Report to Congressional Requesters

United States General Accounting Office 

GAO

March 2004 PRIVATE PENSIONS

Multiemployer Plans 

Face Short- and LongTerm Challenges 

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

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and methodology, click on the link above. 

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 

Highlights of GAO-GAO-04-423, a report 

to congressional requesters 

March 2004

PRIVATE PENSIONS

Multiemployer Plans Face Short- and 

Long-Term Challenges 

Following 2 decades of relative financial stability, multiemployer plans as a 

group appear to have suffered recent and significant funding losses, while 

long-term declines in participation and new plan formation continue 

unabated. At the close of the 1990s, the majority of multiemployer plans 

reported assets exceeding 90 percent of total liabilities. Recently, however, 

stock market declines, coupled with low interest rates and poor economic 

conditions, appear to have reduced assets and increased liabilities for many 

plans. PBGC reported an accumulated net deficit of $261 million for its 

multiemployer program in 2003, the first since 1981. Meanwhile, since 1980, 

the number of plans has declined from over 2,200 to fewer than 1,700 plans, 

and there has been a long-term decline in the total number of active workers.

PBGC monitors those multiemployer plans, which may, in PBGC’s view, 

present a risk of financial insolvency. PBGC also provides technical and 

financial assistance to troubled plans and guarantees a minimum level of 

benefits to participants in insolvent plans. PBGC annually reviews the 

financial condition of plans to determine its potential insurance liability. 

Although the agency does not trustee the administration of insolvent 

multiemployer plans as it does with single-employer plans, it does offer them 

technical assistance and loans. PBGC loans have been rare, with loans to 

only 33 plans, totaling $167 million since 1980. 

Several factors pose challenges to the long-term prospects of the 

multiemployer system. Some are inherent to the multiemployer regulatory 

framework, such as the greater perceived financial risk and reduced 

flexibility for employers compared to other plan designs, and suggest that 

fewer employers will find such plans attractive. Also, the long-term decline 

of collective bargaining results in fewer new participants to expand or create 

new plans. Other factors threaten all defined benefit plans, including 

multiemployer plans: the growing trend among employers to choose defined 

contribution plans; the increasing life expectancy of workers, which raises 

the cost of plans; and continuing increases in employer health insurance 

costs, which compete with pensions for employer funding.

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

-300

0

300

600

900

1,200

1,500

Liabilities Assets

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

Net Position

Dollars in millions

Year

Source: GAO analysis of PBGC data.

Multiemployer-defined benefit 

pension plans, which are created 

by collective bargaining 

agreements covering more than 

one employer and generally 

operated under the joint 

trusteeship of labor and 

management, provide coverage to 

over 9.7 million of the 44 million 

participants insured by the Pension 

Benefit Guaranty Corporation 

(PBGC). The recent termination of 

several large single-employer 

plans—plans sponsored by 

individual firms—has led to 

millions of dollars in benefit losses 

for thousands of workers and left 

PBGC, their public insurer, an $11.2

billion deficit as of September 30, 

2003. The serious difficulties 

experienced by these singleemployer plans have prompted 

questions about the health of 

multiemployer plans. This report 

provides the following information 

on multiemployer pension plans: 

(1) Trends in funding and worker 

participation, (2) PBGC's role 

regarding the plans’ financial 

solvency, and (3) potential 

challenges to the plans’ long-term 

prospects. GAO is making no 

recommendations. 
Page i GAO-04-423 Private Pensions 

Letter 1

Results in Brief 2

Background 4

The Financial Stability of Multiemployer Plans Has Likely 

Weakened Recently, While Long-term Declines in the Number of 

Plans and Participants Continue 9

PBGC Monitors Multiemployer Plans for Financial Problems, 

Provides Technical and Financial Assistance, and Guarantees a 

Minimum Level of Benefits 17

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

Multiemployer Defined Benefit System 22

Concluding Observations 26

Agency Comments 27

Figures 

Figure 1: Aggregate Net Funding Position of PBGC-Insured DB 

Pension Plans, 1980-2001 10

Figure 2: Distribution of PBGC-Insured DB Pension Plans by 

Number of Plan Participants, 2003 12

Figure 3: Distribution of Participants of PBGC-Insured DB Pension 

Plans by Plan Size, 2003 13

Figure 4: PBGC Multiemployer Program Assets, Liabilities, and Net 

Position, 1980-2003 15

Figure 5: PBGC-Insured Active Participants as a Percentage of 

Private Sector Wage and Salary Workers, 1980-2001 16

Figure 6: Number of Active Participants per Retiree, 1980-2001 17

Figure 7: Number of PBGC-Insured DB Plans, 1986-2003 25

Contents 
Page ii GAO-04-423 Private Pensions 

Abbreviations 

DB defined benefit 

DC defined contribution 

ERISA Employee Retirement Income Security Act 

IRC Internal Revenue Code 

IRS Internal Revenue Service 

MPPAA Multiemployer Pension Plan Amendments Act 

NLRA National Labor Relations Act 

PBGC Pension Benefit Guaranty Corporation 

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Page 1 GAO-04-423 Private Pensions 

March 26, 2004 

The Honorable John Boehner 

Chairman 

Committee on Education and the Workforce 

House of Representatives 

The Honorable Sam Johnson 

Chairman 

Subcommittee on Employer-Employee Relations 

Committee on Education and the Workforce 

House of Representatives 

Multiemployer pension plans, which are created by collective bargaining 

agreements covering more than one employer and generally operate under 

the joint trusteeship of labor and management, comprise an important 

segment of the nation’s private employer pension system. These defined 

benefit (DB) pension plans—plans promising a benefit that is generally 

based on an employee’s years of service and either a flat dollar amount or 

the employee’s salary—cover over 9.7 million participants, representing 

about 22 percent of all workers and retirees insured by the Pension 

Benefit Guaranty Corporation (PBGC). The recent collapse and 

termination of several large single-employer plans—where individual 

employers are responsible for funding and administering the plan—have 

resulted in millions of dollars in benefit losses for thousands of workers 

and left PBGC, their public insurer, an $11.2 billion deficit as of September 

30, 2003. The serious difficulties experienced by these single-employer 

plans have prompted questions about the health of the nation’s 

multiemployer-defined benefit plans. 

Given the high financial stakes involved for both the employers and the 

millions of workers and retirees participating in multiemployer pension 

plans, you asked us to describe (1) trends in funding and worker 

participation in these plans; (2) PBGC’s role regarding the plans’ financial 

solvency; and (3) potential challenges to the plans’ long-term prospects. 

To determine the trends in the funded status of multiemployer-defined 

benefit plans, we analyzed Form 5500 disclosure statements and PBGC 

United States General Accounting Office 

Washington, DC 20548 
Page 2 GAO-04-423 Private Pensions 

data. The Form 5500, which plans must file with the U. S. Department of 

Labor, is an important source of financial and other plan information on 

private pension plans collected on a regular basis.1

 Form 5500 provides 

important pension information, such as the number of plan participants 

and data on the financial condition of plans. However, the most recent 

Form 5500 data are from 2001, making it difficult to accurately discern 

recent trends. Although some data obtained from PBGC may be more 

recent, much of it is based on the Form 5500. This lack of comprehensive 

data makes it difficult to depict recent developments, particularly with 

regard to plan funding. 

To determine PBGC’s role regarding the financial stability of 

multiemployer plans, we reviewed the requirements under the Employee 

Retirement Income Security Act (ERISA) and the Multiemployer Pension 

Plan Amendments Act (MPPAA) of 1980. We reviewed PBGC procedures 

for identifying at-risk plans and for taking action to assist plans, discussed 

these actions with agency officials, and obtained statistics on PBGC 

multiemployer activities since 1980. To identify the major challenges to the 

future prospects of multiemployer plans, we reviewed pension literature 

and interviewed representatives in government, industry, and labor 

involved with such plans. We conducted our work from April 2003 through 

January 2004 in accordance with generally accepted government auditing 

standards. 

After 2 decades of financial stability, many multiemployer plans appear to 

have suffered recent and significant funding losses; meanwhile, long-term 

declines continue in terms of new plan formation and worker 

participation. At the close of the 1990s, the majority of multiemployer 

plans had reported assets exceeding 90 percent of total liabilities, with 

average funding rising to 105 percent in 2000. However, subsequent stock 

market declines, coupled with low interest rates and poor economic 

conditions have likely reduced the assets and increased liabilities for many 

multiemployer plans. Comprehensive funding data are not available to 

depict recent developments, but significant signs of funding weakness 

exist. In its 2003 Annual Report, PBGC estimated that underfunded 

multiemployer plans now face an aggregate unfunded liability reaching 

 1

See U.S. General Accounting Office, Pension and Welfare Benefit Administration: 

Opportunities Exist for Improving Management of the Enforcement Program, 

GAO-02-232 (Washington, D.C.: Mar. 3, 2002). 

Results in Brief 
Page 3 GAO-04-423 Private Pensions 

$100 billion. While most multiemployer plans continue to provide benefits 

to retirees at unreduced levels, the agency has increased its forecast of the 

number of plans that will likely need financial assistance from 56 plans in 

2001 to 62 in 2003. PBGC also reported that its multiemployer program had 

an accumulated net deficit of $261 million at the end of 2003, the 

program’s first deficit since 1981. Private survey data corroborate this 

trend, with one survey by an actuarial consulting firm showing a decline in 

the percentage of fully funded client plans from 83 percent in 2001 to 

67 percent in 2002. Meanwhile, multiemployer plans have continued their 

steady, long-term decline in numbers and worker participation. The 

number of plans has dropped by a quarter since 1980 to fewer than 

1,700, and only 5 new plans have been formed since 1992. The number of 

workers covered by multiemployer plans has also fallen by 1.4 million 

since 1980, with the percentage of the private sector labor force covered 

by multiemployer plans declining from 7.7 percent in 1980 to 4.1 percent in 

2001. 

PBGC monitors those multiemployer plans, which may, in PBGC’s view, 

present a risk of financial insolvency. PBGC also provides technical and 

financial assistance to troubled plans and guarantees a minimum level of 

benefits to participants in insolvent plans. For example, PBGC annually 

reviews the financial condition of multiemployer plans to identify those 

that may have potential financial problems in the near future. Agency 

officials told us that troubled plans often solicit PBGC’s technical 

assistance. Occasionally, plan officials ask PBGC to serve as a facilitator 

where the agency works with all the parties associated with the troubled 

plan to improve its financial status. Examples of such assistance by PBGC 

include facilitating the merger of several troubled plans into one stronger 

plan and the “orderly shutdown” of plans, allowing the affected employers 

to continue to operate and pay benefits until all liabilities are paid. Unlike 

its role in the single-employer program, where PBGC trustees weak plans 

and pays benefits directly to participants, PBGC does not take over the 

administration of multiemployer plans, but instead provides financial 

assistance in the form of loans when plans become insolvent and are 

unable to pay benefits at PBGC-guaranteed levels. Such financial 

assistance is comparatively rare; PBGC has made loans to only 

33 multiemployer plans totaling $167 million since 1980, compared with 

296 trusteed terminations of single-employer plans and PBGC benefit 

payments of over $4 billion in 2002-2003 alone. PBGC officials believe that 

the low frequency of PBGC financial assistance to multiemployer plans is 

likely due to features of the multiemployer insurance regulatory 

framework: (1) employers share the risk for providing benefits to all 

participants in the plan and not just their own employees and (2) benefit 
Page 4 GAO-04-423 Private Pensions 

guarantees are set at a lower level for the multiemployer insurance 

program compared with the guarantees provided by the single-employer 

program. According to agency officials, these features encourage the 

affected parties to collaborate constructively to address a plan’s financial 

difficulties. 

A number of factors challenge the long-term prospects of the 

multiemployer plan system. Some are inherent to multiemployer plan 

design and regulatory framework, which employers may perceive as 

financially riskier and less flexible than other types of pension plans. For 

example, compared with single-employer plan, an employer participating 

in multiemployer plan cannot as easily adjust plan contributions in 

response to the firm’s own financial circumstances. This is because 

contribution rates are often fixed for periods of time by the provisions of 

the collective bargaining agreement. Also, multiemployer sponsors may 

face the risk of additional costs if one or more sponsors are unable to fund 

their share of plan-vested benefits. The long-term decline of collective 

bargaining is another factor adversely affecting multiemployer plan 

growth, in that fewer employers and workers are available to provide 

opportunities for new plans to be created or existing ones to expand. As of 

2003, union membership, a proxy for collective bargaining coverage, 

accounted for less than 9 percent of the private sector labor force and has 

been steadily declining since 1953. Finally, experts have identified other 

factors challenging the future prospects for defined benefit plans 

generally, including multiemployer plans. These factors include the 

growing trend among employers to choose defined contribution (DC) 

plans;2

 the increasing life expectancy of American workers, which will 

increase benefit costs; and continuing increases in health insurance costs, 

which will affect overall compensation costs, including pensions, for 

employers. 

Multiemployer plans are established pursuant to collectively bargained 

pension agreements negotiated between labor unions representing 

employees and two or more employers and are generally jointly 

 2

In a defined contribution plan, benefits are based on the contributions to and investment 

returns on a participant’s individual account, and the participant, rather than the employer, 

bears the investment risk. An example of a defined contribution plan would be a 401(k) 

plan. PBGC does not insure defined contribution plans. 

Background 
Page 5 GAO-04-423 Private Pensions 

administered by trustees from both labor and management.3

Multiemployer plans typically cover groups of workers in such industries 

as trucking, building and construction, and retail food sales. These plans 

provide participants limited benefit portability in that they allow workers 

the continued accrual of defined benefit pension rights when they change 

jobs, if their new employer is also a sponsor of the same plan. This 

arrangement can be particularly advantageous in industries like 

construction, where job change within a single industry is frequent over 

the course of a career. Multiemployer plans are distinct from singleemployer plans, which are established and maintained by only one 

employer and where the plans may or may not be collectively bargained. 

Multiemployer plans also differ from so called multiple-employer plans 

that are not generally established through collective bargaining 

agreements and where many such plans have separate funding accounts 

for each employer. 

Since the enactment of the National Labor Relations Act (NLRA),4

 in 1935, 

collective bargaining has been the primary means by which workers can 

negotiate, through unions, the terms of their pension plan. In 1935, NLRA 

required employers to bargain with union representatives over wages and 

other conditions of employment, and subsequent court decisions 

established that employee benefit plans could be among those conditions. 

The Taft Hartley Act amended NLRA to establish terms for negotiating 

such employee benefits and placed certain restrictions on the operation of 

any plan resulting from those negotiations. For example, employer 

contributions cannot be made to a union or its representative but must be 

made to a trust that has an equal balance of union and employer 

representation.5

Since its enactment in 1974, multiemployer defined benefit pensions have 

been regulated by the Employee Retirement Income Security Act (ERISA), 

which Congress passed to protect the interests of participants and 

 3

Multiemployer plans as used throughout this report refer to defined benefit pension plans. 

Note that there are other, multiemployer agreements that cover programs such as health 

and other welfare benefits and defined contribution pension plans. 

4

NLRA provides the basic framework governing private sector labor-management relations. 

NLRA provides employees the right to form unions and bargain collectively and requires 

employers to recognize employee unions that demonstrate support from a majority of 

employees and to bargain in good faith. 

5

29U.S.C.§186(c)(5). 
Page 6 GAO-04-423 Private Pensions 

beneficiaries covered by private sector employee benefit plans. Title IV of 

ERISA created PBGC as a U. S. Government corporation to insure the 

pensions of participants and beneficiaries in private sector-defined benefit 

plans. In 1980, Congress enacted the Multiemployer Pension Plan 

Amendments Act (MPPAA) of 1980 to protect the pensions of participants 

in multiemployer plans by establishing a separate PBGC multiemployer 

plan insurance program and by requiring any employer wanting to 

withdraw from a multiemployer plan to be liable for its share of the plan’s 

unfunded liability. This amount is based upon a proportional share of the 

plans’ unfunded vested benefits.6

 Liabilities that cannot be collected from 

a withdrawn employer are “rolled over” and must eventually be funded by 

the plans remaining employers. 

PBGC operates distinct insurance programs, for multiemployer plans and 

single-employer plans, which have separate insurance funds, different 

benefit guarantee rules, and different insurance coverage rules. The two 

insurance programs and PBGC’s operations are financed through 

premiums paid annually by plan sponsors, investment returns on PBGC 

assets, assets acquired from terminated single employer plans, and by 

recoveries from employers responsible for underfunded terminated single 

employer plans.7

 Premium revenue totaled about $973 million in 2003, of 

which $948 million was paid into the single-employer program and 

$25 million paid to the multiemployer program.8

Over the last few years, the finances of PBGC’s single-employer insurance 

program have taken a severe turn for the worse. Although the program 

registered a $9.7 billion accumulated surplus as recently as 2000, it 

reported a $11.2 billion accumulated deficit for fiscal year 2003, primarily 

brought on by the termination of a number of large underfunded pension 

 6

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 determined in accordance with ERISA, including claims of the plan 

for unpaid initial withdrawal liability and redetermination liability. 

7

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. 

8

Single-employer plans pay PBGC an annual flat-rate premium of $19 per participant per 

year for pension insurance coverage. Plans that are underfunded, generally also have to pay 

PBGC an additional annual variable rate premium of $9 per $1,000 of underfunding for the 

additional exposure they create for the insurance program. In contrast, the only premium 

for multiemployer plans is a flat $2.60 per participant per year. 
Page 7 GAO-04-423 Private Pensions 

plans. Several underlying factors contributed to the severity of the plans’ 

underfunded condition at termination, including a sharp decline in the 

stock market, which reduced plan asset values, and a general decline in 

interest rates, which increased the cost of terminating defined benefit 

pension plans.9

 Because of its accumulated deficit, the significant risk that 

other large underfunded plans might terminate and other structural 

factors, we designated PBGC’s single-employer pension insurance 

program as a “high risk” program and added it to the list of agencies and 

major programs that we believe need urgent attention.10

In general, the same ERISA funding rules apply to both single and 

multiemployer defined benefit pension plans. However, there are some 

important differences. For example, while single-employer plan sponsors 

can adjust their pension contributions to meet their needs, within the 

overall set of ERISA and Internal Revenue Code (IRC) rules, individual 

employers in multiemployer plans cannot as easily adjust their plan 

contributions. For multiemployer plans, contribution levels are usually 

negotiated through the collective bargaining process and are fixed for the 

term of the collective bargaining agreement, typically 2 to 3 years. Benefit 

levels are generally also fixed by the contract or by the plan trustees. 

Employer contributions to multiemployer plans are typically made on a set 

dollar amount per hour of covered work. For many multiemployer plans, 

contributions are directly tied to the total number of hours worked, and 

thus, to the number of active plan participants. With other things being 

 9

See U.S. General Accounting Office, Pension Benefit Guaranty Corporation: SingleEmployer Insurance Program Faces Significant Long-Term Risks, GAO-04-90

(Washington, D.C.: Oct. 29, 2003). The relationship between plan liabilities and interest 

rates is similar to how bond prices respond to interest rate changes. As interest rates 

decrease, the estimated value of a pension liability increase as would the price of a bond. 

Although the value of bonds held for investment increases as interest rates fall, any new 

bond purchases will also have lower rates of return as measured by their yield to maturity. 

Thus, falling bond interest rates would normally increase the value of a plan’s existing bond 

portfolio but decrease the bond portfolio’s yield to maturity. 

10See U.S. General Accounting Office, Pension Benefit Guaranty Corporation SingleEmployer Program: Long-term Vulnerabilities Warrant “High Risk” Designation, 

GAO-03-1050SP, (Washington, D.C.: July 23, 2003). Congress is currently considering 

legislation that would provide funding relief to certain single–employer and multiemployer 

pension funds. 
Page 8 GAO-04-423 Private Pensions 

equal, the reduced employment of active participants will result in lower 

contributions and reduced plan funding.11

The U. S. employer-sponsored pension system has historically been an 

important component of total retirement income, providing roughly 

18 percent of aggregate retirement income in 2000. However, millions of 

workers continue to face the prospect of retirement with no income from 

an employer-sponsored pension. The percentage of the workforce with 

pension coverage has been near 50 percent since the 1970s. Lower-income 

workers, part-time employees, employees of small businesses, and 

younger workers typically have lower rates of pension coverage. Retirees 

with pension incomes are more likely to avoid poverty. For example, 

21 percent of retired persons without pension incomes had incomes below 

the federal poverty level, compared with 3 percent with pension incomes.12

Of those workers covered by a pension, such coverage is increasingly 

being provided by defined contribution pension plans. Surveys have 

reported a worker preference for defined contribution plans, with 

employers citing worker preference for transparency of plan value and 

improved benefit portability. As of 1998, the most recent published data 

available, 27 percent of the private sector labor force was covered by a DC 

plan, as their primary pension plan, up from 7 percent in 1979. 

 11Note that for single-employer pension plans that are collectively bargained, the contract 

typically focuses on the level of benefits to be provided, rather than the employer’s 

contributions. 

12See U.S. General Accounting Office, Pension Plans: Characteristics of Persons in the 

Labor Force Without Pension Coverage, GAO/HEHS-00-131 (Washington, D.C.: Aug. 22, 

2000). 
Page 9 GAO-04-423 Private Pensions 

While multiemployer plan funding has exhibited considerable stability 

over the past 2 decades, available data suggest that many plans have 

recently experienced significant funding declines. Since 1980, aggregate 

multiemployer plan funding has been stable, with the majority of plans 

funded above 90 percent of total liabilities and average funding at 

105 percent by 2000. Recently, however, it appears that a combination of 

stock market declines coupled with low interest rates and poor economic 

conditions have reduced the assets and increased the liabilities of many 

multiemployer plans. In PBGC’s 2003 Annual Report, the agency estimated 

that total underfunding of underfunded multiemployer plans reached 

$100 billion by year-end, from $21 billion in 2000, and that its 

multiemployer program had recorded a year-end 2003 deficit of 

$261 million, the first deficit in more than 20 years. While most 

multiemployer plans continue to provide benefits to retirees at unreduced 

levels, the agency has also increased its forecast of the number of plans 

that will likely need financial assistance, from 56 plans in 2001 to 62 plans 

in 2003. Private survey data are consistent with this trend, with one survey 

by an actuarial consulting firm showing the percentage of fully funded 

client plans declining from 83 percent in 2001 to 67 percent in 2002. In 

addition, long-standing declines in the number of plans and worker 

participation continue. The number of insured multiemployer plans has 

dropped by a quarter since 1980 to fewer than 1,700 plans in 2003, the 

latest data available. Although in 2001, multiemployer plans in the 

aggregate covered 4.7 million active participants, representing about a fifth 

of all defined benefit plan participants, this number has dropped by 

1.4 million since 1980. 

Aggregate funding for multiemployer pension plans remained stable 

during the 1980s and 1990s. By 2000, the majority of multiemployer plans 

reported assets exceeding 90 percent of total liabilities, with the average 

plan funded at 105 percent of liabilities. As shown in figure 1, the 

aggregate net funding of multiemployer plans grew from a deficit of about 

$12 billion in 1980 to a surplus of nearly $17 billion in 2000. From 1980 to 

2000, multiemployer plan assets grew at an annual average rate of 

11.7 percent, to about $330 billion, exceeding the average 10.5 percent 

annual percentage growth rate of single-employer plan assets. During the 

same time period, liabilities for multiemployer and single-employer 

pensions grew at an average annual rate of about 10.2 percent and 

9.9 percent, respectively. 

The Financial 

Stability of 

Multiemployer Plans 

Has Likely Weakened 

Recently, While Longterm Declines in the 

Number of Plans and 

Participants Continue 

Multiemployer Plan 

Funding Remained Stable 

during the 1980s and 1990s 
Page 10 GAO-04-423 Private Pensions 

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

1980-2001 

A number of factors appear to have contributed to the funding stability of 

multiemployer plans, including: 

Investment Strategy—Historically, multiemployer plans appear to have 

invested more conservatively than their single-employer counterparts. 

Although comprehensive data are not available, some pension experts 

have suggested that defined benefit plans in the aggregate are more than 

60 percent invested in equities,13 which are associated with greater risk and 

volatility than many fixed-income securities. Experts have stated that, in 

contrast, equity holdings generally comprise 55 percent or less of the 

assets of most multiemployer plans.14

 13Testimony of J. Mark Iwry, former Benefits Tax Counsel, U.S. Department of the 

Treasury, before the House Committee on Education and the Workforce, October 29, 2003. 

14Testimony of John Leary, Esq., Partner, O’Donoghue and O’Donoghue, Washington, D.C, 

before the House Subcommittee on Employer-Employee Relations, June 4, 2003. 

Dollars in billions

Year

Source: GAO analysis of PBGC data.

-100

0

100

200

300

400

500

600

Multiemployer plans

Single-employer plans

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Page 11 GAO-04-423 Private Pensions 

Contribution Rates—Unlike single-employer plans, multiemployer plan 

funds receive steady contributions from employers because those amounts 

generally have been set through multiyear collective bargaining contracts. 

Participating employers, therefore, have less flexibility to vary their 

contributions in response to changes in firm performance, economic 

conditions, and other factors. This regular contribution income is in 

addition to any investment return and helps multiemployer plans offset 

any declines in investment returns. 

Risk Pooling—The pooling of risk inherent in multiemployer pension 

plans may also have buffered them against financial shocks and recessions 

since the contributions to the plans are less immediately affected by the 

economic performance of individual employer plan sponsors. 

Multiemployer pension plans typically continue to operate long after any 

individual employer goes out of business because the remaining employers 

in the plan are jointly liable for funding the benefits of all vested 

participants. 

Greater Average Plan Size—The stability of multiemployer plans may also 

be due in part to their size. Large plans (1,000 or more participants) 

constitute a greater proportion of multiemployer plans than of singleemployer plans. (See figs. 2 and 3.) While 55 percent of multiemployer 

plans are large, only 13 percent of single-employer plans are large and 

73 percent of single-employer plans have had fewer than 250 participants, 

as shown in figure 2. However, distribution of participants by plan size for 

multiemployer and single-employer plans is more comparable, with over 

90 percent of both multiemployer and single-employer participants in large 

plans, as shown in figure 3. 
Page 12 GAO-04-423 Private Pensions 

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

Participants, 2003 

0

10

20

30

40

50

60

70

80

Multiemployer plans

Single-employer plans

<250 250-999 1,000-4,999 5,000-9,999 10,000+

Percentage of plans

Size of plan

Source: GAO analysis of PBGC data.

8

37

32

12

10

73

2 2

9

14
Page 13 GAO-04-423 Private Pensions 

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

Size, 2003 

Although data limitations preclude any comprehensive assessment, 

available evidence suggests that since 2000, many multiemployer plans 

have recently experienced significant reductions in their funded status. 

PBGC estimated in its 2003 Annual Report that the aggregate deficit of 

underfunded multiemployer plans had reached $100 billion by year-end, up 

from a $21 billion deficit at the start of 2000. In addition, PBGC reported 

its own multiemployer insurance program deficit of $261 million for fiscal 

year 2003, the first deficit since 1981 and its largest ever. (See fig. 4.) While 

most multiemployer plans continue to provide benefits to retirees at 

unreduced levels, PBGC has also reported that the deficit was primarily 

caused by new and substantial probable losses, increasing the number of 

plans it classifies as likely requiring financial assistance in the near future 

Limited Data Suggest the 

Funded Status of 

Multiemployer Plans Has 

Declined Since 2000 

0

10

20

30

40

50

60

70

80

Multiemployer

Single-employer

<1,000 1,000-4,999 5,000-9,999 10,000+ 

Percentage of participants

Size of plan

Source: GAO analysis of PBGC data.

73

9

14

3

9

64

10

16
Page 14 GAO-04-423 Private Pensions 

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

with expected liabilities of $1.25 billion in 2003.15

Private survey data and anecdotal evidence are consistent with this 

assessment of multiemployer funding losses. One survey by an actuarial 

consulting firm showed that the percentage of its multiemployer client 

plans that were fully funded declined from 83 percent in 2001 to 67 percent 

in 2002.16 Other, more anecdotal evidence suggests increased difficulties 

for multiemployer plans. Discussions with plan administrators have 

indicated that there has been an increase in the number of plans with 

financial difficulties in recent years, with some plans reducing or 

temporarily freezing the future accruals of participants. In addition, IRS 

officials recently reported an increase in the small number of 

multiemployer plans (less than 1 percent of all multiemployer plans) 

requesting tax-specific waivers that would provide plans relief from 

current funding shortfall requirements. 

 15In 2002, of the 58 plans PBGC expected to need future financial assistance, 23 received 

assistance in that year. Similarly, in 2003, of the 62 plans PBGC expected to need future 

financial assistance, 24 received assistance in that year. 

16Segal Benefits, Compensation and HR Consulting, SEGAL Survey, Effects of “The Perfect 

Storm” Begin to Emerge: Erosion of the Funded Position of Multiemployer Pension 

Plans, Spring 2003. 
Page 15 GAO-04-423 Private Pensions 

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

As with single-employer plans, falling interest rates coincident with stock 

market declines and generally weak economic conditions have 

contributed to the funding difficulties of many multiemployer plans. The 

decline in interest rates in recent years has increased pension plan 

liabilities for DB plans in general, because their liability for future 

promised benefits increases when computed using a lower interest rate. At 

the same time, declining stock markets decreased the value of any equities 

held in multiemployer plan portfolios to meet those obligations. Finally, 

because multiemployer plan contributions are usually based on the 

number of hours worked by active participants, any reduction in their 

employment will reduce employer contributions to the plan. 

Over the past 2 decades, the multiemployer system has experienced a 

steady decline in the number of plans and in the number of active 

participants. In 1980, there were 2,244 plans and by 2003 the number had 

fallen to 1,631, a decline of about 27 percent. While a portion of the decline 

in the number of plans can be explained by consolidations through 

Multiemployer Plans Are 

Experiencing Long-term 

Declines in Plan Formation 

and Worker Participation 

-300

0

300

600

900

1,200

1,500

Assets

Liabilities

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

Dollars in millions

Year

Source: GAO analysis of PBGC data.

Net position
Page 16 GAO-04-423 Private Pensions 

mergers, few new plans have been formed, only 5, in fact, since 1992. 

Meanwhile, the number of active multiemployer plan participants has 

declined both in relative and absolute terms. By 2001, only about 

4.1 percent of the private sector workforce was comprised of active 

participants in multiemployer pension plans, down from 7.7 percent in 

1980 (see fig. 5), with the total number of active participants decreasing 

from about 6.1 million to about 4.7 million.17

Figure 5: PBGC-Insured Active Participants as a Percentage of Private Sector Wage 

and Salary Workers, 1980-2001 

Finally, as the number of active participants has declined, the number of 

retirees increased—from about 1.4 million to 2.8 million, and this increase 

had led to a decline in the ratio of active (working) participants to retirees 

in multiemployer plans. By 2001, there were about 1.7 active participants 

for every retiree, compared with 4.3 in 1980. (See fig. 6.) While the trend is 

also evident among single-employer plans, the decline in the ratio of active 

 17A similar decline was observed for active participants of single-employer plans, with the 

total falling from 27.3 percent of the private sector labor force in 1980 to 15.5 by 2001. 

Percentage of workers

Year

Source: GAO analysis of PBGC data.

0

5

10

15

20

25

30

Multiemployer active participants

Single employer active participants

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Page 17 GAO-04-423 Private Pensions 

workers to retirees affects multiemployer funding more directly because 

employer contributions are tied to active employment. 

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

PBGC’s role regarding multiemployer plans includes monitoring plans for 

financial problems, providing technical and financial assistance to 

troubled plans, and guaranteeing a minimum level of benefits to 

participants in insolvent plans. For example, PBGC annually reviews the 

financial condition of multiemployer plans to identify those that may have 

potential financial problems in the near future. Agency officials told us 

that troubled plans often solicit their technical assistance since under the 

multiemployer framework, affected parties have a vested interest in a 

plan’s survival. Occasionally, PBGC is asked to serve as a facilitator where 

the agency works with all the parties associated with the troubled plan to 

improve its financial status. Examples of such assistance by PBGC include 

facilitating the merger of troubled plans into one stronger plan and the 

“orderly shutdown” of plans, allowing the affected employers to continue 

to operate and pay benefits until all liabilities are paid. Unlike its role in 

the single-employer program where PBGC trustees weak plans and pays 

PBGC Monitors 

Multiemployer Plans 

for Financial 

Problems, Provides 

Technical and 

Financial Assistance, 

and Guarantees a 

Minimum Level of 

Benefits 

Active participants per retiree

Year

Source: GAO analysis of PBGC data.

0

1

2

3

4

5

6

Multiemployer

Single employer

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Page 18 GAO-04-423 Private Pensions 

benefits directly to participants, PBGC does not take over the 

administration of multiemployer plans, but instead, upon application, 

provides financial assistance in the form of loans when plans become 

insolvent and are unable to pay benefits at PBGC-guaranteed levels. Such 

financial assistance is infrequent; for example, PBGC has made loans 

totaling $167 million to 33 multiemployer plans since 1980 compared with 

296 trusteed terminations of single-employer plans and PBGC benefit 

payments of over $4 billion in 2002-2003 alone. PBGC officials believe that 

the low frequency of PBGC financial assistance to multiemployer plans is 

likely due to specific features of the multiemployer insurance regulatory 

framework: (1) the employers sponsoring the plan share the risk for 

providing benefits to all participants in the plan and (2) benefit guarantees 

are set at a lower level for the multiemployer insurance program 

compared with the guarantees provided by the single-employer program. 

Agency officials say that together these features encourage the affected 

parties to collaborate on their own to address the plan’s financial 

difficulties. 

Several of PBGC’s functions regarding its multiemployer program and its 

single-employer program are similar. For example, under both programs 

PBGC monitors the financial condition of all plans to identify those that 

are at-risk of requiring financial assistance. The agency maintains a 

database of financial information about such plans that draws its data 

from both PBGC premium filings and the Form 5500.18 Using an automated 

screening process19 that measures each plan against funding and financial 

standards, the agency determines which plans may be at risk of 

termination or insolvency. For both, PBGC also annually identifies plans 

that it considers probable or reasonably possible liabilities and 

 18Form 5500 is a disclosure form that private sector employers with qualified pension plans 

are required to file with IRS, Labor’s Employee Benefit Security Administration, and PBGC. 

IRS administers and enforces tax code provisions concerning private pension plans. 

Labor’s Employee Benefit Security Administration enforces ERISA requirements regarding 

disclosure and other issues, and PBGC insures the benefits of participants in most private 

sector-defined benefit pension plans that are eligible for preferential tax treatment. 

19The screening process uses five ratios as indexes of plans’ financial health. These ratios 

are (1) the ratio of active participants (those for whom plans are continuing to make 

contributions) to other participants, (2) the ratio of assets to the present value of vested 

benefits, (3) the ratio of plan assets to annual benefit payments, (4) the ratio of annual 

contributions to benefit distributions, and (5) the ratio of plan assets to the present value of 

retired participants’ benefits. 

PBGC’s Role of Monitoring 

Plans and Identifying 

Those at Risk Is Similar for 

Its Single-Employer and 

Multiemployer Programs 
Page 19 GAO-04-423 Private Pensions 

enumerates their aggregate unfunded liabilities in the agency’s annual 

financial statements for each program.20

The type of assistance PBGC provides to troubled plans through its 

multiemployer program is shaped to a degree by the program’s definition 

of the “insurable event.” PBGC insures against multiemployer plan 

insolvency. A multiemployer plan is insolvent when its available resources 

are not sufficient to pay the level of benefits at PBGC’s multiemployer 

guaranteed level for 1 year. In such cases, PBGC will provide the needed 

financial assistance in the form of a loan. If the plan recovers from 

insolvency, it must begin repaying the loan on a commercially reasonable 

schedule in accordance with regulations. Under MPPAA, unlike its 

authority towards single-employer plans, PBGC does not takeover or 

otherwise assume responsibility for the liabilities of a financially troubled 

multiemployer plan.21

PBGC sometimes provides technical assistance to help multiemployer plan 

administrators improve their funding status or for help on other issues. 

Plan administrators may contact PBGC’s customer service representatives 

at designated offices to obtain assistance on such matters as premiums, 

plan terminations, and general legal questions related to PBGC. Agency 

officials told us that on a few occasions PBGC has worked with plan 

administrators to facilitate plan mergers, “orderly shutdowns,” and other 

arrangements to protect plan participants’ benefits. For example, in 1997, 

PBGC worked with the failing Local 675 Operating Engineers Pension 

Fund and the Operating Engineers Central Pension Fund to effect a 

merger of the two plans.22 However, PBGC officials also told us that the 

 20PBGC also identifies plans as “Remotes-Watch List Plans.” PBGC deems these plans as 

having a remote probability of future liability. “Watch List Plans” are a subgroup of remotes 

that PBGC deems to merit monitoring for movement to a higher risk classification. PBGC 

officials said they use generally accepted accounting principles in valuing and reporting 

these liabilities on PBGC financial statements. 

21In contrast, under its single-employer program, the insurable event can be a plan 

termination. In fact, PBGC can terminate a troubled plan and assume the plan’s financial 

responsibilities before the plan is insolvent, paying benefits at the single-employer program 

guaranteed level directly to plan participants. 

22According to PBGC records, the merger allowed Local 675 plan participants to receive the 

full amount of their earned benefits, which was about double their guaranteed benefits. The 

merger also enabled the employers in the plan to remain competitive and it reduced 

expected PBGC losses by $5 million. 

PBGC Provides Technical 

Assistance to Troubled 

Plans and Loans to 

Insolvent Ones 
Page 20 GAO-04-423 Private Pensions 

majority of mergers are crafted by private sector parties and have no 

substantial PBGC involvement. 

PBGC has also on occasion assisted in the orderly shutdown of plans. For 

example, agency officials told us that, in 2001, they helped facilitate the 

shutdown of the severely underfunded Buffalo Carpenters’ Pension Fund. 

PBGC has the authority to approve certain plan rules governing 

withdrawal liability payments 23 and did so in this case approving the plan’s 

request to lower its annual payments, which made it possible for the 

employers to remain in business and pay benefits until all liabilities were 

paid.24

In those cases where a multiemployer plan cannot pay guaranteed 

benefits, PBGC provides financial assistance in the form of a loan to allow 

the plan to continue to pay benefits at the level guaranteed by PBGC. A 

multiemployer plan need not be terminated to qualify for PBGC loans, but 

must be insolvent and is allowed to reduce or suspend payment of that 

portion of the benefit that exceeds the PBGC guarantee level. The number 

of loans and amount of financial assistance from PBGC to multiemployer 

plans has been small in comparison to the benefits paid out under its 

single-employer program. Since 1980, the agency has provided loans to 

33 plans totaling $167 million. In 2003, PBGC provided $5 million in loans 

to 24 multiemployer plans.25 This compares with 296 trusteed terminations 

 23Under 29 U.S.C.§ Section 1404, PBGC has authority to approve special plan rules that 

would change the amount of an employer’s annual withdrawal liability payments. 

Withdrawal liability is the financial liability imposed on an employer that withdraws from 

multiemployer plan. Although there are a number of allowed methods for computing the 

liability, in essence, it consists of determining the employer share of liability for vested 

benefits so that the value of all employer liabilities when added to plan assets equals the 

total vested benefits. 

24PBGC has also helped plans to work out other types of arrangements. In 1994, PBGC 

helped work out an agreement with the Amalgamated Men’s and Boy’s Clothing Pension 

Fund to freeze worker benefit accruals while continuing to allow employers to make 

contributions to the plan. Officials told us that this made it possible for employers to 

(1) remain in business, (2) pay down their withdrawal liability over time, and (3) pay 

previously accrued benefits. Officials told us that without the agency’s involvement, 

participants would not have received their full benefits, and the businesses might have 

failed. In addition, PBGC officials said that they would likely have had to provide a greater 

amount of financial assistance to the affected plans. 

25Of the 33 plans that have ever received financial assistance (loans) to pay insured 

benefits, 24 received assistance in 2003, 7 merged with other healthier plans, 1 purchased 

an annuity from a private sector insurance company and terminated, transferring benefit 

obligations to the insurance company and 1 plan returned to solvency and repaid the 

principal amount of PBGC financial assistance provided.
Page 21 GAO-04-423 Private Pensions 

of single-employer plans and PBGC benefit payments of over $4 billion to 

single-employer plan beneficiaries in 2002 and 2003 alone.26

PBGC officials say that this lower frequency of financial assistance is 

primarily due to key features of the multiemployer regulatory framework. 

First, in comparison to that governing the single-employer program, the 

regulatory framework governing multiemployer plans places greater 

financial risks on employers and workers and relatively less on PBGC. For 

example, in the event of the bankruptcy of an employer in a multiemployer 

plan, the remaining employers in the plan remain responsible for funding 

all plan benefits. Under the single-employer program, a comparable 

employer bankruptcy could leave PBGC responsible for any plan liabilities 

up to the PBGC-guaranteed level. In addition, the law provides a 

disincentive for employers seeking to withdraw from an underfunded plan 

by imposing a withdrawal liability based on its share of the plan’s 

unfunded vested benefits.27 Another key feature is that multiemployer plan 

participants also bear greater risk than their single-employer counterparts 

because PBGC guarantees benefits for multiemployer pensioners at a 

much lower dollar amount than for single-employer pensioners: about 

$13,000 for 30 years of service for the former compared with about $44,000 

annually per retiree at age 65 for the latter.28 PBGC officials explained that 

this greater financial risk on employers and lower guaranteed benefit level 

for participants in practice creates incentives for employers, participants, 

and their collective bargaining representatives to avoid insolvency and to 

collaborate in trying to find solutions to the plan’s financial difficulties. 

The smaller size of PBGC’s multiemployer program might also contribute 

to the lower frequency of assistance. The multiemployer program’s 

$1 billion in assets and $1.3 billion in liabilities accounts for a relatively 

 26The number of trusteed terminated plans is based on the fiscal year that PBGC trusteed 

the plans, rather than the fiscal year of the plan termination. 

27Congress is currently considering a proposal that would revise the current requirements 

concerning withdrawal liability for certain plans, shifting some of those liabilities to PBGC. 

28Under the single-employer program, the maximum guarantee for plans terminating in 

2004 is $44,386.32 yearly ($3,698.77 monthly) for a single life annuity beginning at age 

65. The maximum is adjusted downward for retirees younger than age 65. Under the 

multiemployer program, PBGC guarantees the first $11 of monthly accrual and 75 percent 

of the next $33 of monthly accrual, for a maximum monthly accrual of $35.75 per month 

times the years of credited service. For a participant with 30 years of service under the 

plan, the maximum annual PBGC guaranteed benefit would be $12,870. Workers with less 

than 30 years service would receive a lower maximum guaranteed benefit. 
Page 22 GAO-04-423 Private Pensions 

small portion of PBGC’s total assets and liabilities, representing less than 

3 percent of the total. Further, the multiemployer program covers just 

22 percent of all defined benefit plan participants. There are also many 

fewer plans in the multiemployer program, about 1,700, as compared with 

about 30,000 single-employer plans. Other things equal, there are fewer 

opportunities for potential PBGC assistance to multiemployer plans than 

to single-employer plans.29

A number of factors pose challenges to the long-term prospects of the 

multiemployer pension plan system. Some of these factors are specific to 

the features and nature of multiemployer plans, including a regulatory 

framework that some employers may perceive as financially riskier and 

less flexible than those covering other types of pension plans. For 

example, compared with a single-employer plan, an employer covered by a 

multiemployer plan cannot easily adjust annual plan contributions in 

response to the firm’s own financial circumstances. Collective bargaining 

itself, a necessary aspect of the multiemployer plan model and another 

factor affecting plans’ prospects, has also been in long-term decline, 

suggesting fewer future opportunities for new plans to be created or 

existing ones to expand. As of 2003, union membership, a proxy for 

collective bargaining coverage, accounted for less than 9 percent of the 

private sector labor force and has been steadily declining since 1953. 

Experts have identified other challenges to the future prospects of defined 

benefit plans generally, including multiemployer plans. These include the 

growing trend among employers to choose defined contribution plans over 

DB plans, including multiemployer plans, the continued growing life 

expectancy of American workers, resulting in participants spending more 

years in retirement, thus increasing benefit costs, and increases in 

employer-provided health insurance costs, which are increasing 

employers’ total compensation costs generally, making them less willing or 

able to increase elements of compensation, like wages or pensions. 

 29See U.S. General Accounting Office, Pension Benefit Guaranty Corporation: Single 

Employer Pension Insurance Program Faces Significant Long-Term Risks, GAO-04-90

(Washington, D.C.: October 2003). 

A Number of Factors 

Challenge the Longterm Prospects of the 

Multiemployer 

Defined Benefit 

System 
Page 23 GAO-04-423 Private Pensions 

Some factors that raise questions about the long-term viability of 

multiemployer plans are specific to certain features of multiemployer 

plans themselves, including features of the regulatory framework that 

some employers may well perceive as less flexible and financially riskier 

than the features of other types of pension plans. For example, an 

employer covered by a multiemployer pension plan typically does not have 

the funding flexibility of a comparable employer sponsoring a singleemployer plan. In many instances, the employer covered by the 

multiemployer plan cannot as easily adjust annual plan contributions in 

response to the firm’s own financial circumstances. This is because 

contribution rates are often fixed for periods of time by the provisions of 

the collective bargaining agreement. Employers that value such flexibility 

might be less inclined to participate in a multiemployer plan. Employers in 

multiemployer plans may also face greater financial risks than those in 

other forms of pension plans. For example, an employer sponsor of a 

multiemployer plan that wishes to withdraw from the plan is liable for its 

share of pension plan benefits not covered by plan assets upon withdrawal 

from the plan, rather than when the plan terminates.30 Employers in plans 

with unfunded vested benefits face an immediate withdrawal liability that 

can be costly, while employers in fully funded plans face the potential of 

costly withdrawal liability if the plan becomes underfunded in the future.31

Thus, an employer’s pension liabilities become a function not only of the 

employer’s own performance but also the financial health of other 

employer plan sponsors. These additional sources of potential liability can 

be difficult to predict, increasing employers’ level of uncertainty and risk. 

Some employers may hesitate to accept such risks if they can sponsor 

other plans that do not have them, such as 401(k) type defined 

contribution plans.32

The future growth of multiemployer plans is also predicated on the future 

growth prospects of collective bargaining. Collective bargaining is an 

inherent feature of the multiemployer plan model. Collective bargaining, 

however, has been declining in the United States since the early 1950s. 

 30Special provisions establish specific withdrawal liability rules for some industries. For 

example, construction firms no longer operating in a geographic area are exempt from 

withdrawal liability. 

31Also, employers may become liable for a portion of benefits accrued by employees of 

participating employers that become bankrupt. 

32A 401(k) plan is one type of defined contribution plan that operates as a salary reduction 

arrangement under Section 401(k) of the Internal Revenue Code. 

Certain Features of the 

Current Regulatory 

Framework and the 

Decline of Collective 

Bargaining May 

Discourage Future Plan 

Growth 
Page 24 GAO-04-423 Private Pensions 

Currently, union membership, a proxy for collective bargaining coverage, 

accounts for less than 9 percent of the private sector labor force. In 1980, 

union membership accounted for about 19 percent of the civilian 

workforce and about 27 percent of the civilian workforce in 1953. 

Pension experts have suggested a variety of challenges faced by today’s 

defined benefit pension plans, including multiemployer plans.33 These 

include the continued general shift away from DB plans to defined 

contribution plans, and the increased longevity of the U.S. population, 

which translates into a lengthier and more costly retirement. In addition, 

the continued escalation of employer health insurance costs has placed 

pressure on the compensation costs of employers, including pensions. 

Employers have tended to move away from DB plans and towards DC 

plans since the mid 1980s. The number of PBGC-insured defined benefit 

plans declined from 97,683 in 1980 to 31,135 in 2002. (See fig. 7.) The 

number of defined contribution plans sponsored by private employers 

nearly doubled from 340,805 in 1980 to 673,626 in 1998.34 Along with this 

continuing trend to sponsoring DC plans, there has also been a shift in the 

mix of plans that private sector workers participate. Labor reports that the 

percentage of private sector workers who participated in a primary DB 

plan has decreased from 38 percent in 1980 to 21 percent by 1998, while 

the percentage of such workers who participated in a primary DC plan has 

increased from 8 to 27 percent during this same period. Moreover, these 

same data show that, by 1998, the majority of active participants (workers 

participating in their employer’s plan) were in DC plans, whereas nearly 

20 years earlier the majority of participants were in DB plans.35 Experts 

have suggested a variety of explanations for this shift, including the 

greater risk borne by employers with DB plans, greater administrative 

costs and more onerous regulatory requirements, and that employees 

more easily understand and favor DC plans. These experts have also noted 

considerable employee demand for plans that state benefits in the form of 

 33Strengthening Pension Security: Examining the Health and Future of Defined Benefit 

Pension Plans, hearing before the Subcommittee on Employer-Employee Relations of the 

House Committee on Education and Workforce, (Washington D.C.: June 4, 2003). 

34The most recent year for which the Department of Labor has issued its Private Pension 

Plan Bulletin: Abstract Of Form 5500 Annual Reports. 

35See U.S. General Accounting Office, Private Pensions: Participants Need Information 

on Risks They Face in Managing Pension Assets at and during Retirement, GAO-03-810

(Washington, D.C.: July 2003). 

Multiemployer Plans Are 

Limited by the Same 

Factors Affecting All 

Defined Benefit Plans 
Page 25 GAO-04-423 Private Pensions 

an account balance and emphasize portability of benefits, such as is 

offered by 401(k) type defined contribution pension plans. 

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

The increased life expectancy of workers also has important implications 

for defined benefit plan funding, including multiemployer plans. The 

average life expectancy of males at birth has increased from 66.6 in 1960 to 

74.3 in 2000, with females at birth experiencing a rise of 6.6 years from 

73.1 to 79.7 over the same period. As general life expectancy has increased 

in the United States, there has also been an increase in the number of 

years spent in retirement. PBGC has noted that improvements in life 

expectancy have extended the average amount of time spent by workers in 

retirement from 11.5 years in 1950 to 18 years for the average male worker 

as of 2003. This increased duration of retirement has placed pressure on 

employers with defined benefit plans to increase their contributions to 

match this increase in benefit liabilities. This problem can be further 

exacerbated for those multiemployer plans with a shrinking pool of active 

workers because plan contributions are generally paid on a per work-hour 

basis, and thus employers may have to increase contributions for each 

hour worked by the remaining active participants to fund any liability 

increase. 

Plans in thousands

Year

Source: GAO analysis of PBGC data.

0

20

40

60

80

100

120

140

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002
Page 26 GAO-04-423 Private Pensions 

Increasing health insurance costs are another factor affecting the longterm prospects of pensions, including multiemployer pensions. Recent 

increases in employer provided health insurance costs are accounting for 

a rising share of total compensation, increasing pressure on employers’ 

ability to maintain wages and other benefits, including pensions. Bureau of 

Labor Statistics data show that the cost of employer provided health 

insurance has risen steadily in recent years, rising from 5.4 percent of total 

compensation in 1999 to 6.5 percent as of the third quarter of 2003. A 

private survey of employers found that employer-sponsored health 

insurance costs rose about 14 percent between the spring of 2002 and the 

spring of 2003, the third consecutive year of double digit acceleration and 

the highest premium increase since 1990.36 Plan administrators and 

employer and union representatives that we talked with identified the 

rising costs of employer provided health insurance as a key problem facing 

plans, as employers are increasingly forced to choose between 

maintaining current levels of pension or medical benefits. 

Although available evidence suggests that multiemployer plans are not 

experiencing anywhere near the magnitude of the problems that have 

recently afflicted the single-employer plans, there is cause for concern. 

Most significant is PBGC’s estimate of $100 billion in unfunded 

multiemployer plan liabilities that are being borne collectively by 

employer sponsors and plan participants. Compared to the singleemployer program, PBGC does not face the same level of exposure from 

this liability at this time. This is because, as PBGC officials have noted, the 

current regulatory framework governing multiemployer plans redistributes 

financial risk towards employers and workers and away from the 

government and potentially the taxpayer. Employers face withdrawal and 

other liabilities that can be significant, while workers face the prospect of 

receiving guaranteed benefits far lower and with benefit reduction at 

levels well below the guaranteed limits than those provided by PBGC’s 

single-employer program, should their plan become insolvent. Together, 

not only do these features limit the exposure to PBGC and the taxpayer, 

they create important incentives for all interested parties to resolve 

difficult financial situations that could otherwise result in plan 

termination. 

 36Employer Health Benefits 2003 Annual Survey, The Kaiser Family Foundation and 

Health Research and Education Trust. 

Concluding 

Observations 
Page 27 GAO-04-423 Private Pensions 

However, the declines in interest rates and equities markets, and weak 

economic conditions in the early 2000s, have increased the financial stress 

on both individual multiemployer plans and the multiemployer framework 

generally. Proposals to address this stress should be carefully designed 

and considered for their longer-term consequences. For example, 

proposals to shift plan liabilities to PBGC by making it easier for 

employers to exit multiemployer plans could help a few employers or 

participants but erode the existing incentives that encourage interested 

parties to independently face up to their financial challenges. In particular, 

placing additional liabilities on PBGC could ultimately have serious 

potential consequences for the taxpayer, given that with only about 

$25 million in annual income, a trust fund of less than $1 billion, and a 

current deficit of $261 million, PBGC’s multiemployer program has very 

limited resources to handle a major plan insolvency that could run into 

billions of dollars. 

The current congressional efforts to provide funding relief are at least in 

part in response to the difficult conditions experienced by many plans in 

recent years. However, these efforts are also occurring in the context of 

the broader, long-term decline in private sector defined benefit plans, 

including multiemployer plans, and the attendant rise of defined 

contribution plans, with their emphasis on greater individual responsibility 

for providing for a secure retirement. Such a transition could lead to 

greater individual control and reward for prudent investment and 

planning. However, if managed poorly, it could lead to adverse 

distributional effects for some workers and retirees, including a greater 

risk of a poverty level income in retirement. Under this transition view, the 

more fundamental issues concern how to minimize the potentially serious, 

negative effects of the transition, while balancing risks and costs for 

employers, workers, and retirees, and the public. These important policy 

concerns make Congress’s current focus on pension reform both timely 

and appropriate. 

We provided a draft of this report to Labor, Treasury, and PBGC. The 

agencies provided technical comments, which we incorporated as 

appropriate. 

We are sending copies of this report to the Secretary of Labor, the 

Secretary of the Treasury, and the Executive Director of the Pension 

Benefit Guaranty Corporation; appropriate congressional committees; and 

other interested parties. We will also make copies available to others on 

Agency Comments 
Page 28 GAO-04-423 Private Pensions 

request. In addition, the report will be available at no charge on GAO’s 

Web site at http://www.gao.gov. 

If you have any questions concerning this report, please contact me at 

(202) 512-5932. Other major contributors include Joseph Applebaum, 

Orin B. Atwater, Susan Bernstein, Kenneth J. Bombara, Tim Fairbanks, 

Charles Jeszeck, Gene Kuehneman, Raun Lazier, and Roger J. Thomas. 

Barbara D. Bovbjerg 

Director, Education, Workforce 

 and Income Security Issues 

(130267) 
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To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs