550 plans elected to use 29-year amortization to pay down 2008 investment losses. These steps 

reduce a plan’s annual charges and minimum required contribution. This delays the date of a 

projected funding deficiency, which can favorably impact the plan’s status under PPA. 

However, these steps do not reduce a plan’s actual liabilities.

In addition, aggregate underfunding remains significant, exceeding $350 billion in 2010 (based 

on PBGC measurements). Most of the increase in underfunding relates to asset declines. In 

addition, while some part of the increase in underfunding over the last decade is attributable to 

declines in the PBGC interest factor used to measure plan liabilities,

8 most of this increase relates 

to the doubling in liabilities since 1999 that is independent of the decline in interest rates.

9

 

 

7

PPA defines a plan’s funded percentage for purposes of the additional funding rules as the actuarial value of the 

plan’s assets divided by the plan’s accrued liability. Because each plan uses its own methods and assumptions 

for this purpose, rather than a market value of assets or a standardized interest rate for measuring plan liabilities, 

the funded percentage does not necessarily reflect the actual funded status of the plan and two plans with the 

same market value of assets and the same future benefit payments can appear to have different funded 

percentages (making an accurate comparison difficult). PRA 2010 increased the disparity between the actuarial 

and market value of assets, and lengthened certain amortization periods reducing required contributions. 

8 The agency adjusts plans’ reported vested liabilities using a standardized interest factor that along with an 

assumed mortality table reflects the cost to purchase an annuity at the beginning of the year. 

9 Using a fixed PBGC interest factor of about 5.30%, liabilities were valued at about $350 billion in 1999 and 

about $700 billion in 2010. 
Testimony of Hon. Joshua Gotbaum

8

Minority of Multiemployer Plans are Severely Distressed 

While in the minority, a significant number of multiemployer plans today are severely distressed. 

These are plans in declining or highly competitive industries, often characterized by high rates of 

employer bankruptcies and high ratios of non-sponsored or “orphan” participants.10 

Some large plans have lost thousands of contributing employers over the last two to three 

decades. These plans remain liable for the benefits of participants whose employers have 

withdrawn or gone out of business. In many cases, these orphan participants’ benefits were 

nearly fully funded in 1999 and 2000, but are now substantially underfunded due to market 

losses. 

These plans generally have many more retirees than active participants – active participants may 

constitute only 10% to 15% of all participants, while 50% or more participants may be retirees 

drawing benefits. In contrast, in 2010, 39% of participants in all plans were active and 33% were 

retired. Because the distressed plans have a weak employer base (that is, few employers in 

relation to the plan’s total unfunded liabilities), it is difficult for them to make up funding 

shortfalls. For these plans, investment losses can be devastating. 

Severely distressed plans also pay out a large portion of their asset base each year, which means 

that they have less time to recover. In some of those situations, negative cash flows (benefit 

payments in excess of contributions and investment income) erode a plan’s asset base year after 

year. Consequently, many of these plans project insolvency over a 10- to 15-year horizon. 

Pinpointing the exact number of severely distressed plans remains elusive, though some 

multiemployer experts estimate they represent roughly 25% of plans in critical (or seriously 

endangered) status – if so, that would be about 80 to 85 plans in 2011. We are attempting to 

identify them, in part, through their self-reporting: PPA rehabilitation plans may reveal to us

that, despite exhaustion of all “reasonable measures,” the plan cannot reasonably be expected to 

emerge from critical status within 10 years, and is taking all available reasonable measures steps 

to emerge at a later time or to forestall possible insolvency. Plans, however, are not required to 

make such disclosures to the government and some distressed plans are not explicit about their 

circumstances and future prospects. 

What Can Government Do?

Because multiemployer plans cover many industries and localities, and have been affected by 

different factors, flexibility matters. The challenges faced by these plans are often plan-specific 

issues that the employers and employees in each industry and each plan must tackle individually. 

They will need added flexibility to manage their finances and extend their solvency.

In PPA, Congress gave plans both tools and flexibility for improving their financial health. 

There were new requirements for fiscal discipline and funding targets, but plans were given 

 

10 PPA required plans to begin reporting orphan participants in their annual report filings; plans reported a total of 

1.3 million orphan participants in 2010. In 27 endangered or critical status plans each reporting 5,000 or more 

orphan participants, our research showed that orphan participants averaged between 31% and 45% of total plan 

participants. 
Testimony of Hon. Joshua Gotbaum

9

discretion to develop their own strategies for solving their problems. And PPA provided new 

tools to help plans with rebalancing their costs and income and respond to market pressures. 

As in PPA, discussions for further reforms should start with consideration of proposals now 

being developed jointly by multiemployer plans and their constituencies – including proposals to 

help distressed plans avoid or forestall insolvency. Many of these proposals emphasize 

additional flexibility in plan design, cost-sharing, as well as funding. The Administration has not 

taken a position on these proposals; it is too early to do that in advance of the specifics. 

However, as in PPA, government should allow plans the flexibility to solve their own problems. 

This is not just an issue for the distressed multiemployer plans. Because many plans have 

common employers – particularly large employers – the failure of one plan and resulting 

imposition of withdrawal liability on its contributing employers can have a ripple effect on many 

other plans. Furthermore, the failure of plans in one industry can affect the participation of other 

employers in other industries. Thus a failure in one plan could be devastating for thousands of 

employers and participants in many plans. 

Last, we can preserve PBGC’s ability to help. PBGC is not just a potential (but underfunded) 

safety net; we also closely monitor plans and their health and can offer assistance. A broader 

range of tools and adequate funding would allow PBGC to both help preserve plans and provide 

the safety net that ERISA intended. 

PBGC’s Multiemployer Insurance Program Needs to be Re-examined 

PBGC’s program and finances also should be re-examined. The multiemployer insurance 

program that was established under ERISA in 1974 was revamped in 1980. However, it has 

been more than 30 years since the fundamental structure of the program has been re-examined.

Unlike with single-employer plans, in most cases PBGC cannot step in until a multiemployer 

plan has collapsed and run out of money. When all contributing employers withdraw from a 

plan and the plan’s assets are exhausted,

11 PBGC provides the plan financial assistance to pay 

participants a statutorily guaranteed benefit for the rest of their retirement lifetimes. (Unlike its 

insurance of single-employer plans, PBGC does not take over the plan, or its assets and 

liabilities; instead the agency funds the plan's guaranteed benefits and operating costs, and audits 

to ensure they are reasonable.) 

While the guarantee – up to about $13,000 per year for long-service retirees – often does not 

cover a participant’s full benefits, without PBGC, participants would be left with nothing when a 

plan runs out of money. 

We lend our expertise to multiemployer plans on many issues. Mergers between multiemployer 

plans, for example, can help plans increase their ratio of active to inactive participants and save 

on administrative and investment costs. We also provide flexibility in handling withdrawal 

liability, where appropriate, to plans that request alternative methods in order to retain and attract 

new employers. 

 

11 In this context, exhaustion means the plan cannot pay guaranteed benefit levels for the plan year. PBGC also pays financial 

assistance to ongoing plans (in which contributing employers remain) that exhaust assets.
Testimony of Hon. Joshua Gotbaum

10

However, we do not have the financial resources to help distressed plans directly. For example, 

plans frequently request our financial help to facilitate the merger of a weaker plan into a 

stronger one. While PBGC has been able to assist in a few cases – where the weaker plan is 

near-insolvent and the financial assistance involved is generally small – PBGC has neither the 

authority nor the money to help plans achieve these goals more broadly. Some plans have 

proposed that they be partitioned so that active employers can support their own employees, 

rather than the employees of companies that withdrew or went out of business long ago. While 

we continue to explore use of this tool (under statutory requirements that are difficult to meet), 

we do not have the resources to assist plans and employers, even in circumstances where a plan 

could be preserved if released from the unfunded liabilities of non-sponsored participants. 

PBGC is continuing to review its existing tools – which are limited – to consider whether 

additional authority could be useful to assist employers and plans in a variety of situations. 

Without changes, PBGC faces its own financial shortfall

The agency paid $95 million in financial assistance for benefits and plan expenses to participants 

in 49 insolvent multiemployer plans in FY 2012. This allowed these plans to continue paying 

guaranteed benefits to about 51,000 retirees; 21,000 additional participants will receive benefits 

from those plans when they retire. There are 61 more plans that have terminated and will run out 

of money in the next few years, and there are some 46 ongoing plans that are projected to 

become insolvent and apply for financial assistance over the next decade. 

As of the end of FY 2012, the multiemployer insurance program had a $5.2 billion deficit, with 

assets of $1.8 billion and booked liabilities of $7.0 billion (relating to the plans described above). 

In FY 2012, PBGC collected $92 million in premiums and paid $95 million to support failed 

multiemployer plans. In that year, Congress raised PBGC premiums, but projected benefit 

payments will increase far more. The number of plans that are projected to become insolvent has 

more than doubled in the last decade. Financial assistance payments to these plans are projected 

to rise rapidly over the next ten years – as already terminated plans become insolvent and 

additional participants retire. PBGC projects that its financial assistance payments to plans 

booked as liabilities on PBGC’s FY 2012 financial statements12 will exceed $500 million 

annually within a decade, even without adding any new obligations. Although the timing is 

highly uncertain and dependent on many factors not yet known, PBGC projects that current 

premiums ultimately will be inadequate to maintain current guarantee levels and the 

multiemployer insurance program is likely to become insolvent within the next 10-15 years, even 

before any new obligations are added. 

Future additional obligations are likely. PBGC, in its audited financial statements, estimates that 

it is reasonably possible that other multiemployer plans will require approximately $27 billion in 

future financial assistance. These “reasonably possible” liabilities are not recorded on the 

corporation’s financial statements because they are not imminent liabilities.

 

12 This includes plans currently receiving financial assistance, terminated plans expected to require financial assistance, and 

ongoing plans expected to require financial assistance in the next ten years. 
Testimony of Hon. Joshua Gotbaum

11

PBGC has a variety of methodologies for estimating future obligations. The most carefullydocumented is PBGC’s Multiemployer Pension Insurance Modeling System (ME-PIMS). Based 

on those projections, and assuming no changes either in multiemployer plans or in PBGC’s 

multiemployer insurance program, there is about a 35% probability that the assets of the 

insurance program will be exhausted by 2022 and about a 90% probability of exhaustion by 

2032. Like all projections these estimates are dependent on many assumptions about the future 

and on many factors, including investment returns and the actions of trustees, employers, and 

unions dealing with individual plans.

Premiums and Guarantee Levels Need to be Re-Examined 

Of course, program insolvency can be avoided by changes in premiums and/or in guarantee 

levels. Since multiemployer guarantee levels are below those of single-employer guarantees, 

most observers analyze increased premiums, rather than changes to guarantee levels. 

Although the timing is uncertain, PBGC projects that current premiums ultimately will be 

inadequate to maintain current guarantee levels. Multiemployer plans currently pay a flat rate 

premium of $12 per participant per year (until 2006, the premium rate was only $2.60 per 

participant). Thus, the multiemployer insurance fund has accumulated limited reserves. 

Even substantial increases in premiums would amount to a negligible percentage of contributions 

or costs for most plans. PBGC multiemployer premiums ($93 million total in FY 2010) 

represented about 0.5% of total plan contributions, and about 0.27% of total plan expenses 

(benefit payments and administrative expenses). 

Higher premiums, by themselves, are unlikely to put plans or employers out of business. 

However, not all plans and all employers are alike. They are in different circumstances. Some 

are in such dire straits that they often cannot afford any increases in costs, either the small 

fraction represented by PBGC premiums or other administrative expenses, or the much larger

portion represented by their benefit payments. 

For multiemployer plans, even with the Moving Ahead for Progress in the 21st Century Act 

(MAP-21) increases, absent further changes, PBGC premiums will eventually be insufficient to 

support the guarantee and the multiemployer insurance program. Premium reforms are a 

necessary part of any solution to the funding challenges facing PBGC and should be analyzed as 

part of and in the context of the broader changes for multiemployer plans.

The Administration is not putting forth any new premium proposal now. As we noted in our 

most recent Five-Year Multiemployer Report to Congress under ERISA Section 4022A(f)(1), we 

can’t yet determine what changes to PBGC premiums for multiemployer plans will be 

appropriate in the future and are not requesting Congressional action now. We think the best 

course is to raise and discuss the issues with the Congress and the affected constituencies and 

develop an approach that sustains PBGC as part of a broader review of multiemployer plans.

Next Steps

We hope the information provided in the multiemployer reports to Congress can inform and 

assist a dialogue about critical multiemployer funding issues and PBGC’s program and finances. 
Testimony of Hon. Joshua Gotbaum

12

As it did seven years ago in the Pension Protection Act, Congress has an opportunity within the 

next two years to preserve and enhance the multiemployer plans on which so many small 

businesses and workers depend. 

The next two years will require a thorough review of policy options (including those developed 

by multiemployer plans stakeholders and their constituencies) and, ultimately, action on practical 

steps that will bring long-term stability to the multiemployer system. With changes, 

multiemployer plans can and will continue to provide portable lifetime retirement benefits for 

millions. 

PBGC and the other ERISA agencies look forward to working with Congress and the 

multiemployer community as this important dialogue evolves. We are grateful for the 

opportunity this Committee has provided on this important issue and look forward to hearing 

your views and answering any questions you may have.