Testimony 

Before the Subcommittee on EmployerEmployee Relations, Committee on 

Education and the Workforce, 

House of Representatives 

United States General Accounting Office 

GAO

For Release on Delivery 

Expected at 10:30 a.m. 

Thursday, March 18, 2004 PRIVATE PENSIONS

Multiemployer Pensions 

Face Key Challenges to 

Their Long-Term Prospects 

Statement of Barbara D. Bovbjerg, Director 

Education, Workforce, and Income Security Issues 

GAO-04-542T 
www.gao.gov/cgi-bin/getrpt?GAO-04-542T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barbara 

Bovbjerg at (202)512-7215 or 

bovgjergb@gao.gov. 

Highlights of GAO-04-542T, a report to 

House Subcommittee on EmployerEmployee Relations, Committee on 

Education and the Workforce, House of 

Representatives 

March 18, 2004

PRIVATE PENSIONS

Multiemployer Pensions Fact Key 

Challenges to Their Long-Term Prospects 

The framework governing multiemployer plans generally places greater 

financial risk on employers and participants and less on PBGC than does 

PBGC’s single-employer program. For example, in the event of employer 

bankruptcy, the remaining employers in the multiemployer plan assume 

additional funding responsibility. Further, PBGC’s guaranteed participant 

benefit is much lower for multiemployer participants, and PBGC does not 

provide financial assistance until the multiemployer plan is insolvent. 

Following two decades of relative financial stability, many multiemployer 

plans appear to have suffered recent funding losses, while long-term declines 

in participation and plan formation continue. At the close of the 1990s, the 

majority of multiemployer plans reported assets exceeding 90 percent of 

total liabilities. Since then, stock market declines, coupled with low interest 

rates and poor economic conditions, have reduced assets and increased 

liabilities for many plans. In its 2003 annual report, PBGC estimated that 

underfunded multiemployer plans now face an aggregate unfunded liability 

of $100 billion, up from $21 billion in 2000. PBGC also reported an 

accumulated net deficit of $261 million for its multiemployer program in 

2003, the first since 1981. Meanwhile, since 1980, there has been a steady 

decline in the number of plans, from over 2,200 plans to fewer than 1,700, 

and a 1.4 million decline in the number of active workers in plans. 

The long-term prospects of the multiemployer system face a number of 

challenges. Some are inherent in the multiemployer design and regulatory 

framework, such as the greater perceived financial risk and reduced 

flexibility for employers, compared with other plan types. The long-term 

decline of collective bargaining also results in fewer participants and 

employers available to expand or create new plans. Other factors that pose 

challenges include the growing trend among employers to choose defined 

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

the cost of defined benefit 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 testimony provides 

information on differences 

between single employer and 

multiemployer pension plans, 

recent trends in the funding of 

multiemployer pension plans and 

worker participation in those plans, 

and factors that may pose 

challenges to the future prospects 

of multiemployer plans. GAO will 

soon release a separate report on 

multiemployer pension issues. 
Page 1 GAO-04-542T 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to discuss the health of the multiemployer 

pension system and the challenges it faces. Multiemployer plans are plans 

created by collective bargaining agreements covering more than one 

employer. They are generally operated under the joint trusteeship of labor 

and management and constitute an important segment of the nation’s 

private employer pension system. These defined benefit (DB)1

 pension 

plans cover over 9.7 million participants, representing about 22 percent of 

all workers and retirees insured by Pension Benefit Guaranty Corporation 

(PBGC).2

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, 2003.3

 The serious difficulties 

 1

Defined benefit (DB) plans promise a benefit that is generally based on years of service 

and employee’s salary for single-employer plans or a flat dollar amount for multiemployer 

plans. In a single-employer DB plan the employer is generally responsible for funding the 

benefit, investing and managing plan assets, and bearing the investment risk. For a 

multiemployer plan the employer generally makes contributions based on the collective 

bargaining agreement and plan trustees are responsible for investment decisions. In 

contrast, under a defined contribution plan, benefits are based on the contributions to and 

investment returns on individual accounts, and the employee bears the investment risk. An 

example of a defined contribution plan is a 401 (k) plan, which operates as a salary 

reduction arrangement under section 401(k) of the Internal Revenue Code. The United 

States 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, the percentage of the workforce with pension coverage has been near 

50 percent since the1970s. 

2

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 beneficiaries covered by private sector employee 

benefit plans. Title IV of ERISA created PBGC as a United States Government corporation 

to insure the pensions of participants and beneficiaries in private sector-defined benefit 

plans. 

3

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. See U.S. General Accounting Office, 

Pension Benefit Guaranty Corporation Single-Employer Program: Long-Term 

Vulnerabilities Warrant Program’s Assignment to GAO High Risk Designation, 

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

legislation that would provide funding relief to certain multiemployer pension funds. 
Page 2 GAO-04-542T 

experienced by these single-employer plans have prompted questions 

about the health of the nation’s multiemployer defined benefit plans. 

The financial strength of the multiemployer system has crucial 

consequences, not only for the both the employers and the millions of 

workers and retirees participating in multiemployer pension plans, but for 

the elements and structure of current national pension policy. We will 

soon release a report addressing multiemployer issues that we undertook 

at the joint request of the Committee on Education and Workforce and this 

subcommittee. In seeking to clarify some of these issues today, my 

testimony will focus on (1) how multiemployer defined benefit plans differ 

from single-employer defined benefit plans, (2) recent and current trends 

in funding and worker participation in these plans; and (3) potential 

challenges to their long-term prospects. 

To determine the trends in the funded status of multiemployer defined 

benefit plans, we analyzed Form 5500 disclosure statements and PBGC 

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

is the only comprehensive source of financial and other plan information 

on private pension plans collected on a regular basis.4

 Form 5500 provides 

important pension information, such as the number of plan participants 

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

Form 5500 data is 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 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. 

In summary, after two 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 

 4

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). 
Page 3 GAO-04-542T 

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 of $100 billion, up from $21 billion in 2000. 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. 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. 

A number of factors pose challenges to the multiemployer plan system 

over the long term. 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 those sponsoring single-employer plans, an employer 

participating in a 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 the plan’s 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; the increasing life expectancy of American 
Page 4 GAO-04-542T 

workers, which will increase plan costs; and continuing increases in health 

insurance costs, which will affect overall compensation costs, including 

pensions, for employers. 

It would be useful at this point to describe several differences between 

multiemployer and single-employer plans. Multiemployer plans are 

established pursuant to collectively bargained agreements negotiated 

between labor unions representing employees and two or more employers 

and are generally jointly administered by trustees from both labor and 

management.5

 Single-employer plans are administered by one employer 

and may or may not be collectively bargained. Multiemployer plans 

typically cover groups of workers in such industries as construction, retail 

food sales, and trucking, with construction representing 38 percent of all 

participants. In contrast, 47 percent of single-employer plan participants 

are in manufacturing. Multiemployer 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 occupation is frequent over the course of a career. 

Single-employer plans are established and maintained by only one 

employer and do not normally offer benefit portability. Multiemployer 

plans also differ from so called multiple-employer plans that are not 

generally established through collective bargaining agreements and where 

many plans maintain separate accounts for each employer.6

 The Teachers 

 5

The National Labor Relations Act (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. NLRA also 

specifies the structure, rights, and responsibilities for union and employer trustees of 

multiemployer pension plans. Since its enactment in 1935, collective bargaining has been 

the primary means by which workers can negotiate, through unions, the terms of their 

pension plan. 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 is jointly and equally administered by 

union and employer representatives. Taft Hartley also established a formal set of 

conditions under which these plans must be operated and provided a legal framework for 

their management. See 29 U.S.C. 186(c)(5). 

6

Multiemployer plans as used throughout this testimony refer to defined benefit pension 

plans. Note that there are other, sometimes separate, multiemployer agreements that cover 

programs such as health and other welfare benefits and defined contribution pension plans. 

Multiemployer Plans 

Differ from SingleEmployer Plans 
Page 5 GAO-04-542T 

Insurance Annuity Association and College Retirement Equities fund 

(TIAA-CREF) is an example of a large multiple-employer plan organized 

around the education and research professions. TIAA-CREF offers a 

defined benefit contribution plan, in which contributions are accumulated 

over a career and paid out at retirement, often as an annuity. 

Below are some features that illustrate some key differences between 

single-employer and multiemployer plans: 

• Contributions· In general, the same ERISA funding rules apply to both 

single- and multiemployer defined benefit pension plans. While ERISA and 

IRC minimum funding standards permit plan sponsors some flexibility in 

the timing of pension contributions, 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. Employer 

contributions to many multiemployer plans are typically made on a set 

dollar amount per hour of covered work, and thus to the number of active 

plan participants. With other things being equal, the reduced employment 

of active participants will result in lower contributions and reduced plan 

funding.7

• Withdrawal liability· 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.8

 The law contains a formula for determining the amount 

an employer withdrawing from a multiemployer plan is required to 

contribute, known as “withdrawal liability.” This amount is based upon a 

proportional share of the plans’ unfunded vested benefits.9

 Furthermore, if 

a participating employer becomes bankrupt, MPPAA requires that the 

 7

Benefit levels are generally also fixed by the contract or by the plan trustee, based on the 

agreed level of contributions. 

8

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

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

9

Vested benefits are benefits that are no longer subject to risk of forfeiture. Unfunded 

vested benefits are the excess, if any, of the present value of a plan’s vested benefits over 

the value of plan assets, determined in accordance with ERISA, including claims of the plan 

for unpaid initial withdrawal liability and redetermination liability. 
Page 6 GAO-04-542T 

remaining employers in the plan assume the additional funding 

responsibility for the benefits of the bankrupt employer’s plan 

participants. For single-employer plans, the sponsoring employer is liable 

only for the unfunded portion of its own plan or its current liability in a 

bankruptcy (distress termination). 

• Different premiums and benefit guarantee levels· PBGC operates two 

distinct insurance programs, one for multiemployer plans and one for 

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 

recoveries from employers responsible for underfunded terminated single 

employer plans. 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. 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. PBGC guarantees benefits for 

multiemployer pensioners at a much lower dollar amount than for singleemployer 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.10

• Financial assistance and the insurable event· PBGC’s “insurable event” 

for its multiemployer program is 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 contrast, 

the insurable event for the single-employer program is generally the 

termination of the plan. In addition, 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 

 10Under the single-employer program, the maximum guarantee in 2004 is $44,386.32 

annually ($3,698.86 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 7 GAO-04-542T 

multiemployer plans but instead, provides financial assistance in the form 

of loans when plans become insolvent. A multiemployer plan need not be 

terminated to qualify for PBGC loans, but it must be insolvent and is 

allowed to reduce or suspend payment of that portion of the benefit that 

exceeds the PBGC guarantee level. If the plan recovers from insolvency, it 

must begin repaying the loan on reasonable terms in accordance with 

regulations. Such financial assistance is infrequent; for example, PBGC has 

made loans totaling $167 million to 33 multiemployer plans since 198011

compared with 296 trusteed terminations of single-employer plans and 

PBGC benefit payments of over $4 billion in 2002-2003 alone.12

The net effect of these different features is that there is a different 

distribution of financial risk among, employers, participants and PBGC 

under the multiemployer program, compared with PBGC’s single-employer 

program. Multiemployer member employers and participants bear far 

more financial risk, and PBGC, and implicitly the taxpayer, bear far less 

risk, under the multiemployer program. In addition, PBGC officials 

explained that the features of the multiemployer regulatory framework 

have also led to a lower frequency of financial assistance. They note that 

greater financial risks faced by employers and the lower guaranteed 

benefits assured participants create incentives for employers, participants, 

and their collective bargaining representatives to avoid insolvency and to 

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

 11Of the 33 plans that have received financial assistance (loans) to pay insured benefits, 

24 received assistance in 2003, 4 merged with other healthier plans and 1 purchased an 

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

obligations to the insurance company. Only 1 plan has repaid any of its financial assistance 

and that plan repaid only the principal amount of its financial assistance. 

12 The 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. 
Page 8 GAO-04-542T 

While multiemployer plan funding has exhibited considerable stability 

over the past two 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 in 2000. Recently, however, it appears that a combination of 

stock market declines coupled with low interest rates and poor economic 

conditions has 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 net deficit of 

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

multiemployer plans continue to provide benefits 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, according to the latest 

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

covered 4.7 million active participants, representing about a fifth of all 

active 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 9 GAO-04-542T 

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, which are associated with greater risk and 

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

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

assets of most multiemployer plans. 

Contribution rates · Unlike funds for 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 

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 10 GAO-04-542T 

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 gains and losses of 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 

partly reflect their size. Large plans (1,000 or more participants) constitute 

a greater proportion of multiemployer plans than of single-employer 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 singleemployer 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 11 GAO-04-542T 

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 12 GAO-04-542T 

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 experienced significant reductions in their funded status. PBGC 

estimated in its 2003 annual report that 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 a net 

accumulated deficit for its own multiemployer program 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 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 from 

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

expected liabilities of $1.25 billion in 2003. 

Private survey data and anecdotal evidence are consistent with this 

assessment of multiemployer funding losses. One survey by an actuarial 

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 13 GAO-04-542T 

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 2002.13 Other, more anecdotal evidence suggests increased difficulties 

for multiemployer plans. For example, 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 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. 

Figure 4: PBGC Multiemployer Program, 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 multiemployer plans. The decline 

in interest rates in recent years has increased the present value of pension 

plan liabilities for DB plans in general, because the cost of providing 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, 

 13Segal 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. 

-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.
Page 14 GAO-04-542T 

because multiemployer plan contributions are usually based on the 

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

participant employment will reduce employer contributions to the plan. 

Despite their relative financial stability, the multiemployer system has 

experienced a steady decline in the number of plans and in the number of 

active participants over the past 2 decades. In 1980, there were 2,244 plans, 

and by 2003 the number had fallen to 1,623, a decline of about 27 percent. 

While a portion of the decline in the number of plans can be explained by 

consolidations through mergers, few new plans have been formed - only 

5, in fact, since 1992. Meanwhile, the number of active multiemployer plan 

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

about 4.1 percent of the private sector workforce was composed 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. 14

 14A 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. 

Multiemployer Plans 

Experiencing Long-Term 

Declines in Plan Formation 

and Worker Participation 
Page 15 GAO-04-542T 

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 

workers to retirees affects multiemployer funding more directly because 

employer contributions are tied to active employment. The higher benefit 

payouts required for greater numbers of retirees, living longer, and the 

reduced employer contributions resulting from fewer active workers 

combines to put pressure on the funding of multiemployer plans. 

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 16 GAO-04-542T 

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

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. This is because 

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

the collective bargaining agreement. 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 

A Number of Factors 

Challenge the LongTerm Prospects of the 

Multiemployer 

Defined Benefit 

System 

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 17 GAO-04-542T 

multiemployer plans; the continued growing life expectancy of American 

workers, resulting in participants spending more years in retirement, thus 

increasing pension benefit costs; and increases in employer-provided 

health insurance costs, which are increasing employers’ compensation 

costs generally, including pensions. 

Some factors 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. 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, as with a single-employer plan. Employers in plans with 

unfunded vested benefits face an immediate withdrawal liability that can 

be costly. In addition, employers in fully funded plans also face the 

potential of costly withdrawal liability if the plan becomes underfunded in 

the future through the actions of other sponsors participating in the 

multiemployer plan. Thus, an employer’s pension liabilities become a 

function not only of the employer’s own performance but also the financial 

health of other plan sponsors in the multiemployer plan. 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. 

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

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. Currently, union 

membership, a proxy for collective bargaining coverage, accounts for less 

than 9 percent of the private sector labor force. In 1980, union 

Certain Features of the 

Current Regulatory 

Framework and the 

Decline of Collective 

Bargaining May 

Discourage Future Plan 

Growth 
Page 18 GAO-04-542T 

membership accounted for about 19 percent of the entire national 

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.15 These 

include the continued general shift away from DB plans to defined 

contribution (DC) 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 toward DC plans 

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

plans, including single employer plans, declined from 97,683 in 1980 to 

31,135 in 2002. (See fig. 7.) The number of DC plans sponsored by private 

employers nearly doubled from 340,805 in 1980 to 673,626 in 1998.16 Along 

with this continuing trend toward sponsoring DC plans, there has also 

been a shift in the mix of plans that private sector workers participate in. 

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 percent 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 had been in DB plans.17 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 an account balance and 

 15“Strengthening 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). 

161998 is the most recent year for which the Department of Labor has issued its Private 

Pension Plan Bulletin: Abstract of Form 5500 Annual Reports. 

17U.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 19 GAO-04-542T 

emphasize portability of benefits, such as is offered by 401(k)-type defined 

contribution pension plans. 

Figure 7: Number of PBGC-Insured DB Pension 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 2002. This increased duration of retirement has required employers 

with defined benefit plans to increase their contributions to match this 

increase in benefit liabilities. This problem is exacerbated for those 

multiemployer plans with a shrinking pool of active workers because plan 

contributions are generally paid on a per work-hour basis, contributing to 

the funding strain we discussed earlier. 

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

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 20 GAO-04-542T 

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, growing 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 1990.18 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 and 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. 

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

multiemployer plan liabilities that are being borne collectively by 

employers and plan participants. 

At this time, PBGC and, potentially, the taxpayer do not face the same 

level of exposure from this liability with multiemployer plans that they do 

with single-employer plans. This is because, as PBGC officials have noted, 

the current regulatory framework governing multiemployer plans 

redistributes financial risk toward employers and workers and away from 

the government. Employers face withdrawal and other liabilities that can 

be significant. In addition, should a multiemployer plan become insolvent, 

workers face the prospect of receiving far lower guaranteed benefits than 

workers receive under PBGC’s single-employer program guaranteed limits. 

Together, not only do these features limit the exposure for PBGC, they 

create important incentives for all interested parties to resolve difficult 

financial situations that could otherwise result in plan insolvency. 

 18Employer Health Benefits 2003 Annual Survey, The Kaiser Family Foundation and 

Health Research and Education Trust. 

Conclusions 
Page 21 GAO-04-542T 

Because the multiemployer plans’ structure balances risk in a manner that 

fosters constructive collaboration among interested parties, proposals to 

address multiemployer plans’ funding stress should be carefully designed 

and considered for their long-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 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 for the public as a whole. These 

important policy concerns make Congress’s current focus on pension 

reform both timely and appropriate. 

This concludes my prepared statement. I am happy to answer any 

questions that the subcommittee may have. 

For further questions on this testimony, please contact me at (202) 

512-7215. Individuals making key contributions to this testimony include 

Joseph Applebaum, Tim Fairbanks, Charles Jeszeck, Gene Kuehneman, 

Raun Lazier, and Roger J. Thomas. 

GAO Contact and 

Staff 

Acknowledgments 

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