PRIVATE PENSIONS

Multiemployer Plans and 

PBGC Face Urgent 

Challenges

Statement of Charles Jeszeck, Director 

Education, Workforce, and Income Security Issues

Testimony 

Before the Subcommittee on Health, 

Employment, Labor and Pensions, 

Committee on Education and the 

Workforce, House of Representatives

For Release on Delivery 

Expected at 10:00 a.m. EST

Tuesday, March 5, 2013

GAO-13-428T

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-428T, a testimony 

before the Subcommittee on Health, 

Employment, Labor and Pensions, Committee 

on Education and the Workforce, U.S. House 

of Representatives

March 2013

PRIVATE PENSIONS 

Multiemployer Plans and PBGC Face Urgent 

Challenges 

Why GAO Did This Study

Multiemployer pension plans—created 

by collective bargaining agreements 

including more than one employer—

cover more than 10 million workers 

and retirees, and are insured by the 

PBGC. As a result of investment 

market declines, employers 

withdrawing from plans and 

demographic challenges in recent 

years, many multiemployer plans have 

had large funding shortfalls and face

an uncertain future. Also, both PBGC’s 

single-employer and multiemployer 

insurance programs have been on 

GAO’s list of high-risk federal 

programs for a number of years. 

This testimony provides information on 

(1) recent actions that multiemployer 

plans in the worst financial condition 

have taken to improve their funding 

levels; and (2) the extent to which 

plans have relied on PBGC assistance 

since 2009, and the financial condition 

of PBGC’s multiemployer plan 

insurance program.

GAO analyzed government and 

industry data, interviewed 

representatives of selected pension 

plans, and a wide range of industry 

experts and stakeholders and reviewed 

relevant federal laws, regulations, and 

documentation from plans. 

GAO is not making recommendations 

in this testimony. GAO will soon 

release a separate report on 

multiemployer pension issues.

What GAO Found

The most severely distressed multiemployer plans have taken significant steps to 

address their funding problems and, while most plans expected improved 

financial health, some did not. A survey conducted by a large actuarial and 

consulting firm serving multiemployer plans suggests that the majority of the

most severely underfunded plans—those designated as being in critical status—

developed plans to increase employer contributions or reduce certain participant 

benefits. In some cases, these measures will have significant effects on 

employers and participants. For example, one plan representative stated that 

contribution increases had damaged some firms’ competitive position in the 

industry. Similarly, reductions or limitations on certain benefits—such as disability 

benefits—may create hardships for some older workers, such as those with 

physically demanding jobs. Most of the 107 surveyed plans expected to emerge 

from critical status, but about 26 percent did not and instead seek to delay 

eventual insolvency.

The Pension Benefit Guaranty Corporation’s (PBGC) financial assistance to 

multiemployer plans continues to increase, and plan insolvencies threaten 

PBGC’s multiemployer insurance fund. As a result of current and anticipated 

financial assistance, the present value of PBGC’s liability for plans that are 

insolvent or expected to become insolvent within 10 years increased from $1.8 to 

$7.0 billion between fiscal years 2008 and 2012. Yet PBGC’s multiemployer 

insurance fund only had $1.8 billion in total assets in 2012. PBGC officials said 

that financial assistance to these plans would likely exhaust the fund in or about 

2023. If the fund is exhausted, many retirees will see their pension benefits 

reduced to a small fraction of their original value because only a reduced stream 

of insurance premium payments will be available to pay benefits.

PBGC Assets and Liabilities from Current and Anticipated Plan Insolvencies, Fiscal Years 

2000 through 2012

View GAO-13-428T. For more information, 

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov 
Page 1 GAO-13-428T 

United States Government Accountability Office

Washington, DC 20548

Mr. Chairman and Members of the Committee:

I am pleased to be here today to discuss the challenges facing 

multiemployer plans and the Pension Benefit Guaranty Corporation’s 

(PBGC) multiemployer insurance program. My testimony today is based 

on a draft GAO report that is due to be released later this month and, 

therefore, the findings should be regarded as preliminary. Multiemployer 

defined benefit (DB) plans are established through collective bargaining 

agreements including two or more employers and are generally operated 

under the joint trusteeship of labor and management. These plans are a 

vital source of retirement income for more than 10 million workers and 

retirees.

Investment market declines, employers withdrawing from plans, and an 

aging workforce leave many multiemployer plans facing challenges that 

threaten their long-term financial outlook. As we reported in 2010, these 

challenges contributed to large funding shortfalls for most plans.1 We 

noted that some plans would likely be able to improve their funded status 

with improvements to the economy, but plans in the worst financial 

condition would likely be unable to fully address these challenges through 

increasing employer contributions or reducing certain benefits. We found 

that, without additional options to address plan underfunding or to attract 

new contributing employers, plans may be more likely to require financial 

assistance—further straining the PBGC multiemployer pension insurance 

program.2 More recently, three federal agencies also noted the grave 

condition of some plans and the insurance program.3

We prepared this statement at the request of this committee addressing 

challenges facing both multiemployer plans and PBGC. Today, my 

testimony will focus on (1) recent actions that the weakest multiemployer 

plans have taken to improve their long-term financial position, and (2) the 

 

1 GAO, Private Pensions: Changes Needed to Better Protect Multiemployer Pension 

Benefits, GAO-11-79, (Washington, D.C.: October 2010).

2 PBGC is on GAO’s High Risk List. For more information, see GAO, High-Risk Series: An 

Update, GAO-11-278 (Washington, D.C.: February 2011).

3 Multiemployer Pension Plans: Report to Congress Required by the Pension Protection 

Act of 2006, U.S. Department of Labor, U.S. Department of the Treasury, Pension Benefit 

Guaranty Corporation, January 2013. 

 
 

Page 2 GAO-13-428T 

extent to which plans have relied on PBGC assistance since 2009, and 

the current financial condition of the PBGC multiemployer insurance 

program.

To answer these questions, we analyzed government and industry data; 

reviewed relevant federal laws, regulations, and documentation from 

plans; and interviewed a wide range of industry experts and stakeholders. 

In particular, to identify actions that multiemployer plans in the weakest 

financial condition have taken to improve their long-term financial 

position, we reviewed the survey methodology and analyzed plan survey 

data from the Segal Company, a large actuarial and consulting firm with a 

client base representing about 25 percent of multiemployer plans. This 

was a unique, one-time survey Segal conducted to supplement its routine 

surveys of client plans and provide more in depth information on specific 

steps that multiemployer plans are taking to address their funding 

shortfalls. To supplement the survey data, we conducted structured 

interviews with 13 multiemployer plans across the country. We selected 

these plans based on key characteristics, including industry, region, 

funded status, and number of participants. To determine the extent to 

which plans have taken advantage of PBGC assistance and to assess the 

financial condition of PBGC’s insurance program, we obtained data on 

various types of assistance to plans and data regarding plans that are 

insolvent or expected to become so in the next 20 years. We conducted 

our work from April 2012 through March 2013 in accordance with 

generally accepted government auditing standards.

To summarize, we found that while the most distressed multiemployer 

plans have taken significant steps to address their funding problems, a 

substantial percentage of these plans have determined that they will not 

be able to return to a healthier funding status, and instead seek to 

forestall insolvency. Further, existing and anticipated plan insolvencies 

threaten to drive the PBGC’s multiemployer insurance fund into 

insolvency in about 2023. If this occurs, retirees depending on the PBGC 

multiemployer insurance fund would see their pension payments reduced 

to a small fraction of their original value—or nothing at all.

To address the need for improved funding, the Pension Protection Act of 

2006 (PPA) included new provisions designed to compel multiemployer 

plans in poor financial shape to take action to improve their long-term 

Background 
 

Page 3 GAO-13-428T 

financial condition.4 The law established two categories of troubled 

plans—endangered status (commonly referred to as “yellow zone”, which 

includes an additional subcategory of “seriously endangered”) and a more 

serious critical status (commonly referred to as “red zone”).5 PPA further 

requires plans in both categories to develop strategies that include 

contribution increases, benefit reductions, or both, designed to improve 

their financial condition. These strategies must generally be adopted 

through the collective bargaining process, and plans are required to 

periodically report on progress made in implementing them.6

Because of the greater severity of critical status plans’ funding condition, 

such plans have an exception to ERISA’s anti-cutback rule7 in that they 

may reduce or eliminate certain so-called “adjustable benefits” such as 

early retirement benefits, post-retirement death benefits, and disability 

benefits for participants not yet retired. For example, if an approved 

rehabilitation plan eliminated an early retirement benefit, appropriate 

notice was provided, and the reduction is agreed to in collective 

bargaining, then participants not yet retired would no longer be able to 

receive early retirement benefits.8

PPA funding requirements took effect in 2008, just as the nation was 

entering a severe economic crisis. The dramatic decline in the value of 

stocks and other financial assets in 2008 and the accompanying 

recession broadly weakened multiemployer plans’ financial health.9 In 

response, Congress enacted the Worker, Retiree, and Employer 

 

4 Pub. L. No. 109-280, 120 Stat. 780.

5 Our review of 13 plans included 8 that were in critical status, 2 in endangered status 

and 3 that were neither critical nor endangered.

6 Endangered plans are required to develop funding improvement plans, and critical plans 

are required to develop rehabilitation plans. All such plans are required to report annually 

on whether scheduled progress has been made under the plan in the Form 5500 filings.

7 This rule provides that, subject to certain exceptions, once an individual’s benefit is 

vested (or earned), the vested benefit cannot be cut back through a plan amendment. 26 

U.S.C. § 411(d)(6).

8 See 26 U.S.C. § 432(e)(8). Certain specific conditions apply to the ability to “adjust” 

these benefits.

9 Because employer contributions to multiemployer plans are generally based on hours 

worked, the high unemployment rates that accompany an economic recession also reduce 

plan revenue and negatively affect plan funding levels.
 

Page 4 GAO-13-428T 

Recovery Act of 2008 (WRERA) and, later, the Preservation of Access to 

Care for Medicare Beneficiaries and Pension Relief Act of 2010 (PRA) to 

provide funding relief to help plans navigate the difficult economic 

environment.10 For example, WRERA relief measures allowed 

multiemployer plans to temporarily freeze their funding status, and 

extended the timeframe for plans’ funding improvement or rehabilitation 

plans from 10 to 13 years.11 Generally, PRA allows a plan that meets 

certain solvency requirements to amortize investment losses from the 

2008 market collapse over 29 years rather than 15 years, and to 

recognize such losses in the actuarial value of assets over 10 years 

instead of 5, so the negative effects of the market decline would be 

spread out over a longer period.12

Overall, since 2009, the funding status of multiemployer plans has 

improved, but a sizeable number of plans are still critical or endangered. 

According to plan-reported data, while the funding status of plans has not 

returned to 2008 levels, the percentage of plans in critical status declined 

from 34 percent in 2009 to 24 percent in 2011.13 The percentage of plans 

in endangered status declined to a greater extent, from 34 percent in 

2009 to 16 percent in 2011. However, despite these improvements, 40 

percent of plans have not emerged from critical or endangered status.

 

10 Pub. L. No. 110-458, 122 Stat. 5092 and Pub. L. No. 111-192, 124 Stat. 1280.

11 WRERA relief measures extended seriously endangered plans’ funding improvement 

period from 15 to 18 years.

12 To meet PRA’s solvency requirements, a plan must demonstrate that it has sufficient 

assets to timely pay expected benefits and anticipated expenditures over the period of 

time when PRA relief measures would take effect. The recognition of a single year’s 

investment results over multiple years is an example of “asset smoothing”, an actuarial 

technique used to focus decision making on the long term, and avoid disruptive reactions 

to short term fluctuations in asset values. Just as this technique prevents assets from 

being fully marked down after a severe market decline, it prevents assets from being fully 

marked up following a rally in asset values, though only if the technique is followed 

consistently. 

13 WRERA funding relief measures allowed plans to temporarily freeze their funding status 

at the prior year’s level, for plan years beginning during the period October 1, 2008 to 

September 30, 2009. Data for 2009 and 2010 reflect some plans that chose to freeze their 

funding status at the prior year’s level. WRERA also extended the timeframe for plans’ 

funding improvement or rehabilitation periods from 10 to 13 years. For plans in seriously 

endangered status, the plan’s funding improvement period shall be 18 years rather than 

15 years. According to the recent report on multiemployer plans issued by three federal 

agencies, the IRS received a total of 764 WRERA elections.
 

Page 5 GAO-13-428T 

In addition to the difficulties many multiemployer plans face, the 

challenges that PBGC faces have led us to designate its insurance 

programs as a “high-risk” federal program. As we noted earlier this year, 

because of long term challenges related to PBGC’s funding structure, the 

agency’s financial future is uncertain.14 We noted that weaknesses in its 

revenue streams continue to undermine the agency’s long-term financial 

stability.

According to a 2011 survey of 107 critical status plans conducted by the 

Segal Company, the large majority of critical status plans have developed 

rehabilitation plans that both increase required employer contributions 

and reduce participant benefits in an effort to improve plans’ financial 

positions. Plan officials explained that these changes can have a range of 

effects and, in some cases, may severely affect employers and 

participants. While most critical status plans expect to recover from their 

current funding difficulties, about 25 percent do not and instead seek to 

delay eventual insolvency.

 

14 GAO, High Risk Series: An Update, GAO-13-283 (Washington, D.C.: February 2013). 

Plans in Poor Funded 

Status Have Taken 

Steps to Cut Benefits 

to Current Employees 

and Increased 

Employer 

Contributions, and the 

Financial Outlook for 

Some Plans Remains 

Bleak 
 

Page 6 GAO-13-428T 

The 2011 survey showed the large majority of critical status plans 

surveyed developed rehabilitation plans that included a combination of 

both contribution increases and benefit reductions to be implemented in 

the coming years.15 Of plans surveyed, 81 proposed increases in 

employer contributions and reductions to participant benefits, while 14 

proposed contribution increases only and 7 proposed benefit reductions 

only.16

The magnitude of contribution increases and benefit reductions varied 

widely among plans. As Figure 1 illustrates, the rehabilitation plans of 7 

critical status plans proposed no contribution increases, while those of 28 

plans proposed first year increases of 20 percent or more. It is important 

to note that these data tell only a part of the story because some 

rehabilitation plans call for additional contribution increases in subsequent 

years.

 

15 Unless otherwise noted, data pertaining to actions that critical status plans have taken 

to emerge from critical status are based on a 2011 survey conducted by the Segal Co., a 

large actuarial firm that provides consulting services to multiemployer plans that account 

for about 25 percent of multiemployer plans and about 30 percent of multiemployer plan 

participants. The same data was the basis of a 2011 report, Multiemployer Plans Respond 

to the Financial Crisis, Judith F. Mazo and Eli Greenblum, Pension Research Council 

Working Paper PRC WP2011-15, September 2011. 

16 The data refer to the “preferred schedule” developed by plans, which the survey defined 

as the schedule of contribution increases and benefits reductions that plan trustees intend 

to be most desirable or which has become the dominant schedule through collective 

bargaining. According to PPA, the default schedule is the schedule to be imposed on 

bargaining parties if they fail to agree on the preferred schedule or another provided by 

plan trustees.

Critical Status 

Multiemployer Plans Have 

Developed Rehabilitation 

Plans Imposing a Range of 

Contribution Increases and 

Benefit Reductions
 

Page 7 GAO-13-428T 

Figure 1: Percentage Contribution Increases in Rehabilitation Plans in First Year

Note: Of the 107 critical status plans surveyed, these figures exclude the 4 “do nothing” plans that 

proposed neither increased contributions nor reduced benefits, and 2 other plans for which preferred 

schedule data were not available. The contribution increases reflect those to be made in the first year 

of the subsequent collective bargaining agreement.

The vast majority of multiemployer plans surveyed developed 

rehabilitation plans that reduced benefit accruals and/or adjustable 

benefits in an effort to improve the financial condition of the plan. Thirtytwo of the 107 multiemployer plans surveyed proposed, in their

rehabilitation plans, to reduce accrual rates, and of these, the large 

majority proposed to cut accruals by more than 20 percent. Fifteen plans 

proposed to cut accruals by 40 percent or more. This doesn’t reflect all 

the changes plans made, because some plans reduced accrual rates 

prior to development of the rehabilitation plans. Furthermore, a majority of 

plans—88 out of 107—proposed to reduce one or more adjustable 

benefits.17 Typically, these reductions will apply to both active and vested 

inactive participants, but some plans applied them to only one participant 

group.

 

17 This data is roughly comparable to data reported in the 2013 report by Labor, Treasury, 

and PBGC. That report found that of 378 plans certifying as critical status in 2010, 96 

reduced only adjustable benefits, 42 reduced only future benefits, and 53 did both. About 

half of these critical status plans reported no action, possibly because rehabilitation plans 

were still being developed. Multiemployer Pension Plans: Report to the Congress 

Required by the Pension Protection Act of 2006. 
 

Page 8 GAO-13-428T 

While the data are informative, they do not get to the heart of the issue—

what impact will these changes have on employers, participants, and 

plans themselves? As might be expected, the impacts on employers and 

participants will vary among plans. In some cases, employers and 

participants will be able to bear these changes without undue hardship. In 

other cases, the impacts were expected to be significant. For example, 

plan officials said employers outside the plan generally do not offer 

comparable pension or health insurance benefits, and increases in 

contributions puts contributing employers at a significant competitive 

disadvantage. Similarly, an official of a long-distance trucking firm said 

high contribution rates have greatly affected the firm’s cost structure and 

damaged its competitive position. In other cases, plans may have been 

unable to increase employer contribution rates as much as needed. For 

example, our review of one rehabilitation plan revealed that a 15 percent 

contribution increase resulted from a difficult balance between, among 

other factors, adequately funding the plan and avoiding excessive strain 

on contributing employers. According to the plan administrator, plan 

trustees determined many employers were in financial distress and a 

significant increase in contributions would likely lead to business failures 

or numerous withdrawals. Subsequently, five employers withdrew from 

the plan after the rehabilitation plan was adopted.

Similarly, the reduction or elimination of adjustable benefits were 

significant and controversial for participants in some cases. Officials of 

several plans stated the reduction or elimination of early retirement 

benefits for participants working in physically demanding occupations 

would be particularly difficult for some workers. At the same time, some 

plans also eliminated or imposed limitations on disability retirement so 

workers who have developed physical limitations will have to either 

continue to work or retire on substantially reduced benefits.18

Importantly, while most plans expected to emerge from critical status 

eventually, a significant number did not and instead project eventual 

insolvency. According to the Segal survey, of 107 critical status plans, 67 

 

18 Two plans reduced or eliminated disability retirement benefits for workers who are not 

disabled according to the criteria used by the Social Security Administration. As a result, 

instead of being disabled only for his or her current occupation, in order to qualify for a 

disability retirement, the worker will have to obtain certification of disability under the 

Social Security program, which further requires a determination that a worker cannot 

adjust to other work due to his or her medical condition. 

Funding Improvement 

Efforts Sometimes Require 

Significant Sacrifices by 

Employers and 

Participants
 

Page 9 GAO-13-428T 

expect to emerge from critical status within the statutory timeframes of 10 

to 13 years, and 12 others in an extended rehabilitation period (See figure 

2).19 However, 28 of the plans had determined that no realistic 

combination of contribution increases and benefit reductions would 

enable them to emerge from critical status, and their best approach is to 

forestall insolvency for as long as possible. Among these plans, the 

average number of years to expected insolvency was 12, with some 

expecting insolvency in less than 5 years and others not for more than 30 

years. The majority of these plans expected insolvency in 15 or fewer 

years.

Figure 2: Plans’ Expectations about Emergence from Critical Status

Our contacts with individual plans provide insight into the stark choices 

faced by these plans. Four of the eight critical status plans we contacted 

expected to eventually become insolvent, and officials explained that their 

analyses concluded that no feasible combination of contribution increases 

or benefit reductions could lead them back to a healthy level of funding. 

Several indicated that efforts to do so would likely accelerate the demise 

of the plan. For example, plan documents noted that the actuary of one 

plan determined the plan would be able to emerge from critical status if 

contribution rates were increased by 24 percent annually for each of the 

 

19 Under the PPA, critical status plans are to develop rehabilitation plans that will lead to 

emergence from critical status within 10 years from the date of rehabilitation plan. WRERA 

allowed plans the option of adding 3 years to this recovery period, so that plans wishing to 

do so could aim to emerge from critical status in 13 years. According to the Segal survey, 

12 plans, even after exhausting all reasonable measures, could not emerge from critical 

status within the time allotted by the statute. To avoid undue harm to employers and 

employees participating in the plan, these plans have set a longer range goal for their 

rehabilitation. 
 

Page 10 GAO-13-428T 

next 10 years—a total increase of more than 850 percent. The trustees of 

this plan determined such a proposal would be rejected by both 

employers and workers, and would likely lead to negotiated withdrawals 

by employers. This, in turn, could result in insolvency of the plan, possibly 

as early as 2019. Instead, this plan opted for measures that officials 

believed are most likely to result in continued participation in the plan, 

which nonetheless are projected to forestall insolvency until about 2029. 

Similarly, according to officials of another plan, plan trustees concluded 

that the contribution increases necessary to avoid insolvency were more 

than employers in that geographic area could bear. In addition, the plan 

considered the impact of funding the necessary contribution increases 

through reductions to base pay. The plan found this infeasible because of 

the rising cost of living facing employees and their families. Consequently, 

the plan trustees adopted a rehabilitation plan forestalling insolvency until 

about 2025.
 

Page 11 GAO-13-428T 

In recent years, the total amount of financial assistance PBGC has 

provided to insolvent plans has increased markedly. From fiscal years 

2006 to 2012, the number of plans needing PBGC’s help has increased 

significantly, from 33 plans to 49 plans. For fiscal year 2012 alone, PBGC 

provided $95 million in total financial assistance to help 49 insolvent plans 

provide benefits to about 51,000 retirees.

Loans comprise the majority of financial assistance that PBGC has 

provided to insolvent multiemployer plans.20 Based on available data from 

 

20 Under Title IV of ERISA, a plan may be considered insolvent if it does not have enough 

assets to pay the PBGC-guaranteed benefits for a full plan year. An insolvent plan 

continues operations, and PBGC provides necessary financial assistance for payment of 

benefits at statutorily guaranteed levels and for reasonable administrative expenses. The 

amounts of financial assistance for plan partitions and mergers and closeouts fluctuate 

from year to year, so the total amount of assistance for one fiscal year is not an indication 

of trends or amounts of assistance in prior years.

Total Financial 

Assistance Increased 

More Rapidly in 

Recent Years, and 

Current and Projected 

Insolvencies Will 

Exhaust 

Multiemployer 

Insurance Fund

Total PBGC Financial 

Assistance to Plans 

Increased More Rapidly in 

Recent Years, and Current 

and Projected Plan 

Insolvencies Will Exhaust 

Insurance Fund

Increases in PBGC Loans and 

Other Financial Assistance
 

Page 12 GAO-13-428T 

fiscal year 2011, loans totaled $85.5 million and accounted for nearly 75 

percent of total financial assistance.21 However, the loans are not likely to 

be repaid because most plans never return to solvency. To date, only one 

plan has ever repaid a loan.

PBGC monitors the financial condition of multiemployer plans to identify 

plans that are at risk of becoming insolvent—possibly requiring financial 

assistance. Based on this monitoring, PBGC maintains a contingency list 

of plans likely to make an insolvency claim, and classifies plans according 

to the plans’ risk of insolvency.22 PBGC also assesses the potential effect 

on the multiemployer insurance fund that insolvencies among the plans 

on the contingency list would have. Table 1 outlines the various 

classifications and definitions based on risk and shows the liability 

associated with such plans.

 

21 In addition to providing loans for insolvent plans, PBGC provided $13.7 million in fiscal 

year 2011 to help support two plan partitions, which enabled those plans to carve out the 

benefit liabilities attributable to “orphaned” employees whose employers filed for 

bankruptcy, while keeping the remainder of the plans in operation. PBGC also provided 

$15.1 million in fiscal year 2011 to help plan sponsors close out five plans, which occurs 

when plans either merge with other multiemployer plans or purchase annuities from 

private-sector insurers for their beneficiaries.

22 To determine which multiemployer plans belong in each of the contingency categories, 

PBGC uses an automated screening process that measures the financial health of plans 

based on a number of variables, which include: (1) the ratio of active participants (those 

for whom employers are continuing to make contributions) to other participants (those for 

whom plans are making benefit payments) and (2) the ratio of assets to the present value 

of vested benefits accrued. 

Potential Future Liabilities for 

PBGC
 

Page 13 GAO-13-428T 

Table 1: Classifications of Plans on PBGC Contingency List

Dollars in billions

Classification Definition FY 2012 Liability

Probable (Current)

a

A plan that is known to be insolvent and has received or will 

begin receiving financial assistance. $1.4

Probable (Terminated Future) A plan that may still have assets, but current assets and future 

collectible payments are projected to be insufficient to cover 

plan benefits plus expenses. $1.7

Probable (Ongoing Future) An ongoing plan with a projected date of insolvency generally 

within 10 years. $3.9

Reasonably Possible An ongoing plan with a projected date of insolvency generally 

between 10 and 20 years in the future. $27.0

Source: PBGC. 

a

Both the number of plans placed on the contingency list and the amount 

of potential financial assistance have increased steadily over time, with 

the greatest increases recorded in recent years. According to PBGC data, 

the number of plans where insolvency is classified as “probable”—plans 

that are already insolvent or are projected to become insolvent generally 

within 10 years—increased from 90 plans in fiscal year 2008 to 148 plans 

in fiscal year 2012. Similarly, the number of plans where insolvency is 

classified as “reasonably possible”—plans that are projected to become 

insolvent generally between 10 and 20 years in the future—increased 

from 1 in fiscal year 2008 to 13 in fiscal year 2012.

Liability represents the present value of PBGC’s potential liability to these plans.

Although the increase in the number of multiemployer plans on the 

contingency list has risen sharply, the present value of PBGC’s potential 

liability to those plans has increased by an even greater factor.23 For 

example, the present value of PBGC’s liability associated with “probable” 

plans increased from $1.8 billion in fiscal year 2008 to $7.0 billion in fiscal 

year 2012 (see fig. 3). By contrast, for fiscal year 2012, PBGC’s 

multiemployer insurance fund only had $1.8 billion in total assets, 

resulting in net liability of $5.2 billion, as reported in PBGC’s 2012 annual 

report.

 

23 PBGC determines the present value by using certain assumptions about interest rates, 

among other things, to adjust the amount of future benefit payments to reflect the time 

value of money (by discounting) and the probability of payment (by means of decrements, 

such as for death). 
 

Page 14 GAO-13-428T 

Figure 3: PBGC Assets and Liabilities from Probable Insolvencies on PBGC’s Contingency List, Fiscal Years 2000 through 

2012

Although PBGC’s cash flow is currently positive—because premiums and 

investment returns on the multiemployer insurance fund assets exceed 

benefit payments and other assistance—PBGC expects plan insolvencies 

to more than double by 2017, placing greater demands on the insurance 

fund and further weakening PBGC’s overall financial position.

PBGC expects the liabilities associated with current and future plan 

insolvencies that are likely to occur in the next 10 years to exhaust the 

insurance fund by about 2023.24 Further, insolvency may be hastened by 

 

24 In addition to the report by Labor, Treasury, and PBGC, two PBGC reports on the 

financial condition of the multiemployer insurance program were released in January 

2013: FY 2012 PBGC Exposure Report and PBGC Insurance of Multiemployer Pension 

Plans: Report to Congress required by the Employee Retirement Income Security Act of 

1974, as amended. The PBGC reports confirm that escalating liabilities are expected to 

exhaust PBGC’s multiemployer insurance fund. In particular, the scenarios described by 

PBGC’s Exposure Report may be even worse than reported when key assumptions used 

for modeling the program’s future financial position are adjusted to better reflect recent 

experience of multiemployer plans. 

Potential Exhaustion of 

Multiemployer Insurance Fund
 

Page 15 GAO-13-428T 

the projected insolvencies of two very large multiemployer plans whose 

financial condition has greatly deteriorated in recent years. According to 

PBGC officials, the two large plans for which insolvency is “reasonably 

possible” have projected insolvency between 10 to 20 years in the future. 

Importantly, the PBGC’s projection of program insolvency by 2023 does 

not account for the impact of these two plans because their projected 

insolvency is more than 10 years in the future. PBGC estimates that, for 

fiscal year 2012, the liability from these plans accounted for about $26 

billion of the $27 billion in liability of plans in the “Reasonably Possible” 

category. Taken in combination, the number of retirees and beneficiaries 

of these two plans would represent about a six-fold increase in the 

number of people receiving guarantee payments in 2012. PBGC 

estimates that the insolvency of either of these two large plans would 

exhaust the insurance fund in 2 to 3 years. 

Generally, retirees who are participants in insolvent plans receive 

reduced benefits under PBGC’s statutory guarantee. When a 

multiemployer plan becomes insolvent and relies on PBGC loans to make 

benefit payments to plan retirees, retirees will most likely see a reduction 

in their monthly benefits.25 PBGC calculates the maximum benefit 

guarantee based on the amount of a participant’s benefit accrual rate and 

years of credit service earned (see figure 4). For example, if a retiree has 

earned 30 years of credit service, the maximum coverage under the 

guarantee is about $1,073 per month, yielding an annual benefit of 

$12,870.

 

25 The guaranteed benefit amount is a function of the participant’s accrual rate, which is 

calculated as the participant’s monthly benefit amount divided by his or her years of 

service. PBGC guarantees 100 percent of the first $11 per month per year of service plus

75 percent of the next $33, or $35.75 maximum, per month per year of service. 29 U.S.C. 

§ 1322a(c).

Retiree Benefits are 

Reduced under 

Guarantees, and May Be 

Further Reduced if 

Multiemployer Insurance 

Program Becomes 

Insolvent 
 

Page 16 GAO-13-428T 

Figure 4: Illustration of PBGC Guaranteed Benefit Levels 

Note: Although the maximum monthly benefit based on a 30-year working career is about $1,073, as 

this chart shows, a greater benefit can be earned if a worker retires after a longer career.
 

Page 17 GAO-13-428T 

Generally, retirees receiving the highest benefits experience the steepest 

cuts when their plans become insolvent and their benefits are limited by 

the pension guarantees. According to PBGC, the average monthly benefit 

received in all multiemployer plans in 2009 was $821.26 However, 

according to a PBGC analysis of benefit distributions among retirees of 

an undisclosed large plan, the range of benefits varies widely across 

retirees. About half of this plan’s retirees will experience 15 percent or 

greater reductions in their benefits under the guarantee. Additionally, 

according to PBGC, one out of five retirees of this plan will experience 50 

percent or greater reductions in their benefits under the guarantee. 

Ultimately, regardless of how long a retiree has worked and the amount of 

monthly benefits earned, any reduction in benefits—no matter the 

amount—may have significant effects on retirees’ living standards.

In the event that the multiemployer insurance fund is exhausted, 

participants relying on the guarantee would receive a small fraction of 

their already-reduced benefit. Because PBGC does not have statutory 

authority to raise revenue from any other source, officials said that, once 

the fund is depleted, the agency would have to rely solely on annual 

insurance premium receipts from multiemployer plans (which totaled $92 

million for fiscal year 2012). The precise effect that the insolvency of the 

insurance fund would have on retirees receiving the guaranteed benefit 

depends on a number of factors—primarily the number of guaranteed 

benefit recipients and PBGC’s annual premium income at that time. 

However, the impact would likely be severe. For example, if the fund were 

to be drained by the insolvency of a very large and troubled plan, we 

estimate the benefits paid by PBGC would be reduced to less than 10 

percent of the guarantee level. In this scenario, a retiree who once 

received monthly benefit of $2,000 and whose benefit was reduced to 

$1,251 under the guarantee would see monthly income further reduced to 

less than $125, or less than $1,500 per year. Additional plan insolvencies 

would further depress already drastically reduced income levels.

 

26 The average monthly benefit was determined by dividing benefits paid under all plans 

by the number of retired participants under all plans. However, the average is somewhat 

inflated because benefits paid during the year include lump-sum payments (mostly $5,000 

or less). Additionally, the average monthly benefit received in 2009 is slightly higher for 

plans in the transportation industry ($1,120), where an annual benefit can reach $30,000 

or more for a plan participant with 30 years of service. On the other hand, average 

monthly benefit is lower ($642) for plans in retail trade and service industry.
 

Page 18 GAO-13-428T 

Despite unfavorable economic conditions, most multiemployer plans are 

currently in adequate financial condition and may remain so for many 

years. However, a substantial number of plans, including some very large 

plans, are facing very severe financial difficulties. Many of these plans 

reported that no realistic combination of contribution increases or 

allowable benefit reductions—options available under current law to 

address their financial condition—will enable them to emerge from critical 

status. While the multiemployer system was designed to have employers 

serve as principal guarantors against plan insolvency, PBGC remains the 

guarantor of last resort. However, given their current financial challenges, 

neither the troubled multiemployer plans nor PBGC currently have the 

flexibility or financial resources to mitigate the effects of anticipated 

insolvencies. Should a critical mass of plan insolvencies drain the 

multiemployer insurance fund, PBGC will not be able to pay current and 

future retirees more than a very small fraction of the benefit they were 

promised. Consequently, a substantial loss of income in old age looms as 

a real possibility for the hundreds of thousands of workers and retirees 

depending on these plans.

In a matter of weeks, we will be releasing a report that goes into greater 

detail about the issues I have discussed in this testimony, and includes 

possible actions Congress can take to prevent a catastrophic loss of 

retirement income for hundreds of thousands of retirees who have spent 

years often in dangerous occupations and in some of the nation’s most 

vital industries.

This concludes my prepared statement. I would be happy to answer any 

questions the committee may have.

Concluding 

Observations 
 

Page 19 GAO-13-428T 

Charles Jeszeck, 202-512-7215.

In addition to the above, Michael Hartnett, Sharon Hermes, Kun-Fang 

Lee, David Lehrer, Sheila McCoy, and Frank Todisco made key 

contributions to this testimony.

GAO Contact

Staff 

Acknowledgements 

(131243)
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