PRIVATE PENSIONS

Timely Action Needed 

to Address Impending 

Multiemployer Plan 

Insolvencies

Report to the Chairman, Committee on 

Education and the Workforce, House of 

Representatives

March 2013

GAO-13-240

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-240, a report to 

Chariman, Committee on Education and the 

Workforce, U.S. House of Representatives

March 2013

PRIVATE PENSIONS 

Timely Action Needed to Address Impending 

Multiemployer Plan Insolvencies 

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. In recent years, as a result of 

investment market declines, employers 

withdrawing from plans, and 

demographic challenges, many 

multiemployer plans have had large 

funding shortfalls and face an 

uncertain future. 

GAO examined (1) actions that 

multiemployer plans in the weakest

financial condition have taken to 

improve their funding levels; (2) the 

extent to which plans have relied on 

PBGC assistance since 2009, and the 

financial condition of PBGC’s 

multiemployer plan insurance program; 

and (3) options available to address 

PBGC’s impending funding crisis and 

enhance the multiemployer insurance 

program’s future financial stability. 

GAO analyzed government and 

industry data and interviewed 

government officials, pension 

experts—including academics, 

actuaries, and attorneys, 

multiemployer plans’ trustees and 

administrators, employers and trade 

associations, unions, advocacy 

organizations, and other relevant 

stakeholders. 

What GAO Recommends

Congress should consider

comprehensive and balanced 

structural reforms to reinforce and 

stabilize the multiemployer system. 

PBGC generally agreed with our 

findings and analysis.

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 large majority of 

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

status—either have increased or will increase employer contributions or reduce 

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

on employers and participants. For example, several plan representatives stated 

that contribution increases had damaged some firms’ competitive position in the 

industry, and, in some cases, threatened the viability of such firms. Similarly, 

reductions in certain benefits—such as early retirement subsidies—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 25 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’s ability to pay pension guarantees for 

retirees. Since 2009, PBGC’s financial assistance to multiemployer plans has 

increased significantly, primarily due to a growing number of plan insolvencies. 

PBGC estimated that the insurance fund would be exhausted in about 2 to 3 

years if projected insolvencies of either of two large plans occur in the next 10 to 

20 years. More broadly, by 2017, PBGC expects the number of insolvencies to

more than double, further stressing the insurance fund. PBGC officials said that 

financial assistance to plans that are insolvent or are likely to become insolvent in 

the next 10 years would likely exhaust the insurance fund within the next 10 to 15 

years. If the insurance fund is exhausted, many retirees will see their benefits 

reduced to an extremely small fraction of their original value because only a 

reduced stream of insurance premium payments will be available to pay benefits. 

Experts and stakeholders cited two policy options to avoid the insolvencies of 

severely underfunded plans and the PBGC multiemployer insurance fund, as well 

as other options for longer term reform. Experts and stakeholders said that, in 

limited circumstances, trustees should be allowed to reduce accrued benefits for 

plans headed toward insolvency. Also, some experts noted that, in their view, the 

large size of these reductions for some severely underfunded plans may warrant 

federal financial assistance to mitigate the impact on participants. Experts and 

stakeholders also noted tradeoffs, however. For example, reducing accrued 

benefits could impose significant hardships on some retirees, and any possible 

financial assistance must be considered in light of the existing federal debt. 

Options to improve long term financial stability include changes to withdrawal 

liability—payments assessed to an employer upon leaving the plan based on 

their share of unfunded vested benefits—to increase the amount of assets plans 

can recover or to encourage employers to remain in or join the plan. In addition, 

experts and stakeholders said an alternative plan design that permits 

adjustments in benefits tied to key factors, such as the funded status of the plan, 

would provide financial stability and lessen the risk to employers. These and 

other options also have important tradeoffs, however.

View GAO-13-240. For more information, 

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov 
Page i GAO-13-240 Private Pensions

Letter 1 

Background 4

Severely Underfunded Plans Have Cut Benefits to Current 

Employees and Increased Employer Contributions, but Financial 

Outlook for Some Plans Remains Bleak 11

PBGC Provides Financial Assistance to a Greater Number of Plans 

Each Year, Endangering the Multiemployer Program and 

Guaranteed Retiree Benefits 23

Key Options to Reduce Liabilities and Change Plan Designs Could 

Help Improve Financial Stability, but Pose Trade-offs 34

Conclusions 52

Matters for Congressional Consideration 53

Agency Comments 53

Appendix I Objectives, Scope, and Methodology 55

Appendix II Comments from the Pension Benefit Guaranty Corporation 58

Appendix III GAO Contacts and Acknowledgments 60

Tables

Table 1: Selected Differences between Single-employer and 

Multiemployer Defined Benefit Pension Plans 6

Table 2: PPA Provisions Related to Endangered and Critical Status 

Plans 8

Table 3: Selected Examples and Impact of Adjustable Benefits 

Reductions 18

Table 4: Examples of Benefit Cuts to Be Applied to Employees of 

Withdrawing Employers but Not to Those of Employers 

Remaining in the Plan 19

Table 5: Classifications of Plans on PBGC’s Contingency List 27

Table 6: Key Features of Proposals to Allow Severely Underfunded 

Plans to Reduce Accrued Benefits 38

Table 7: Options to Address Challenges Associated with 

Withdrawal Liability 46

Contents 
Page ii GAO-13-240 Private Pensions

Table 8: Options for a Flexible DB Plan to Address Risks Facing 

Multiemployer Plans 48

Figures

Figure 1: Number of Multiemployer Plans in Each Funding Zone 

Status, as Certified with IRS, 2008 through 2011 11

Figure 2: Number of Plans Proposing Actions in Rehabilitation 

Plans 13

Figure 3: Percentage Contribution Increases in Rehabilitation Plans 

in First Year 14

Figure 4: Percentage Accrual Rate Reductions in Rehabilitation 

Plans 15

Figure 5: Plans’ Expectations about Emergence from Critical 

Status 20

Figure 6: Illustration of the Manner by Which Financial Distress in 

Multiemployer Plans May Spread to Other Employers and 

Plans 22

Figure 7: Multiemployer Plans Receiving PBGC Financial 

Assistance and Amounts Received, Fiscal Years 2001 

through 2012 24

Figure 8: PBGC’s Financial Assistance to Multiemployer Plans, by 

Type and Amount, Fiscal Year 2011 (dollars in millions) 26

Figure 9: Liability from Probable Multiemployer Plan Insolvencies 

on PBGC’s Contingency List, Fiscal Years 2000 through 

2012 28

Figure 10: Hypothetical Illustration of Guaranteed Benefit Levels 

under PBGC’s Multiemployer Insurance Program 31

Figure 11: Hypothetical Illustration of the Effects of Guaranteed 

Monthly Pension Benefit Levels under PBGC’s 

Multiemployer Insurance Program 33

Figure 12: Key Federal Policy Options and Possible Effects on Key 

Stakeholders 35

Figure 13: Comparison of the Segal Client Base and Multiemployer 

Universe, by Major Industry 56
Page iii GAO-13-240 Private Pensions

Abbreviations

DB defined benefit

ERISA Employee Retirement Income Security Act of 1974

FY fiscal year

GAO U.S. Government Accountability Office

IRS Internal Revenue Service

MPPAA Multiemployer Pension Plan Amendments Act of 1980 

NCCMP National Coordinating Committee for Multiemployer Plans

PBGC Pension Benefit Guaranty Corporation

ME-PIMS Multiemployer Pension Insurance Modeling System

PPA Pension Protection Act of 2006

PRA Preservation of Access to Care for Medicare Beneficiaries 

 and Pension Relief Act of 2010

UFCW United Food and Commercial Workers

WRERA Worker, Retiree, and Employer Recovery Act of 2008

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Page 1 GAO-13-240 Private Pensions

United States Government Accountability Office

Washington, DC 20548

March 28, 2013

The Honorable John Kline

Chairman

Committee on Education and the Workforce

House of Representatives

Dear Mr. Chairman:

Multiemployer plans—defined benefit plans established through 

collectively bargained pension agreements between labor unions and two 

or more employers—are a vital source of retirement income for millions of 

Americans. Multiemployer plans cover unionized workers in many 

industries, such as trucking, retail food, construction, mining, and garment 

making. There are about 1,500 multiemployer plans covering more than 

10 million workers and retirees. The structure of multiemployer plans has 

some advantages compared to single-employer plans. For example, 

workers in multiemployer plans can continue to accrue pension benefits 

when they change employers if their new employer is a contributing 

employer in the same plan. Thus, these plans provide some portability of 

benefits and can be particularly beneficial to workers who change 

employers as long as their new employer participates on the same plan. 

However, the structure of multiemployer plans can also pose challenges 

in some cases. Unlike plans sponsored by a single-employer in which 

plans do not share risk with other employers, a multiemployer plan 

continues to operate if an individual employer leaves or goes out of 

business, leaving the remaining employers to cover any unfunded 

benefits of the vested workers of the departed employers. Many plans are 

in declining industries that have witnessed numerous bankruptcies, 

leaving a considerable share of participants with no contributing 

employer. This effect, combined with an aging workforce and declining 

unionization, leaves many plans facing demographic challenges that 

threaten their long-term financial outlook.

In 2010, we reported that due to investment market declines and 

demographic challenges, most multiemployer plans had large funding 

shortfalls and faced an uncertain future.1 We noted that some plans would 

 

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

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

 
 

Page 2 GAO-13-240 Private Pensions

likely be able to improve their funded status with improvements to the 

economy, but plans in the worst condition may have been 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 from the Pension 

Benefit Guaranty Corporation (PBGC). This would, in turn, further strain 

the multiemployer pension insurance program that PBGC operates.2 More 

recently, a January 2013 report published by three federal agencies noted 

the grave condition of some multiemployer plans and PBGC’s 

multiemployer insurance program.3 This tri-agency report further noted 

that unless timely action is taken to provide additional tools for the 

multiemployer plan trustees to stabilize the financial conditions of their 

plans, more costly and intrusive intervention may ultimately be necessary.

Given the financial challenges that multiemployer plans continue to face, 

we sought to answer the following questions:

1) What actions have multiemployer plans in the weakest financial 

condition taken in recent years to improve their long-term financial 

position?

2) To what extent have plans relied on PBGC assistance since 2009, and 

what is known about the prospective financial condition of the 

multiemployer plan insurance program?

3) What options are available to address PBGC’s impending funding 

crisis and enhance the program’s future financial stability?

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

reviewed relevant federal laws, regulations, and documentation from 

 

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

U.S. Department of Labor, U.S. Department of the Treasury, Pension Benefit Guaranty 

Corporation, Multiemployer Pension Plans: Report to Congress Required by the Pension 

Protection Act of 2006 (Washington, D.C.; January 2013). Additional substantive 

information on this issue is contained in two PBGC reports also published recently. These 

are PBGC Insurance of Multiemployer Pension Plans: Report to Congress Required by 

the Employee Retirement Income Security Act of 1974, as amended, Pension Benefit 

Guaranty Corporation, Washington D.C., January 2013 and FY 2012 PBGC Exposure 

Report, Pension Benefit Guaranty Corporation. 
 

Page 3 GAO-13-240 Private Pensions

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 

multiemployer plan survey data from the Segal Company, a large 

actuarial firm with a client base representing about 25 percent of 

multiemployer plans. To supplement the survey data, we conducted 

structured interviews with 13 multiemployer plans across the country. We 

selected these plans in order to obtain a range of key characteristics, 

including industry, region, funded status, and number of participants. 

Among the 13 plans included in our review, 8 plans were in critical status, 

2 plans were in endangered or seriously endangered status, and 3 plans 

were in neither critical nor endangered status.4 To determine the extent to 

which plans have taken advantage of PBGC financial assistance and to 

assess the financial condition of PBGC’s insurance program, we obtained 

PBGC 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. 

To identify options available to address PBGC’s impending funding crisis 

and enhance its future financial stability, we distinguished between 

options that would address the more immediate funding crisis facing 

plans headed toward insolvency and options that may enhance the longterm stability of the multiemployer system for plans that may not be 

headed for insolvency, but, nevertheless, face financial challenges. In 

addition, we assessed the tradeoffs of various options for current workers, 

retirees, and employers, as well as the federal government. To identify 

and assess available options, we interviewed government officials, 

pension experts—including academics, actuaries, attorneys, 

multiemployer plans’ trustees and administrators, employers and trade 

associations, unions, advocacy organizations, and other relevant 

stakeholders. We also reviewed relevant research and documentation, 

including proposals by the National Coordinating Committee on 

 

4

 “Endangered,” “seriously endangered,” and “critical” statuses are designations created 

by the Pension Protection Act of 2006 and are defined later in this report. 
 

Page 4 GAO-13-240 Private Pensions

Multiemployer Plans (NCCMP) and a consortium of employer 

representatives from the construction industry.5

We conducted this performance audit from March 2012 through March 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

Multiemployer defined benefit (DB) pension plans are created by 

collective bargaining agreements between labor unions and two or more 

employers, and generally operate under the joint trusteeship of unions 

and employers. Such plans typically exist in industries with many small 

employers who may be unable to support an individual DB plan, or where 

seasonal or irregular employment results in high labor mobility between 

employers. Industries where multiemployer plans are prevalent include 

trucking, construction, retail, and mining and manufacturing. Like singleemployer DB plans, multiemployer DB plans pay retirees a defined 

benefit after retirement.6

Under the Employee Retirement Income Security Act of 1974 (ERISA), as 

amended,7 the benefits of multiemployer plans are insured by PBGC.8 As 

 

5 NCCMP is an organization representing multiemployer plans and practitioners. In August 

2011, NCCMP convened a commission to review and propose options for addressing 

challenges facing multiemployer plans. NCCMP’s report “Solutions not Bailouts: A 

Comprehensive Plan from Business and Labor to Safeguard Multiemployer Retirement 

Plan Security, Protect Taxpayers and Spur Economic Growth” was released in February 

2013. The commission members include representatives from plans, employers, and 

unions. Participating industries include construction, trucking, retail food, entertainment, 

machinists, mining, bakery and confectionary, and service. We also spoke with a wide 

range of plan representatives, including executive staff and both union and employer 

trustees.

6 Multiemployer pension plans are commonly associated with parallel multiemployer funds 

providing medical coverage and other welfare-type benefits. 

7 29 U.S.C. § 1001 nt.

Background 
 

Page 5 GAO-13-240 Private Pensions

shown in table 1, PBGC’s multiemployer fund is financed by insurance 

premiums paid by plans, with each multiemployer plan paying an annual 

premium of $12 per participant to PBGC as of 2013.9 In return, PBGC 

provides financial assistance in the form of loans to plans that become 

insolvent, that is, plans that do not have sufficient assets to pay pension 

benefits at the PBGC guaranteed level for a full plan year. Although such 

financial assistance is referred to as a “loan,” and is by law required to be 

repaid, in practice such loans have almost never been repaid, as plans 

generally do not emerge from insolvency. Before PBGC will provide the 

loans, participants’ retirement benefits must be reduced to a level 

specified in law.10 Even after insolvency, the plan remains an independent 

entity managed by its board of trustees. This contrasts with the agency’s 

single-employer program under which PBGC does not provide assistance 

to ongoing plans, but instead takes over terminated underfunded plans as 

a trustee, and pays benefits directly to participants.

 

8 29 U.S.C. § 1322a. The multiemployer insurance program is maintained separately from 

another PBGC fund, which insures the benefits of single-employer pension plans. Among 

other things, the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA), made 

employers liable for their share of unfunded plan benefits when they withdraw from a plan, 

unless relieved by special provisions, and strengthened certain funding requirements. 

Pub. L. No. 96-364, §§ 104(2) and 304, 94 Stat. 1208, 1217 and 1293-94.

9 The Moving Ahead for Progress in the 21st Century Act (Map-21) increased the premium 

by $3 per participant for 2013 and provided that after 2013, the multiemployer plan 

premium will continue to be indexed for increases in the annual rate of growth in the 

national average wage. Pub. L. No. 112-41, § 40222, 126 Stat. 405, 852 (2012). 

10 For participants of plans that became insolvent after December 21, 2000, annual 

benefits paid by plans receiving PBGC loans are the product of a participant’s years of 

service multiplied by 1) 100 percent of the first $11 of the monthly benefit accrual rate, and 

2) 75 percent of the next $33 of the accrual rate. For someone with 30 years of service, 

the guaranteed annual benefit limit is $12,870. In contrast, PBGC’s single-employer 

program guarantees full benefits up to a maximum of $57,477.24 per year at age 65 for

plans that terminate in 2013. 
 

Page 6 GAO-13-240 Private Pensions

Table 1: Selected Differences between Single-employer and Multiemployer Defined Benefit Pension Plans 

Plan characteristic Single-employer plans Multiemployer plans

PBGC benefit guarantee 

levels

PBGC guarantees benefits up to $57,477.24 

per year for a retiree at age 65 in plans that 

terminate in 2013. Guarantee levels are 

indexed for inflation.

PBGC guarantees benefits up to $12,870 per year, 

based on 30 years of employment. Guarantee levels 

are not indexed for inflation.

PBGC premium structure In 2013, plans pay PBGC a flat rate of $42 per 

participant that is indexed for inflation. Plans 

are also subject to a variable rate premium 

based on underfunding. Terminating plans are 

also subject to a termination premium. 

In 2013, plans pay PBGC an annual flat rate premium 

of $12 per participant. The premium is indexed for 

inflation.

Insurable events The insurable event is plan termination, often 

due to the bankruptcy of a plan sponsor with an 

underfunded plan, after which PBGC assumes 

responsibility and pays benefits directly to 

participants.

The insurable event is plan insolvency.

Provision of financial 

assistance

PBGC provides no financial assistance to plans 

but instead takes over terminated underfunded 

plans as trustee.

PBGC provides loans to plans when they become 

insolvent, and a plan need not be terminated to 

qualify for financial assistance. Insolvent plans also 

are required to reduce or suspend payment of any 

portion of benefits to beneficiaries that exceeds 

PBGC’s guarantee level. If a plan recovers from 

insolvency, it must begin repaying the PBGC loan.

Fiduciary and settlor 

functiona Sponsor generally assumes fiduciary role in 

addition to its settlor role.

Individual employers do not assume a fiduciary role in 

plan management, which is instead handled by a 

board of trustees.

Risk distribution Plans generally do not share the risk with other 

employers.

Plans typically continue to operate after an individual 

employer goes out of business because the plan’s 

remaining employers are collectively liable for funding 

benefits for all vested participants. 

Portability of benefitsb Plans are generally maintained by only one 

employer and their benefits are not normally 

portable.

Plans provide participants some benefit portability 

because they allow workers to continue to accrue 

pension benefits when they change jobs as long as 

their new employer also participates in the same plan. 

Many plans provide reciprocity, allowing portability 

among plans. 

Ability to adjust contribution 

and benefit levels

Employers, depending on their employees’ 

bargaining rights, may make adjustments to 

future contributions and benefits according to 

the company’s fiscal condition provided that 

minimum funding requirements are met.

Typically, the collective bargaining parties set the 

contribution rates for the duration of the collective 

bargaining agreements and plans may have to wait 2 

or 3 years before all agreements are renegotiated to 

increase contribution rates.

Plan terminations PBGC assumes trusteeship and administers 

payment of participant benefits when an 

underfunded plan terminates with a bankrupt 

sponsor.

If an employer withdraws from a plan, the accrued 

benefits for its workers stay in and are administered 

by the plan. The plan terminates by mass withdrawal 

of all contributing employers. When a plan becomes 

insolvent, PBGC does not take over trusteeship but 

instead provides financial assistance to its trustees, 

who continue to administer the plan until all benefits 

are paid out.
 

Page 7 GAO-13-240 Private Pensions

Plan characteristic Single-employer plans Multiemployer plans

Employer withdrawal Withdrawal liability does not apply to singleemployer plans sponsors. However, employers 

are liable for benefits earned by their 

employees and to PBGC for any underfunding.

An employer seeking to withdraw from a plan is liable 

for its allocable share of the plan’s unfunded vested 

benefits for all employees covered by the plan. In 

cases of bankruptcy, the remaining employers in the 

plan assume responsibility for funding benefits to the 

bankrupt employer’s participants.

Source: GAO analysis of ERISA, PBGC documents, and prior GAO reports.

a

A settlor or settlor function, typically of a plan sponsor or employer, includes functions such as 

establishing a plan and choosing its design and features. A settlor or settlor function typically does not 

include any fiduciary responsibility and therefore can include consideration of a company’s business 

interests.

b

Multiemployer plans provide portability in that they enable participants to change employers under 

the plan without interrupting their benefit coverage.

Congress included provisions directed at imposing greater financial 

discipline on multiemployer plans in the Pension Protection Act of 2006 

(PPA).11 Specifically, as outlined in table 2, this law includes new 

provisions designed to compel multiemployer plans in poor financial 

shape to take action to improve their financial condition over the long 

term. The law established two categories of troubled plans—endangered 

status (commonly referred to as “yellow zone,” and which includes an 

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

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

requires plans in these categories to develop strategies that include 

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

their financial condition in coming years. Multiemployer plans in 

endangered status are to document these strategies in a funding 

improvement plan, and multiemployer plans in critical status plans are to 

do so in a rehabilitation plan. The plan trustees can offer the bargaining 

parties multiple schedules from which to choose, but one of these must 

be designated as the “default schedule,” which is to be imposed if the 

bargaining parties do not select one of the schedules within a specified 

timeframe. Once plan trustees have adopted a funding improvement or 

rehabilitation plan, bargaining parties are to select one of the available 

benefit and/or contribution schedules through the collective bargaining 

 

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

Page 8 GAO-13-240 Private Pensions

process. The multiemployer plan is then required to report on progress 

made in implementing its funding improvement or rehabilitation plan.12

Table 2: PPA Provisions Related to Endangered and Critical Status Plans

Zone Status Criteriaa Required plans and objectivesb Additional flexibilities

Endangered • Plan is less than 80 percent funded 

or is projected to have a funding 

deficiency within 7 years.

Funding Improvement Plan

Designed to close the funding gap by 

one-third over 10 years.

None

Seriously 

Endangered

• Plan is both less than 80 percent 

funded and is projected to have a 

funding deficiency within 7 years.

Funding Improvement Plan

Designed to close funding gap by onefifth over 15 years. 

None

Critical • Plan is less than 65 percent funded 

and projects a funding deficiency 

within 4 years or projects insolvency 

within 6 years; or

• the plan projects a funding 

deficiency within 3 years; or

• liabilities for inactive participants are 

greater than for active participants, 

contributions are less than normal 

cost—defined as the annual growth 

in pension liabilities resulting from an 

additional year of service by plan 

participants—and interest on 

unfunded liabilities, and a funding 

deficiency is expected within 4 

years; or

• the plan projects insolvency within 4

years.

Rehabilitation Plan

Designed to get the fund out of critical 

status within 10 years.

Plan can also reduce 

“adjustable benefits”—that 

is, certain optional benefit 

payments such as early 

retirement and disability 

benefits for participants 

who have not yet retired; 

reductions in the level of 

accrued benefits payable at 

normal retirement remains 

generally prohibited.c

 

Source: GAO analysis of PPA requirements.

a

A plan’s “percent funded” or funded percentage is defined as the percentage of plan assets to the 

plan’s actuarial accrued liability. For this purpose, plan assets are allowed to be measured using a 

“smoothed” value that delays recognition of market fluctuations. A plan has an accumulated funding 

deficiency if, according to calculations specified by ERISA, required minimum contributions have not 

been made to the plan.

b

As described below, Congress subsequently allowed eligible plans to opt for a 3 year extension, so 

that endangered and critical status plans would have 13 rather than 10 years (and seriously 

endangered plans would have 18 rather than 15 years) to close the funding gap.

c

Under 29 U.S.C. § 1085(e)(8)(A)(iv)(III), benefit increases that are not eligible for a PBGC guarantee 

under 29 U.S.C. § 1322a (i.e., benefit increases adopted or first effective less than 60 months before 

the first day of the first critical status year) may be reduced even if the participant has started 

receiving his or her benefit.

 

12 While endangered or critical plans are in a funding improvement or rehabilitation period, 

they must report annually on whether scheduled progress has been made under the plan 

in their Form 5500 filings.
 

Page 9 GAO-13-240 Private Pensions

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

such plans have an important exception to ERISA’s anti-cutback rule13 in 

that they may reduce or eliminate certain so-called “adjustable benefits” 

such as early retirement benefits or subsidies, certain post-retirement 

death benefits, and disability benefits for plan participants who have not 

yet retired. For example, if a critical status plan were to adopt a 

rehabilitation plan that proposed to eliminate an early retirement benefit, 

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

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

receive that early retirement benefit.14

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.15 In 

response, Congress enacted the Worker, Retiree, and Employer 

Recovery Act of 2008 (WRERA) which contained provisions designed to 

help pension plans and participants by providing funding relief to help 

them navigate the difficult economic environment.16 For example, 

WRERA relief measures allowed multiemployer plans to temporarily 

freeze their funding status at the prior year’s level, and extend the 

timeframe for plans’ funding improvement or rehabilitation plans from 10 

to 13 years.17 In addition, Congress enacted the Preservation of Access 

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

which provides additional funding relief measures for multiemployer plans 

as long as a plan meets certain solvency requirements.18 Generally, PRA 

 

13 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) and 

29 U.S.C. § 1054(g).

14 26 U.S.C. § 432(e)(8). Certain specific conditions apply to the ability to “adjust” these 

benefits.

15 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. 

16 Pub. L. No. 110-458, 122 Stat. 5092. 

17 WRERA relief measures extended seriously endangered plans’ funding improvement 

period from 15 to 18 years.
 

Page 10 GAO-13-240 Private Pensions

allows a plan to amortize the 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 years, so that 

the negative effects of the market decline on asset values are spread out 

over a longer period.19

Overall, since 2009, multiemployer plans have experienced 

improvements in funding status, but a sizeable portion of plans are still 

critical or endangered. According to plan-reported data—current through 

2011—from the IRS (see fig. 1), 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 2011.20 Similarly, the percentage 

of plans in endangered status also declined, and to a greater extent, from 

34 percent in 2009 to 16 percent in 2011. However, based on the 2011 

data from the IRS, despite these improvements, 40 percent of plans still 

have not emerged from critical or endangered status.

 

18 Pub. L. No. 111-192, 124 Stat. 1280. To meet PRA’s solvency test, 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.

19 Such “asset smoothing” is 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. 

20 Although WRERA funding relief measures allowed plans to temporarily freeze their 

funding status at the prior year’s level, actuarial certifications were required to reflect a 

plan’s zone status without regard to the application of WRERA relief. However, PRA 

funding relief was permitted to be reflected in a plan’s actuarial certification, and so PRA 

funding relief had an effect on the zone status of many plans in 2010 and 2011.
 

Page 11 GAO-13-240 Private Pensions

Figure 1: Number of Multiemployer Plans in Each Funding Zone Status, as Certified with IRS, 2008 through 2011

Note: The total number of plans filing a zone-status certification declined from 2008 to 2011. 

According to IRS, the decline may be attributable to plan mergers or terminations and plans’ failure to 

file a certification.

The large majority of the most severely underfunded multiemployer 

plans—those in critical status—have, according to a 2011 survey, both 

increased required employer contributions and reduced participant 

benefits in an effort to improve plans’ financial positions. Plan officials 

explained that these changes have had or are expected to 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.

Severely Underfunded 

Plans Have Cut 

Benefits to Current 

Employees and 

Increased Employer 

Contributions, but 

Financial Outlook for 

Some Plans Remains 

Bleak 
 

Page 12 GAO-13-240 Private Pensions

A 2011 survey of 107 critical status multiemployer plans conducted by the 

Segal Company shows that the large majority developed rehabilitation 

plans that included a combination of both contribution increases and 

benefit reductions to be implemented in the coming years.21 Further, 

plans proposed to take these measures regardless of whether the 

bargaining parties adopt the preferred schedule or the default schedule.22

As figure 2 illustrates, of the preferred schedules of 107 critical plans 

surveyed, 81 included both contribution increases and benefits cuts, while 

14 proposed contribution increases only, and 7 included benefit 

reductions only. Most default schedules also include both increased 

contributions and reduced benefits, but compared to the preferred 

schedules, a much larger percentage chose to reduce benefits only. The 

reason for this difference is not clear, but Segal Company officials noted 

that because prompt adoption of an acceptable schedule is desirable, 

some plans may take special steps to make the default plan especially 

unappealing.23

 

21 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 

Company, 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. See appendix I for more details on this data and overall 

methodology. 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. 

22 The survey defined the “preferred schedule” 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.

23 Multiemployer Plans Respond to the Financial Crisis, Pension Research Council. 

Critical Status Plans Have 

Established a Range of 

Contribution Increases and 

Benefit Cuts
 

Page 13 GAO-13-240 Private Pensions

Figure 2: Number of Plans Proposing Actions in Rehabilitation Plans

Note: Of the 107 plans surveyed, this chart does not reflect 4 plans that determined they would 

emerge from critical status with no action. Also, the preferred schedule bar excludes one plan that 

submitted only a default schedule.

Most plans—95 out of 107—developed preferred schedules that called for 

contribution increases and, while the range of these increases varied 

widely among plans, some were quite high.24 As figure 3 shows, most 

plans proposed increases of 10 percent or more in the first year of the 

collective bargaining agreement, and a little over a quarter of plans 

proposed increases of 20 percent or more. The median first-year 

contribution increase was 12.5 percent. Overall, the range of first-year 

increases was quite broad however, ranging from less than 1 percent to 

225 percent. These data tell only a partial story, however, because 

rehabilitation plans may mandate a series of contribution increases in 

subsequent years. Of the eight critical status plans we contacted, the 

rehabilitation plans of seven increased contribution rates, and six of these 

specified a series of contribution increases over subsequent years. For 

example, one plan proposed contribution increases of 10 percent 

compounded annually over 10 years, so that at the end of this period, a 

 

24 Unless otherwise noted, discussion of contribution increases and benefit cuts in the 

remainder of this section refers to those outlined in the preferred schedule of the 

rehabilitation plan. 
 

Page 14 GAO-13-240 Private Pensions

contribution rate of $2.00 per hour, for example, would have been 

increased to $5.25 per hour, or by 162 percent.25

Figure 3: Percentage Contribution Increases in Rehabilitation Plans in First Year

Note: Of the 107 plans surveyed, these figures exclude the four “do nothing” plans that proposed 

neither to increase contributions nor reduce benefits, and two 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.

Thirty-two plans developed rehabilitation plans that reduced the rate of 

future benefit accruals.26 As figure 4 illustrates, 15 of these plans reduced 

future benefit accruals by 40 percent or more, and another 12 plans 

reduced future benefit accruals 20-40 percent. The median reduction for 

all 32 plans was 38 percent. As with contribution increases, the survey 

data on reductions to benefit accrual rates paint only a partial picture. 

Reductions in the benefit accrual rate are more common among troubled 

multiemployer plans than these data show because such reductions were 

often made prior to the rehabilitation plan. For example, findings from the 

Segal Company’s survey show that, of the plans that expected to exit 

critical status within the specified timeframes, about one-third had cut 

 

25 The 2013 tri-agency report found a similar pattern, reporting that summaries of 

rehabilitation plans in Form 5500 filings indicate that schedules adopted by many 

bargaining parties required contribution rate increases of 7 percent or more for an 

extended period. Multiemployer Pension Plans: Report to Congress Required by the 

Pension Protection Act of 2006. 

26 Workers accrue retirement benefits according to benefit formulas that vary widely 

depending on the plan. For example, a participant may earn a flat dollar amount for each 

year of service, or a percentage of the contributions required for a worker’s covered 

service. According to the Employee Benefit Research Institute, most multiemployer plans 

base benefits on length of service and not on their wage or salary level. 
 

Page 15 GAO-13-240 Private Pensions

future accrual rates before preparation of the rehabilitation plan, either 

directly or by a plan amendment that excluded recent contribution 

increases from the benefit formula.

Figure 4: Percentage Accrual Rate Reductions in Rehabilitation Plans

Also, a large majority of plans—88 out of 107—reduced one or more 

types of the adjustable benefits as outlined by the PPA.27 Typically, these 

reductions applied to both vested but inactive and active participants, but 

some plans applied them to only one or the other.28

Officials of seven of the eight critical status plans we contacted increased 

contributions rates, and several of these plans indicated that contribution 

 

27 This data is roughly comparable to data reported in the 2013 tri-agency report,

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

of 2006. This report found that of 378 plans self-certifying as critical status in 2010, 96 

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

28 As PBGC officials noted, the impact of these reductions depend on how many types of 

adjustable benefits were reduced as well as the number of participants affected. 

Plan Officials Indicated 

That Efforts to Improve 

Funding Will, in Some 

Cases, Require Significant 

Sacrifices by Employers 

and Active Participants

Impact of Contribution 

Increases 
 

Page 16 GAO-13-240 Private Pensions

increases could be absorbed without undue stress to the plan. For 

example, one plan representing maintenance workers proposed to 

increase the weekly employer contribution rate for each worker from 

$82.75 per employee in 2011 to $130.75 per employee in 2023, a 58 

percent increase over 12 years. While this makes some significant 

demands on employers, they are nonetheless in agreement, and the 

reaction of both employers and participants to the rehabilitation plan has 

been constructive. Similarly, officials of another plan covering sheet metal 

workers said that the annual contribution increases ranging from 30

percent in 2009-2010 to 5.8 percent in 2015-2016 can be absorbed by 

plan employers without great difficulty.

In contrast, officials of some plans and contributing employers we 

contacted said that contribution increases would have very severe 

negative effects on some employers and possibly the plan itself. For 

example, officials of one plan told us that a proposed series of annual 

increases of 10 percent (compounded) represents a significant increase 

in labor costs. Plan officials said contributing employers are competing 

against firms outside of the plan that do not have comparable pension or 

health insurance costs, and contribution increases put them at a 

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

firm said that the high contribution rates of underfunded multiemployer 

plans have greatly affected this firm’s cost structure and damaged its 

competitive position in the industry. In other cases, plans may have been 

unable to increase contributions as much as necessary. For example, our 

review of one plan’s rehabilitation plan revealed that the 15 percent 

contribution increase resulted from a difficult balance between, among 

other factors, adequately funding the plan and avoiding excessive strain 

on employers. According to the plan administrator, plan trustees 

determined that many contributing employers were in financial distress 

and that a significant increase in contributions would likely lead to 

business failures or numerous withdrawals. After the rehabilitation plan 

was adopted, five employers withdrew from the plan.

Contribution increases could have a significant impact on participating 

workers as well as employers because in some cases at least a portion of 

the increases will be funded through reductions in pay or other benefits. 

For example, officials of one large national plan with hundreds of 

contributing employers in a variety of industries told us that employers will 

pass a substantial part of the higher contributions to employees in the 

form of lower wages. They noted that workers’ wages have been stagnant 

for 10 years, so the need to return to full funding so quickly in accordance 

with the Pension Protection Act of 2006 (PPA) requirements is hurting 
 

Page 17 GAO-13-240 Private Pensions

workers in the short term. More broadly, a recent report developed by a 

construction industry consortium notes that higher contributions make 

less money available for wage increases and other benefits. The report 

further notes that in some cases the additional contribution comes directly 

from the existing wage package, so a worker’s take home pay may 

remain stagnant or even be reduced.29 In other cases, the contribution 

increases will not have an immediate impact on participants’ pay, but will 

affect other portions of their benefit package. For example, one plan 

opted to increase pension contributions by diverting 2 percent of 

employers’ contributions from another benefit account. An official of 

another plan explained that the plan funded increased pension 

contributions by, for example, reducing contributions to a health benefit 

plan. Instead of directly reducing current wages, these actions will likely 

lead to higher health care costs or reduced benefits for employees.

Among plans we contacted that had reduced future benefit accruals in 

recent years, the cumulative impact varied. For example, officials of one 

plan covering sheet metal workers explained that since 2003 the plan had 

reduced future benefit accruals by 75 percent per each dollar contributed 

to the plan. Another plan covering mine industry workers completely 

eliminated future benefit accruals for new, inexperienced miners hired on 

or after January 1, 2012, even though a contribution of $5.50 per hour of 

work will be made on their behalf. Another plan made no changes to 

benefit accrual rates but made a series of changes to eligibility and 

thresholds for retirement credits, with the result that some employees will 

have to work longer to accrue the same benefit they would have before 

adoption of the rehabilitation plan.

The reduction or elimination of adjustable benefits, such as those outlined 

in table 3, were also significant and controversial in some cases. Officials 

of several of the plans that we contacted told us that the reduction or 

elimination of early retirement benefits for participants working in 

physically demanding occupations would be particularly difficult for some 

workers. As one official explained, working longer can be a grim scenario 

for older workers who have a hard time bearing the physical demands of 

labor, such as in a paper mill, for example. At the same time, some plans 

 

29 Construction Employers DOL-EBSA/PBGC/Treasury Pension Report, Construction 

Employers for Responsible Pension Reform, December 22, 2011. An industry consortium 

prepared this report for the 3 federal agencies as the agencies prepared a report for 

Congress mandated by the PPA. 

Impact of Benefit Reductions
 

Page 18 GAO-13-240 Private Pensions

also eliminated or imposed limitations on disability retirement, so that, as 

officials of one plan noted, even workers who have developed physical 

limitations will have to either continue to work, or retire on substantially 

reduced benefits.30 Representatives of one plan said that there was 

considerable resistance from workers to the cuts in early retirement 

benefits. The officials explained, however, that these benefits had been 

established in the early 1990s when the plan was very well funded and 

that these promises had to be withdrawn in light of the plan’s current poor 

financial picture.

Table 3: Selected Examples and Impact of Adjustable Benefits Reductions 

Adjustable benefit Examples of adjustable benefit reductions Impact on participants

Early retirement subsidy Increase in the early retirement penalty if a worker 

retired before age 65.

Before rehabilitation plan, a 55-year old retiree could 

have obtained 90 percent of retirement benefit, but 

only about 45 percent thereafter. 

Disability retirement Elimination of disability benefit for those not 

classified as disabled for purposes of the Social 

Security disability program. 

Worker would have to be totally disabled for work in 

order to receive a retirement benefit instead of 

disabled for current job only, such as physically 

demanding construction work. 

60-month and 120-month 

guarantees

Elimination of guaranteed payment periods for full 

pension benefit to a designated beneficiary if a 

participant died within 60 months (5 years) or 120 

months (10 years) after retirement, depending on 

the applicable plan. 

Possible substantial reduction in retirement benefits 

to designated beneficiary of retiree. 

Elimination of subsidy for 

“pop-up” benefit 

Elimination of subsidy for “pop-up” benefit that 

would increase a participant’s benefit that had 

been reduced to pay for surviving spouse 

protection, if the spouse pre-deceases the 

participant. 

Possible substantial reduction in retirement benefits 

to retirees whose spouses pre-decease them. 

Source: Selected rehabilitation plans and communications with pension plan officials. 

Benefit reductions can affect employers as well as plan participants. For 

example, representatives of one construction industry plan told us that the 

reduced benefits outlined in the rehabilitation plan had reduced their 

ability to recruit and train new apprentices. These representatives 

explained that the prospect of earning only $50 of monthly retirement 

 

30 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. 
 

Page 19 GAO-13-240 Private Pensions

benefit per year of work—which after a 30-year career would result in only 

$1,500 payment per month in retirement—is not very appealing to 

prospective employees. While this does present a barrier to recruitment, a 

plan representative told us it is mitigated by an attractive hourly wage of 

$31.40, and the fact that many of the younger workers today are thankful 

for a paycheck in the current economic environment.

Some rehabilitation plans also included provisions designed to protect the 

plan from employer withdrawals. For example, as table 4 outlines, two of 

the eight critical status plans we contacted impose much more severe 

benefit reductions on employees of firms that subsequently choose to 

withdraw from the plan. According to one of the rehabilitation plans, 

maintaining the contribution base of the pension plan is essential to the 

success of the rehabilitation plans and hence for plan participants and 

their families. Officials of this pension plan said that the pension plan 

cannot survive if it continues to lose contributing employers, and 

penalizing their employees is one way of discouraging withdrawals.

Table 4: Examples of Benefit Cuts to Be Applied to Employees of Withdrawing 

Employers but Not to Those of Employers Remaining in the Plan

Benefit cuts 

Plan A • No eligibility for disability pension or early retirement subsidy

• No availability of optional forms of pension, such as 120- 

month guarantee of payments to the beneficiary of a deceased participant

• Elimination of pre-retirement death benefit

Plan B All adjustable benefits eliminated, including

• Any right to receive a retirement benefit before age 65

• All disability benefits for those not yet receiving them

• Pre-retirement death benefits, with one exceptiona

• Post retirement death benefits that are not part of an annuity

Source: Selected rehabilitation plans

a

Elimination of the pre-retirement death benefit excludes the required surviving spouse annuity.

The Segal survey of critical status plans indicates that while most plans 

aimed to eventually emerge from critical status, a significant number 

reported that they do not and instead project eventual insolvency. As 

figure 5 illustrates, of the 107 plans surveyed, about 67 expect to emerge 

from critical status within the statutory time frames of either 10 to 13 

years, and 12 others in an extended rehabilitation period. However, 28 of 

the surveyed plans had determined, as the authors of the survey noted, 

Measures Directed at 

Withdrawing Employers

About 25 Percent of 

Critical Status Plans 

Surveyed Face Eventual 

Insolvency 
 

Page 20 GAO-13-240 Private Pensions

that no realistic combination of contribution increases and benefit 

reductions would enable them to emerge from critical status, and that 

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 5: Plans’ Expectations about Emergence from Critical Status

Among the plans we contacted, four expected to eventually become 

insolvent. In general, officials of these plans told us that a combination of 

massive investment losses and deterioration in contribution bases were 

primary causes of their financial difficulties. For example, officials of one 

plan cited the closure of paper mills from which the plan previously 

derived a substantial share of contributions as a cause of the plan’s 

financial distress. Officials of these plans 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 officials indicated that an effort to do so would likely accelerate 

the demise of the plan. For example, our review of plan documents 

revealed that the actuary of one fund determined that mathematically the 

fund would be able to emerge from critical status if contribution rates were 

increased by 24 percent annually for each of the next 10 years, ultimately 

increasing to a rate that would be about 859 percent of the then-current 

contribution rate. The trustees of this plan determined that such a

proposal would be rejected by representatives of employers and workers, 

and would likely lead to negotiated withdrawals by plan 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 fund, yet which nonetheless are 
 

Page 21 GAO-13-240 Private Pensions

projected to forestall insolvency until about 2029. Similarly, according to 

officials of another plan, plan trustees concluded that the significant 

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 determined that this also would 

not be feasible because of the rising cost of living facing these employees 

and their families. Consequently, the plan trustees adopted a 

rehabilitation plan that forestalls insolvency until about 2025.

Officials of plans that we contacted expressed a number of concerns 

about the future, including concerns about financial market returns, the 

overall economy, and the stability of contributing employers. For example, 

officials of one plan that expected to emerge from critical status within the 

next 10 years said that this could be impeded if investment returns were 

below expectations, and especially if another collapse in the financial 

markets occurs. Officials of the seven other critical status plans we 

contacted echoed this concern, and several mentioned that overall 

economic conditions affect hours worked and hence overall contributions. 

For example, officials of a plan covering construction industry workers 

expressed concerns that because of the economic downturn, the 

reduction in demand for infrastructure and construction maintenance work 

has greatly reduced the number of active workers in the plan.

Finally, officials of several plans expressed concerns about attracting and 

retaining contributing employers. An official of a safe status or “greenzone” plan, for example, said that it is essential that the plan continue to 

attract new employers and that the ability to do so is a key basis for the 

plan’s overall financial health. An official of a critical status plan that is 

attempting to forestall insolvency told us that it is very concerned about 

the financial well-being of its remaining contributing employers and that 

plan insolvency could be hastened if one of these employers were to fail 

or otherwise cease making contributions. As PBGC officials and a 

construction industry organization noted, because the contribution base of 

multiemployer plans can overlap, financial stress in one plan has the 

potential to spill over to other plans. If, for example, the burden of 

increased contributions in one plan causes a large employer economic 

distress, it may impair its ability to remain competitive as well as make 

sufficient contributions to other plans. As shown in figure 6, this contagion 

effect could negatively affect the funded status of other plans.

Plans’ Concerns for the Future
 

Page 22 GAO-13-240 Private Pensions

Figure 6: Illustration of the Manner by Which Financial Distress in Multiemployer 

Plans May Spread to Other Employers and Plans

If the events of coming years are more favorable than the assumptions on 

which rehabilitation plans are based, some plans may emerge from 

critical status earlier than planned, and some may be able to avoid 

insolvency. However, the opposite is true as well—if future events are 

less favorable than assumed, contributing employers and plan 

participants may have to make additional sacrifices or additional plans 

could face insolvency. Our discussions with eight critical status and two 

endangered status plans show that while some plans believed they had 

flexibility to make further adjustments, others did not. For example, 

officials of one plan trying to avoid insolvency said that even the 

contribution increases included in the funding improvement plan will be 
 

Page 23 GAO-13-240 Private Pensions

very difficult to bear for employers and workers, and further concessions 

are not realistic. An official of a large national plan said that the ability of 

employers and participants to absorb more sacrifices varied considerably 

among the plan’s 900 participating groups, but that in general, additional 

concessions would be very difficult to accept. They said that it would 

almost certainly erode the plan’s contribution base, which would mean a 

slow progression towards insolvency.

PBGC’s financial assistance to multiemployer plans has increased 

significantly in recent years, and projected plan insolvencies may exhaust 

PBGC’s multiemployer insurance fund. In fact, PBGC expects that, under 

current law, based on plans currently booked as liabilities (current and 

future probable plan insolvencies), the multiemployer insurance program 

is likely to become insolvent within the next 10 to 15 years, although the 

exact timing is uncertain and depends on key factors, such as investment 

returns and the timing of individual plan insolvencies. Additionally, PBGC 

estimates that if the projected insolvencies of either of two large 

multiemployer plans were to occur, the insurance fund would be 

completely exhausted within 2 to 3 years. While retirees of insolvent plans 

generally receive reduced monthly pension payments under the PBGC 

pension guarantee, this amount would be further reduced to an extremely 

small fraction of what PBGC guarantees, or nothing, if the multiemployer 

insurance fund were to be exhausted.

As more multiemployer plans have become insolvent, the total amount of 

financial assistance PBGC has provided has increased markedly in 

recent years. Overall, for fiscal year 2012, PBGC provided $95 million in 

total financial assistance to help 49 insolvent plans cover pension benefits 

for about 51,000 plan participants. Generally, since 2001, the number of 

multiemployer plans needing financial assistance has steadily increased, 

as has the total amount of assistance PBGC has provided each year, 

slowing the increase in PBGC’s multiemployer insurance program funds. 

PBGC Provides 

Financial Assistance 

to a Greater Number 

of Plans Each Year, 

Endangering the 

Multiemployer 

Program and 

Guaranteed Retiree 

Benefits 

Total PBGC Financial 

Assistance to Plans 

Increased More Rapidly in 

Recent Years, and Current 

and Projected Plan 

Insolvencies Will Exhaust 

the Insurance Fund

Increases in PBGC Loans and 

Other Financial Assistance
 

Page 24 GAO-13-240 Private Pensions

Moreover, as figure 7 indicates, the number of plans needing PBGC’s 

help has increased significantly in recent years, from 33 plans in fiscal 

year 2006 to 49 plans in fiscal year 2012. Likewise, the amount of annual 

PBGC assistance to plans has increased from about $70.1 million in fiscal 

year 2006 to about $95 million in fiscal year 2012 (a decrease in 

assistance, due to fewer plan closeouts, compared with about $115 

million in fiscal year 2011). From fiscal years 2005 to 2006 alone, annual 

PBGC assistance increased from about $13.8 million to more than $70 

million.

Figure 7: Multiemployer Plans Receiving PBGC Financial Assistance and Amounts Received, Fiscal Years 2001 through 2012

Loans to insolvent plans comprise the majority of financial assistance that 

PBGC has provided to multiemployer plans.31 As figure 8 illustrates, 

based on available data from fiscal year 2011, loans to insolvent plans 

totaled $85.5 million and accounted for nearly 75 percent of total PBGC 

 

31 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 amount of assistance for a particular fiscal year is not an 

indication of trends or amounts of assistance in prior years.
 

Page 25 GAO-13-240 Private Pensions

financial assistance. However, the loans are not likely to be repaid 

because the plans are insolvent. To date, only one plan has ever repaid a 

PBGC loan. In addition to providing loans to 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 remainders of the plans in operation.32

Once a plan is partitioned, PBGC assumes the liability for paying benefits 

to the orphaned participants. Additionally, PBGC 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.33 Plans 

considering a merger must provide notice to PBGC and may request a 

compliance determination; PBGC officials said they carefully consider 

each merger to ensure that the merger would not result in a weaker 

combined plan than the separately constituted plans.34

 

32 A plan partition is a statutory mechanism by which a multiemployer plan can carve 

out—or partition—the plan liabilities attributable to “orphaned” employees of employers 

who have filed for bankruptcy. According to PBGC, orphaned participants may also 

include participants whose employers withdrew from a plan without filing bankruptcy. 

However, this group of participants would not be eligible for partitioning.

33 According to PBGC officials, financial assistance to help plans close out is available 

only in limited circumstances: (1) if a plan’s net PBGC liability is generally under $5 

million, PBGC provides financial assistance to allow the plan to purchase insurance 

annuities, and (2) if a plan is expected to become insolvent within 10 years, PBGC may 

provide financial assistance to allow the plan to merge with another plan.

34 A plan merger typically involves a plan with a lower assets-to-liability ratio and a plan 

with a higher assets-to-liability ratio. According to PBGC, plan closeouts help PBGC 

reduce plan administrative costs.
 

Page 26 GAO-13-240 Private Pensions

Figure 8: PBGC’s Financial Assistance to Multiemployer Plans, by Type and 

Amount, Fiscal Year 2011 (dollars in millions)

PBGC monitors the financial condition of multiemployer plans to identify 

plans that are at risk of becoming insolvent and that may require its 

financial assistance from the multiemployer insurance program. Based on 

this monitoring, PBGC maintains a contingency list of plans that are likely 

to become insolvent and make a claim to PBGC’s multiemployer 

insurance program. PBGC classifies plans on its contingency list 

according to the plans’ risk of insolvency.35 PBGC also assesses the 

effect that insolvencies among the plans on the contingency list would 

have on the multiemployer insurance fund. Table 5 outlines the various 

classifications and definitions based on risk.

 

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

PBGC uses a screening process that measures the financial health of plans based on a 

number of variables that include, among others: (1) the ratio of active participants (those 

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

whom plans are making or will soon make benefit payments), (2) the ratio of assets to the 

present value of vested benefits accrued by participants, and (3) the ratio of contributions 

to benefit payments. 

Potential Future Liabilities for 

PBGC
 

Page 27 GAO-13-240 Private Pensions

Table 5: Classifications of Plans on PBGC’s Contingency List

(dollar in billions)

Classification Definition FY 2012 Liabilitya

Probable (Current) A plan that is known to be insolvent and has received or will begin 

receiving financial assistance from PBGC.

$1.4

Probable (Terminated Future) A terminated 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 within 10 years. $3.9

Reasonably Possible An ongoing plan with a projected date of insolvency between 10 and 20 

years in the future.

$27.0

Source: PBGC. 

a

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

Both the number of multiemployer plans placed on PBGC’s contingency 

list and the amount of PBGC’s potential financial assistance obligations to 

those plans 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 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 10 to 

20 years in the future—increased from 1 in fiscal year 2008 to 13 in fiscal 

year 2012.

Although the increase in the number of multiemployer plans on PBGC’s 

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

liability to those plans has increased by an even greater factor.36 For 

example, as illustrated in figure 9, 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. 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.

 

36 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 or retirement). 
 

Page 28 GAO-13-240 Private Pensions

Figure 9: Liability from Probable Multiemployer Plan 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 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 

multiemployer insurance fund and further weakening PBGC’s overall 

financial position.37

PBGC expects that the pension liabilities associated with current and 

future plan insolvencies will exhaust the multiemployer insurance fund. 

Under one projection using conservative (i.e., somewhat pessimistic) 

assumptions for budgeting purposes, PBGC officials reported that the 

agency’s projected financial assistance payments for plan insolvencies 

that have already occurred or are considered probable in the next 10 

 

37 PBGC’s primary sources of cash inflow are from insurance premiums paid by 

multiemployer plans and subsequent investment earnings from those premiums. Cash 

outflows primarily comprise financial assistance to insolvent and near-insolvent plans.

Potential Exhaustion of 

Multiemployer Insurance Fund
 

Page 29 GAO-13-240 Private Pensions

years would exhaust the multiemployer insurance fund in or about 2023.38

PBGC officials said that the precise timing of program insolvency is 

difficult to predict due to uncertainty about key assumptions, such as 

investment returns and the timing of individual plan insolvencies. Based 

on a range of estimates provided by multiple projections, PBGC officials 

said the multiemployer insurance program is likely to become insolvent 

within the next 10 to 15 years. Furthermore, exhaustion of the insurance 

fund may occur sooner because the financial health of two large 

multiemployer plans has deteriorated. According to PBGC officials, the 

two large plans for which insolvency is “reasonably possible,” have 

projected insolvency 10 to 20 years in the future. PBGC estimates that, 

for fiscal year 2012, the liability from these two plans accounted for $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 officials 

said that the insolvency of either of these two large plans would exhaust 

the insurance fund in 2 to 3 years.

 

38 PBGC projects potential insolvency dates using varying methodological approaches 

and assumptions about the future and assuming no changes in law. According to PBGC 

officials, the 2023 insolvency date is based on a deterministic projection of financial 

assistance payments for plans booked as liabilities on PBGC’s financial statements as of 

September 30, 2012, using conservative assumptions, including for rates of return on plan 

assets and immediate and continued reductions in active participant counts and employer 

contributions in ongoing plans. PBGC’s FY2012 Exposure Report uses the ME-PIMS 

stochastic model, which is based on a sample of all plans in the multiemployer universe, 

including a sample of booked liabilities, and a separate set of assumptions. This model 

projects a 52 percent chance of program insolvency by 2023, which rises to about 85 

percent by 2028. For other purposes, PBGC officials said they use a cash flow projection 

methodology based on financial assistance payments for all booked plans and for 

projected future booked plans (using mean values resulting from a stochastic projection). 

PBGC officials said that no matter which method is used, estimated program insolvency 

dates are relatively close. 
 

Page 30 GAO-13-240 Private Pensions

Generally, retirees who are participants in insolvent plans receive 

reduced pension benefits under PBGC’s statutory pension guarantee 

formula. In most cases, PBGC’s pension guarantee (see fig. 10) does not 

offer full coverage of the monthly pension benefits that a retiree of an 

insolvent plan has actually earned. When a multiemployer plan becomes 

insolvent and relies on PBGC loans to pay for benefit payments to plan 

retirees, retirees will most likely see a reduction in their monthly pension 

benefits.39 PBGC uses a formula that calculates the maximum PBGC 

benefit guarantee based on the amount of a plan participant’s pension 

benefit accrual rate and years of credit service earned. For example, if a 

retiree has earned 30 years of credit service, the maximum coverage 

under the PBGC guarantee is about $1,073 per month, which yields an 

annual pension benefit of $12,870.

 

39 The guaranteed benefit amount is a function of the participant’s accrual rate, and is 

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

service. PBGC’s multiemployer program 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).

Benefits of Many Retirees 

Are Reduced under PBGC 

Guarantees, and May Be 

Further Reduced If PBGC 

Multiemployer Insurance 

Program Becomes 

Insolvent 
 

Page 31 GAO-13-240 Private Pensions

Figure 10: Hypothetical Illustration of Guaranteed Benefit Levels under PBGC’s Multiemployer Insurance Program

Note: Although the PBGC 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 32 GAO-13-240 Private Pensions

Generally, retirees receiving the highest pensions experience the 

steepest cuts when their plans become insolvent and their benefits are 

limited by the pension guarantees. According to PBGC, in 2009, the 

average monthly pension benefit received by retirees in all multiemployer 

plans was $821.40 However, as shown by PBGC in a hypothetical 

illustration of benefit distributions (see fig. 11), the line that spans the bar 

chart indicates that the range of pension benefits varies widely across 

retirees, and, with $692 as the median pension, about half of the plan’s 

retirees will experience 15 percent or greater reductions in their pensions 

under the PBGC guarantee. Additionally, under this illustration, one out of 

five retirees will experience 50 percent or greater reductions in their 

pensions under the PBGC guarantee. Ultimately, regardless of how long 

a retiree has worked and the amount of monthly benefits earned, any 

reduction in pension benefits—no matter the amount—may have 

significant effects on retirees’ living standards.

 

40 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, the average 

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

Page 33 GAO-13-240 Private Pensions

Figure 11: Hypothetical Illustration of the Effects of Guaranteed Monthly Pension Benefit Levels under PBGC’s Multiemployer 

Insurance Program

Note: According to PBGC, the figure provides a comparison of the relative frequency of different 

benefit levels to the portion of the benefit that is covered by the PBGC multiemployer program 

guarantee. The figure summarizes information on participants already retired under a large 

hypothetical multiemployer plan that has relatively generous benefits. Benefit amounts are 

represented by the bars while the number of participants receiving benefit amounts in a given 

grouping is indicated by the purple line. The height of each bar is the average benefit amount in the 

grouping. The bottom half of each bar indicates the portion of pensions guaranteed by PBGC, and the 

top half of each bar indicates the portion of pensions not guaranteed by PBGC.

According to PBGC, in the event that the multiemployer insurance fund is 

exhausted, affected participants then relying on the PBGC pension 

guarantee would receive an extremely small fraction of their alreadyreduced guarantees or, potentially, nothing. According to PBGC officials, 

once the insurance fund’s cash balance is depleted, the agency would 

have to rely solely on the annual insurance premium receipts, which

totaled $92 million for fiscal year 2012. The precise effect that the 

insolvency of the multiemployer insurance fund would have on retirees 

receiving the PBGC guaranteed benefit depends on a number of 

factors—primarily the number of guaranteed benefit recipients and 

PBGC’s annual premium income at that time. The impact would, 
 

Page 34 GAO-13-240 Private Pensions

however, likely be severe. For example, if the insurance fund were to be 

drained by the insolvency of one very large and troubled plan, under one 

scenario, we estimate that the benefits paid by PBGC would be reduced 

to less than 10 percent of the PBGC guarantee level. In this scenario, a 

retiree who once received a monthly pension of $2,000 and whose 

pension was reduced to $1,251 under the PBGC guarantee, would see 

the monthly pension 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. Our contacts with plan officials 

and other stakeholders also suggested that the exhaustion of the PBGC 

multiemployer insurance fund would have effects well beyond direct 

financial impacts. For example, officials of another plan said that the 

exhaustion of the insurance fund could bring about the loss of public 

confidence in the multiemployer plan system’s ability to provide retirement 

security for plan participants and their beneficiaries.

Experts and stakeholders we interviewed cited two key policy options to 

avoid the insolvencies of severely underfunded plans and the PBGC 

multiemployer insurance fund, and a number of other options for longer 

term reform of the multiemployer system (see fig. 12). To address the 

impending insolvency crisis, they proposed allowing severely troubled 

plans to reduce accrued benefits, including benefits of retirees, and 

providing PBGC with additional resources to prevent insolvencies that 

might otherwise threaten the fund. Longer term options would provide 

plans with flexibilities and resources to help attain financial stability in the 

future. These include encouraging the adoption of flexible benefit designs 

and reforming withdrawal liability policies.41

 

41 The NCCMP’s February 2013 report also offered a series of recommendations that 

address some of the proposals discussed in this section. In addition, it also includes a 

series of recommended technical refinements to the PPA that were beyond the scope of 

this report. For example, the report advocates that plans that reasonably expect to enter 

critical status in the next five plan years be permitted to enter critical status in the current 

plan year. 

Key Options to 

Reduce Liabilities and 

Change Plan Designs 

Could Help Improve 

Financial Stability, but 

Pose Trade-offs
 

Page 35 GAO-13-240 Private Pensions

Figure 12: Key Federal Policy Options and Possible Effects on Key Stakeholders

a

We recognize there may also be secondary effects from these policy options. For example, reducing 

accrued benefits may result in a greater use of and reliance on Medicaid and other federal benefits. 

An indirect effect of some of these policy options could be to reduce PBGC’s exposure to potential 

liabilities.
 

Page 36 GAO-13-240 Private Pensions

Various experts and plan representatives stressed the necessity of 

modifying ERISA’s anti-cutback rule to allow severely distressed plans to 

reduce the accrued benefits of active participants as well as retirees.42

They noted that this flexibility is essential because 1) the most severely 

distressed plans will be unable to avoid insolvency using traditional 

methods—increasing employer contributions and/or reducing future 

benefit accruals or adjustable benefits—and 2) benefit reductions will 

occur in any case and will be more severe in the event of plan insolvency, 

especially in the event of the insolvency of PBGC’s multiemployer 

insurance fund. As described in the first section of this report, the most 

severely distressed plans we contacted have already adjusted 

contributions and benefits and several stated that further adjustments 

would accelerate plan insolvency. In particular, the demographics of 

many multiemployer plans limit their ability to reduce liabilities through 

contribution increases or reductions in future benefit accruals because 

they are typically based on hours worked. For example, the majority of 

participants in one of the largest multiemployer plans have already retired 

or are inactive and no longer contributing to the plan—as of 2012, the 

plan had about 4.86 retired or otherwise inactive participants for every 

active worker. In light of the sacrifices already made by active 

participants—some of whom are absorbing the cost of significant 

contributions to support benefit payments at a level they will likely never 

see for themselves—some stakeholders noted that adjustments of retiree 

benefits would be equitable. Moreover, experts, as well as employer and 

plan representatives also noted that allowing plans to reduce accrued 

benefits now could avoid more severe reductions in the future. For 

example, representatives from an association of actuaries and from a 

 

42 26 U.S.C. § 411(d)(6) and 29 U.S.C. § 1054(g). 

Allowing Plans to Reduce 

Accrued Benefits Could 

Help Severely 

Underfunded Plans Avert 

Insolvency, but Some 

Experts Said Severity of 

Cuts May Warrant Federal 

Assistance 

Allow Plans Facing Insolvency 

to Reduce Accrued Benefits 
 

Page 37 GAO-13-240 Private Pensions

large plan noted that for some plans, the alternative to reductions in 

accrued benefits is eventual plan insolvency, which would result in the 

much lower benefit level guaranteed by PBGC compared to the current 

benefits paid and, possibly, little to no benefit at all if PBGC’s 

multiemployer insurance fund became insolvent. Finally, some experts 

and a plan representative stressed the urgency of obtaining such 

flexibility because the longer the delay, the greater the eventual required 

benefit reductions.

Nonetheless, allowing plans the flexibility to reduce accrued benefits for 

current workers and retirees would significantly compromise one of the 

founding principles of ERISA and could impose significant hardship on 

some retirees. While some plan representatives and other stakeholders 

told us that a very modest benefit reduction would be sufficient to avoid 

insolvency, others noted that reductions would be very painful for retirees 

who worked for many years and planned their retirements around a 

promised benefit.43 Representatives of one of these plans referred to 

appeal letters to the plan that had been submitted by participants and/or 

their spouses, noting that older workers or retirees can be in some 

financially difficult situations, and cuts to accrued benefits would deepen 

and increase the number of such hardships. Some also noted that while 

younger retirees may be able to obtain employment to supplement 

income, older retirees, especially in physically demanding industries like 

mining and construction would likely not have that option. Finally, some 

stakeholders indicated that the flexibility to reduce accrued benefits would 

harm the multiemployer system by undermining the credibility of 

multiemployer plans and diminishing their ability to attract and retain 

employers and participants.

Plan representatives and experts we contacted proposed a number of 

considerations and limitations that could mitigate some concerns with 

allowing plans to reduce accrued benefits. As described in table 6, these 

measures include eligibility criteria and options for oversight, along with 

other key features. For example, given the sacrifice it would impose on 

 

43 For example, several stakeholders told us some plans could avoid insolvency by 

eliminating an additional monthly benefit payment known as a “13th check.” According to 

representatives from one plan, these additional benefits were added during the strong 

equities market of the 1990s in order to avoid additional tax liabilities due to overfunding 

and, to the extent the additional benefits are part of the accrued benefit, the plan does not 

have the flexibility to rescind this benefit under current law. 
 

Page 38 GAO-13-240 Private Pensions

participants, several experts and plan representatives said that allowing 

reductions in accrued benefits should only be considered as a last resort 

for plans headed for insolvency.

Table 6: Key Features of Proposals to Allow Severely Underfunded Plans to Reduce Accrued Benefits 

NCCMP Commission proposals

Plan representatives

and industry experts proposals

Eligibility criteria • Actuarial determination would be needed to 

show that benefit reductions avert plan 

insolvency.

• Plans should demonstrate the financial necessity 

of benefit reductions, e.g., certification that plan 

is headed for insolvency or a cash flow test. 

Nature and extent of 

reductions

• Accrued benefits may be reduced at most to 

110% of the PBGC guarantee.

• Reductions in accrued benefits should be limited 

to a level tied to the PBGC guarantee (suggested 

level varied from 100% to 125% of the PBGC 

guarantee).

Implementation • Benefit reductions would be determined by 

plan trustees in concert with the collective 

bargaining process.

• Any future benefit increases would be 

accompanied by a comparable restoration of 

accrued benefits that were reduced.

• Plan trustees are best placed to decide how 

benefit cuts should be implemented.

• Protections for vulnerable populations should be 

considered (e.g., oldest or disabled participants, 

those with lower benefits).

Oversight • PBGC could review proposed cuts to ensure 

established criteria are met (e.g., benefit 

reductions are equitably distributed and 

protections are in place for most vulnerable 

populations).

• PBGC, Labor, or IRS could perform oversight.

Source: GAO analysis of interviews and documentation from NCCMP and interviews with plan representatives and industry experts. In 

addition to the NCCMP effort, a representative from an employer in the transportation industry said they are working with other 

employers in that industry to develop a proposal to address multiemployer plan funding challenges, but it was still in progress at the 

time this report was written.

Even with these protections and considerations, the flexibility to reduce 

accrued benefits would not occur without considerable sacrifice, and may 

not be sufficient to help some plans avoid insolvency. Several plan 

representatives and experts said the suggested benchmark for reducing 

accrued benefits—PBGC’s guarantee level of $12,870 on an annual basis 

for 30 years of service—is relatively low and could result in steep benefit 

cuts. For example, given the magnitude of financial challenges facing 

some severely underfunded plans, accrued benefits may be reduced by 

one-third or more of their original value. Moreover, in the case of at least 

one plan, PBGC officials said that reductions to the maximum guaranteed 

level may still not represent sufficient savings to avert insolvency. For 

example, representatives of one large plan told us that while reducing 

accrued benefits might be an option for some plans, it was not an option 

for their plan because the benefits were already quite modest—average 

retirement benefits in 2010 were about $600 per month. Further, plan 
 

Page 39 GAO-13-240 Private Pensions

representatives said it would be unconscionable to reduce benefits for a 

retiree with a work-related illness, such as a respiratory ailment, who may 

be barely surviving on current benefit levels.

According to several experts, in an effort to save plans and conserve 

PBGC assets in the long term, PBGC could provide financial assistance 

to qualifying plans headed for insolvency through a partition. If a plan 

qualifies and its application is approved by PBGC, the partition population 

includes only orphaned participants—those whose employer left the plan 

due to bankruptcy—and their benefits are reduced to the guaranteed 

level.44 According to industry experts, partitions would allow plans with a 

substantial share of orphaned liabilities to avoid further benefit reductions 

for active participants and other beneficiaries. By removing the burden of 

the legacy costs associated with orphaned participants, the plan would be 

in a better position to adequately fund benefit obligations with ongoing 

contributions. In addition, one expert said that partitions could reduce the 

total liability for PBGC because extending the solvency of the plan means 

that fewer participants would rely on benefit payments from the PBGC 

than if the whole plan were to become insolvent.

While partitions may prevent qualifying plans from becoming insolvent, 

neither PBGC’s current partitioning authority nor its financial resources 

are sufficient to address the impending insolvency of large, severely 

underfunded plans. In its entire history, PBGC has performed partitions 

for only two plans.45 According to PBGC officials, plan representatives, 

and experts, there are a number of reasons why partitions have not been 

more widely used:

 

44 29 U.S.C. § 1413 specifies the following criteria a plan must meet to qualify for a 

partition: 1) a substantial reduction in the amount of aggregate contributions under the 

plan has resulted or will result from a case or proceeding under title 11 United States 

Code (Bankruptcy) with respect to an employer, 2) plan is likely to become insolvent, 3) 

contributions will have to be increased significantly in reorganization to meet the minimum 

contribution requirement and prevent insolvency, and 4) partition would significantly 

reduce the likelihood that the plan will become insolvent.

45 In addition to an earlier partition of the Council 30 of the Retail, Wholesale, and 

Department Stores Union plan, PBGC partitioned the Chicago Truck Drivers Union 

Pension Plan in 2010. In each case, rather than administering the plan directly, PBGC 

provides sufficient funding to the plan to pay the orphaned beneficiaries guaranteed 

benefits, along with relevant administrative expenses.

Financial Assistance to Prevent 

Insolvency 
 

Page 40 GAO-13-240 Private Pensions

• The magnitude of potential reductions for orphaned participants has 

dissuaded some plans from applying for help. Payments for the 

partitioned population will be reduced to the PBGC guarantee level, 

which could be a sizable reduction in some cases.

• PBGC does not have sufficient resources to cover orphaned liabilities 

of large severely underfunded plans.

• Plans may not meet the four statutory criteria to be eligible for a 

partition. For example, a plan must demonstrate that it is headed for 

insolvency due to a reduction in contributions due to employer 

bankruptcies, which numerous plan representatives and experts said 

may exclude plans in need of assistance. Some plan representatives 

said that many of their contributing employers are small businesses 

that do not have the wherewithal to go through formal bankruptcy 

proceedings, but instead close without paying their full share of 

liabilities. In other cases, contributing employers may have left when 

the plan was adequately funded, but, as a result of the market crash 

in 2008, the funded status deteriorated. Consequently, the plan is not 

able to collect any ongoing contributions from those employers to 

offset the poor investment returns, but the plan is still responsible for 

paying the full amount of vested benefits for their workers.

While the reasons employers leave a plan may vary, their departure can 

result in significant legacy costs that experts said impair the ability of the 

plan to remain solvent or recover from funding shortfalls. For example, 

according to officials from one of the largest plans, about 40 percent of 

benefit payments go to orphaned participants and current employer 

contributions amounted to only about 25 percent of total annual benefit 

payments as of 2009. To address this issue, several experts said that 

partitions should be made more widely available so that, for example, 

orphaned liabilities could include any participants whose contributing 

employer left the plan without paying their full share of unfunded vested 

benefits. However, to cover the cost of these benefits, several experts 

noted that PBGC would need additional funding—the agency does not 

have nearly sufficient resources to pay even the reduced benefit levels for 

potential partition populations from some large plans.

As an example, representatives of one of the largest plans for which 

insolvency is reasonably possible in the mining industry indicated they 

may not be eligible for assistance through a partition because the plan 

was sufficiently funded until the 2008 financial crisis. In the absence of a 
 

Page 41 GAO-13-240 Private Pensions

partition, some members of Congress have proposed financial assistance 

using an existing separate source of funds established from reclamation 

fees paid by coal companies for abandoned coal mines.46 According to 

plan representatives, this fund currently provides money to pay for health 

benefits of three related plans, which have not used the full amount of 

those funds. The proposal would transfer any remaining funds that are 

not needed for health benefits to improve the solvency of the pension 

plan.47 The representatives also noted that this financial assistance is 

essential and the only way the plan can avoid insolvency. Pension 

benefits for this plan are relatively low—retirees received an average 

pension of about $600 a month in 2010, which limits the plan’s ability to 

improve its funded status even if reductions to accrued benefits were 

allowed.

Numerous industry experts and plan representatives emphasized the 

importance of providing timely assistance to severely underfunded plans, 

but some experts also cited drawbacks of providing additional financial 

assistance beyond PBGC’s multiemployer insurance fund. Regarding 

advantages, several experts and plan representatives said providing 

additional financial assistance sooner rather than later could prevent 

entire plans from going insolvent and reduce the number of participants 

relying on guaranteed payments from PBGC in the long term. Beyond the 

scope of an individual plan, representatives from a construction industry 

group said additional financial assistance could also prevent more 

widespread negative effects. Because employers across various 

industries contribute to some of the large severely underfunded 

multiemployer plans, as well as other plans, the continued decline of such 

a plan could trigger a contagion effect. Contributing employers may face 

large liabilities (e.g., increased contributions, increased withdrawal 

liability) that could prevent them from fulfilling obligations to other 

currently well-funded plans and some employers may be forced out of 

 

46 H.R. 5479, 111th Cong. (2010). Other sources of federal assistance may also be 

considered. For example, prior proposed legislation included a provision for diverting 

funds from PBGC’s single-employer program to provide assistance to multiemployer 

plans. S. 3157, 111th Cong. (2010). However, as we have previously reported, PBGC’s 

single-employer program also faces significant long run financial challenges and the 

program has been on GAO’s high risk list since 2003. See GAO, High-Risk Series: An 

Update, GAO-11-278 (Washington, D.C.: February 2011), 150-153 and Pension Benefit 

Guaranty Corporation: Single-Employer Pension Insurance Program Faces Significant 

Long-Term Risks, GAO-04-90 (Washington, D.C.: October 29, 2003).

47 Coal Accountability and Retired Employee Act of 2010 (CARE Act), H.R. 5479.
 

Page 42 GAO-13-240 Private Pensions

business. Moreover, a plan representative and an expert said additional 

financial assistance is necessary to prevent the insolvency of the 

multiemployer insurance program, which, as described in the previous 

section, would leave thousands of participants with a small fraction of 

their vested pension benefits. However, other experts cited drawbacks for 

providing additional financial assistance. In particular, some experts said 

that a partition may not be a permanent fix for the plan. For example, if 

the on-going portion of the plan continues to lose employers, it may still 

become insolvent and require financial assistance from PBGC. In 

addition, some experts expressed concern about the size of the burden 

federal financial assistance could potentially place on taxpayers.48

Considering the resources that may be needed to provide financial 

assistance to troubled plans, PBGC and others have identified increased 

premiums as a potential source of additional revenue for PBGC.

49

According to projections in a recent PBGC report, doubling the insurance 

premium from the current level of $12 per participant to $24 per 

participant would reduce the likelihood of PBGC insurance fund 

insolvency in 2022 from about 37 percent to about 22 percent.50 The 

analysis also found that a tenfold increase to $120 per participant would 

virtually eliminate the likelihood of multiemployer insurance fund 

insolvency by 2022, although the analysis did not look beyond that 

timeframe.51

 

48 For example, according to representatives from one large severely underfunded plan, 

total vested benefits attributable to participants whose employer left the plan without 

paying their full share of withdrawal liability was $2.7 billion as of 2009. The plan’s total 

vested benefits amounted to $6.7 billion in 2009. 

49 While this report was submitted for agency comments, the House Subcommittee on 

Health, Employment, Labor and Pensions held a hearing on challenges facing 

multiemployer plans on March 5, 2013 where the issue of further raising premiums was 

discussed. Starting in 2013, premiums paid by multiemployer plans increased from $9 per 

participant to $12 per participant and are indexed thereafter. Premiums for multiemployer 

plans are considerably lower than for single-employer plans commensurate with the lower 

benefit guarantee for multiemployer plans. In addition, unlike with single-employer plans, 

contributing employers in multiemployer plans act as the principal guarantor while PBGC 

is the guarantor of last resort.

50PBGC Insurance of Multiemployer Pension Plans: Report to Congress Required by the 

Employee Retirement Income Security Act of 1974, as amended, Pension Benefit 

Guaranty Corporation, Washington D.C., January 2013. 

51 In their report, PBGC neither proposed nor recommended the adoption of increased 

premiums for the multiemployer program.
 

Page 43 GAO-13-240 Private Pensions

However, some stakeholders we spoke with noted that increased 

premiums also have limitations and drawbacks. Some stakeholders said 

further premium increases alone were not a feasible solution because 

they would be insufficient to solve PBGC’s long-term funding shortfall and 

would further stress employers in severely underfunded plans who have 

already borne considerable contribution increases. According to a PBGC 

analysis, even a ten-fold increase in the current premium would not 

prevent significant growth in the agency’s deficit. Under this analysis, 

PBGC estimates that the FY2012 deficit of $5.2 billion would still nearly 

triple, amounting to about $15 billion in 2022. Moreover, it is unclear what 

impact such premium increases would have on plans of varying financial 

health, especially plans seeking to delay eventual insolvency. PBGC 

officials acknowledged that, although premiums are generally not a 

significant percentage of plan costs, the most severely underfunded plans 

may not be able to afford any increases. PBGC officials also said that, 

given the range of financial circumstances across plans, a premium 

structure that would ensure affordable and appropriate premiums for all 

plans could help address this concern. In prior work, we assessed 

changing the premium structure for PBGC’s single-employer program to 

allow premiums to vary based on risk.52 However, we have not assessed 

the implications or implementation of increased premiums or a risk-based 

premium structure for PBGC’s multiemployer program. Given the 

distinctive features of the multiemployer plan design and program 

described earlier in this report, the development of a risk-based premium 

structure for multiemployer plans would entail unique considerations and 

require further analysis. 

 

52 In 2012, we reported on challenges facing PBGC’s single-employer program and its 

premium structure and recommended that Congress consider authorizing a redesign of 

PBGC’s premium structure to more fully reflect the risk posed by plans and sponsors to 

the agency. For more information, see: GAO, Pension Benefit Guaranty Corporation: 

Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors, 

GAO-13-58 (Washington, D.C.: November 2012).
 

Page 44 GAO-13-240 Private Pensions

ERISA requires that employers wishing to withdraw from a multiemployer 

plan pay for their share of the plan’s unfunded liabilities. As explained in 

the following text box, this requirement for withdrawal liability payments is 

intended to prevent employers from walking away from liabilities they 

have created, and, thus, help protect plan participants and other 

employers. However, despite the necessity of such a safeguard, plan 

representatives and other industry experts said changes are needed to 

address key challenges related to current provisions regarding withdrawal 

liability.

Withdrawal Liability

In the event an employer seeks to leave a multiemployer plan and the plan has a funding shortfall, the employer is liable 

for its share of unfunded plan benefits, known as withdrawal liability. A plan can choose from several formulas 

established in the law for determining the amount of unfunded vested benefits allocable to a withdrawing employer and 

the employer’s share of that liability.a Under three of these formulas, the employer’s proportional share is based on the 

employer’s share of contributions over a specified period.b In addition, the plan can apply for approval from PBGC to use 

variations on these methods. Liabilities that cannot be collected from a withdrawing employer, for example, one in 

bankruptcy, are to be “rolled over” and eventually funded by the plan’s remaining employers—frequently referred to as 

orphaned liabilities. As we previously reported, this means that an employer’s pension liabilities can become a function 

of the financial health of other employer plan sponsors.c These additional sources of potential liability can be difficult to 

predict, increasing employers’ level of uncertainty and risk. However, while the total amount of withdrawal liability is 

based on the unfunded vested benefits for the plan as a whole, a particular employer’s annual payments are strictly 

based on its own contributions and are generally subject to a 20-year cap.d

 

Source: GAO analysis of ERISA and PBGC documents and prior GAO reports.

a Vested benefits are nonforfeitable benefits for which the participant has satisfied the conditions of entitlement. Unfunded vested 

benefits are the difference between the present value of a plan’s vested benefits and the value of plan assets, based on reasonable 

actuarial methods and assumptions selected by the plan. (In the case of a mass withdrawal, PBGC specifies the methods and 

assumptions to be used.)

b Under a fourth method, an employer’s withdrawal liability is based on the benefits and assets attributable to service with the 

employer (and a proportional share of unattributable amounts).

c GAO-04-423, p. 23.

d In cases of a mass withdrawal whereby the plan is terminated when all remaining employers exit the plan, the 20-year cap is 

eliminated.

Changes to Plan Design 

and Other Options Could 

Address Challenges of 

Withdrawal Liability and 

Improve Long-Term 

Financial Stability

Addressing the Problems 

Associated with Withdrawal 

Liability Policies
 

Page 45 GAO-13-240 Private Pensions

Current federal withdrawal liability policies give rise to three main 

problems, according to stakeholders and experts. First, plans often collect 

far less than the full value of liabilities owed to the plan. In the event of an 

employer bankruptcy, several experts said plan sponsors often collect 

little or no withdrawal liability payments. For example, several experts 

explained that in the recent Hostess Brands bankruptcy, the firm—a 

contributing employer to many plans—is likely to pay very little of its 

withdrawal liability obligations. One service provider said this bankruptcy 

doubled the unfunded liabilities attributable to remaining employers in 

some plans. Separately, the method of calculating withdrawal liability 

payments may not capture an employer’s full share of unfunded liabilities 

because a plan’s withdrawal liability obligation is based on its prior 

contributions rather than on attributed liabilities, and is also subject to a 

20-year cap.53 In particular, some stakeholders said the 20-year cap on 

withdrawal liability payments limits the amount of money collected by 

plans. If the amount of the employer’s prior contributions is small relative 

to the size of their total withdrawal liability, the annual payments may not 

be sufficient to pay off their total withdrawal liability over the 20-year 

period.

Second, existing withdrawal liability rules deter new employers from 

joining a plan with existing unfunded liabilities. Plan representatives said 

attracting new employers is essential to the long-term health of the plan, 

but an employer group said the existence of potential withdrawal liability 

strongly deters prospective employers who may otherwise want to join. 

Moreover, fear of greater withdrawal liability in the future may encourage 

current contributing employers to leave the plan. For example, in late 

2007, UPS paid about $6 billion to withdraw from one of the largest 

multiemployer plans.

Third, the presence of withdrawal liability can negatively affect an 

employer’s credit rating and ability to obtain loans for their business. For 

example, representatives from one large employer said their total 

withdrawal liability exceeds the net worth of their company and this has 

made it difficult for them to obtain loans and other financing, which might 

 

53 Except in cases of a mass withdrawal, withdrawal liability payments are subject to a 20-

year cap. Thus, even if the annual payments made, which are based on the employer’s 

previous contribution level, for the 20-year period are insufficient to cover the cost of the 

employer’s withdrawal liability, they are not obligated to pay the remainder of the amount

of unfunded vested benefits.
 

Page 46 GAO-13-240 Private Pensions

help revitalize their business. Table 7 describes options to address these 

problems identified through our contacts with various stakeholders, 

including plan and employer representatives.

Table 7: Options to Address Challenges Associated with Withdrawal Liability

Source: GAO analysis of documentation and interviews with plan representatives, industry experts, and NCCMP.

A comprehensive remedy to the problems arising from withdrawal liability 

is particularly elusive because a solution to one issue can exacerbate 

another. For example, eliminating the current 20-year cap may help allow 

plans to collect withdrawal liability payments until the full amount has 

Option Benefits Tradeoffs / Limits on Effectiveness

Increase assets recovered by plan

Improve status of plan in bankruptcy 

proceedings

Plan would be better positioned to collect a 

higher share of the liabilities owed by the 

bankrupt employer

Amount of withdrawal liability collected may 

still be far short of total unfunded liabilities

Eliminate 20-year cap on withdrawal liability 

payments

Plan may be able to collect a greater share 

of liabilities owed by a withdrawing 

employer

• Unclear how many employers would 

be able to continue making payments 

beyond 20 years

• Increased amount of withdrawal 

liability a plan can collect may also 

deter employers from joining the plan

Reduce deterrent effect on contributing employers

Exclude increased contributions required 

by funding improvement or rehabilitation 

plans from withdrawal liability calculations 

Plan may improve its funded status by 

eliminating a disincentive for employers to 

increase contributions 

Plan sacrifices the amount of withdrawal 

liability it can collect

Clarify that withdrawal liability will not be 

assessed to employers that voluntarily 

remain in the plans 

• Mitigate impact of potential withdrawal 

liability on employer’s credit rating and 

ability to obtain loans

• Encourage employers to remain in the 

plan

Because this is a clarification of current 

law, no tradeoffs were identified

Design and manage plan to minimize or 

eliminate withdrawal liability

Without withdrawal liability, a plan will be 

better able to attract new employers and 

expand its contribution base

• Plan may need to lower benefit accrual 

rate and/or increase contributions to 

ensure plan is adequately funded, 

such as with a flexible benefit design 

(see next section)

• Does not address legacy costs so this 

strategy may only help plans 

prospectively

Protect newly joining employers by placing 

them in a separate “pool” in which they only 

accrue liability prospectively, and do not 

assume liabilities of existing employers; 

employers from the “old” pool may move to 

the new pool if they pay withdrawal liability

• Permissible under current law

• Tool for plan to encourage new 

employers to join the plan and healthy 

employers to continue to participate

• Withdrawal liability payments to move 

to the new pool increases plan assets 

• Some employers may not be able to 

afford paying withdrawal liability to 

move to the new pool

• Employers in the new pool could still 

be faced with unfunded liabilities from 

the old pool in the event of a mass 

withdrawal
 

Page 47 GAO-13-240 Private Pensions

been paid. However, increasing the amount of withdrawal liability that 

plans can collect may also discourage new employers from participating 

in a plan because it increases the potential withdrawal liability they could 

be required to pay. On the other hand, options that could reduce the 

deterrent effect on new employers—such as the proposal to omit 

contributions required by funding improvement or rehabilitation plans from 

withdrawal liability calculations—could reduce a plan’s ability to collect 

sufficient withdrawal liability.

Numerous plan representatives, experts, and the NCCMP Commission 

recommend the adoption of a more flexible DB model to avoid a repetition 

of the current challenges facing multiemployer plans. While the specific 

plan design can vary, in general, this model allows trustees to adjust 

benefits based on key factors—such as the plan’s funded status, 

investment returns, or plan demographics—to keep the plan well-funded. 

Importantly, it reduces the risk that contributing employers would face 

contribution increases if the plan experiences poor investment returns or 

other adverse events. Investment risk is thus primarily shared by 

participants and the plan is designed to avoid incurring any withdrawal 

liability. Overall, the trustees of the plan would have greater flexibility than 

under a traditional DB plan to adjust benefits to keep the plan wellfunded. See table 8 for a comparison of two alternative flexible DB plan 

designs, although other models could also be used. In addition, the 

NCCMP Commission’s proposal would also give more flexibility for 

traditional DB plans by allowing these plans to adjust the normal 

retirement age to harmonize with Social Security’s normal retirement 

age.

54

 

54 NCCMP’s proposal would allow plans this flexibility subject to limitations. For example, 

increases in a plan’s normal retirement age would not apply to current retirees or 

participants who are within 10 years of the existing normal retirement age.

Facilitate Adoption of Flexible 

Defined Benefit Plan Design 
 

Page 48 GAO-13-240 Private Pensions

Table 8: Options for a Flexible DB Plan to Address Risks Facing Multiemployer Plans

Flexible DB option Key features

Cheiron Variable DB model • Benefit at retirement is the greater of the:

1) floor defined benefit (e.g., career average pay formula based on an assumed rate of 

return of 5%) or

2) variable benefit accrued when investment returns exceed floor rate (e.g., greater 

than 5%)

• Returns in excess of a cap (e.g., 10%) are used to establish a contingency reserve to 

mitigate effect of market downturns on the plan’s funded status

• Plan uses a relatively conservative investment strategy in line with floor rate of return

• At retirement, the greater of the two benefits for a participant is converted into an 

annuity, which is purchased from a private insurer or managed by the plan using a 

conservative investment strategy

• Contingency reserve fund and conservative investment strategy designed to minimize 

risk of withdrawal liability

NCCMP Target Benefit modela • Contributions are designed to attain a certain benefit level based on various 

assumptions, including investment rate of return

• More conservative funding standards than current system

• In the event of a funding shortfall, certain past and future benefits earned under the new 

model can be adjusted

• No withdrawal liability

• No PBGC coverage

Source: GAO analysis based on interviews with industry experts and documentation from Cheiron and NCCMP.

a

NCCMP’s proposal highlights support for the Target Benefit model, as well as the Cheiron model, but 

does not endorse any specific model as exclusive.

Notably, the Cheiron proposal would also use more conservative 

approaches to investment and funding policy because it uses a relatively 

lower assumed rate of return and a contingency reserve fund. The 

Cheiron proposal calls for a more conservative asset allocation and, in 

addition to sharing some of the investment risk with participants through 

the flexible benefit design, would also reduce the overall amount of 

investment risk through the more conservative asset allocation. In 

addition, the Cheiron model would use a contingency reserve fund that 

could provide a cushion against unfavorable investment or demographic 

experience.

The design of a flexible DB plan offers several key benefits, which some 

stakeholders said are essential to the long-term survival of the 

multiemployer system. In particular, several stakeholders cited limiting 

employer liability as a key benefit. Representatives of several employers 

said it is imperative to limit their liability to enable them to be competitive 

against competitors. By minimizing risks to employers, a flexible DB 
 

Page 49 GAO-13-240 Private Pensions

model may strengthen employers’ commitment to the plan and reduce 

incentives for them to leave. Similarly, reducing risk may also help attract 

new employers to these plans, which may improve a plan’s demographics 

and help it stay well-funded and viable in the long term. Additionally, a 

group of employer representatives said that a flexible DB plan, such as 

the one developed by Cheiron, in conjunction with the United Food and 

Commercial Workers (UFCW) International Union, provides trustees more 

tools to prudently manage the plan to keep it well-funded and able to pay 

promised benefits even when faced with adverse events, such as poor 

investment returns or demographic shifts. Moreover, some stakeholders 

said that a flexible DB plan reduces risk while also avoiding challenges 

associated with defined contribution (DC) plans. Specifically, 

representatives of a construction industry group said a flexible DB plan 

would still offer pooled and professionally managed investments, along 

with risk sharing among participants, which can mitigate some of the 

individual risks faced by participants in DC plans, such as investment risk 

and longevity risk.55 Given the potential long-term benefits of a flexible DB 

model, some experts said regulatory agencies could do more to help 

plans adopt a design with these features. For example, one expert said 

that PBGC could hold a conference on best practices in plan design. In 

addition, this expert said that PBGC could charge such plans lower 

premiums commensurate with their lower risk to encourage adoption of 

these plan design features; however, PBGC lacks the legal authority to do 

so.56

Some plan representatives and experts also noted that a flexible DB 

model entails tradeoffs. In particular, representatives from an actuarial 

firm and from an industry group said that while this approach shows 

promise for addressing prospective challenges, it does not help resolve 

 

55 We have previously reported on some of the challenges workers face in accumulating 

sufficient retirement savings in DC plans. See, for example: GAO, 401(k) Plans: Policy 

Changes Could Reduce the Long-term Effects of Leakage on Workers’ Retirement 

Savings, GAO-09-715 (Washington, D.C.: August 2009); Private Pensions: Alternative 

Approaches Could Address Retirement Risks Faced by Workers but Pose Trade-offs, 

GAO-09-642 (Washington, D.C.: July 2009); and Retirement Income: Ensuring Income 

throughout Retirement Requires Difficult Choices, GAO-11-400 (Washington, D.C.: June 

2011).

56 For information on challenges facing PBGC’s single-employer program and its premium 

structure, see: GAO, Pension Benefit Guaranty Corporation: Redesigned Premium 

Structure Could Better Align Rates with Risk from Plan Sponsors, GAO-13-58

(Washington, D.C.: November 2012). 
 

Page 50 GAO-13-240 Private Pensions

problems for plans that already have financial shortfalls. Union and 

employer representatives said that plans may first need to address 

existing shortfalls before they could adopt a flexible DB model. Thus, new 

design options are unlikely to help large plans that are already severely 

underfunded. Further, in the flexible benefit models described in table 8, 

investment risk is primarily borne by participants. Representatives from 

an actuarial firm also said that this model may be relatively expensive 

when comparing the amount of contributions needed to attain a certain 

level of accrued benefits. For example, in order to minimize the risk of 

underfunding, a flexible DB plan may use a relatively low assumed rate of 

return—and, correspondingly, a more conservative investment strategy—

than is more commonly used by multiemployer plans. Over the long term, 

this may result in a lower level of accrued benefit. However, 

representatives of one actuarial firm said that higher assumed rates of 

return used by some multiemployer plans may be too high and could 

entail a greater risk of the plan becoming underfunded. And, as recent 

events show, participants already assume a lot of risk in the event a plan 

becomes severely underfunded. As a result, a flexible benefit model that 

reduces risk might provide a somewhat lower promised benefit, but one 

that is more secure.

Facilitating more plan mergers or allowing plans to form alliances may 

also help address financial challenges facing multiemployer plans, 

according to some plan representatives and industry experts. In a merger, 

two or more plans are combined into a single plan, including both plan 

assets and administration. Several stakeholders said that this 

consolidation helps plans—especially smaller plans—achieve more

favorable economies of scale to reduce costs. For example, in a merger, 

plans can reduce costs by consolidating administrative services, such as 

annual audits and legal services. In some cases, PBGC provides financial 

assistance to facilitate a merger by paying a plan that is insolvent or 

nearing insolvency a portion of the present value of PBGC’s net liability 

for that plan, which serves as an incentive for a well-funded plan to take 

on the assets and liabilities of a less well-funded plan. PBGC officials said 

that they are careful to provide financial assistance only in the case of 

mergers expected to be successful and, thus, avoid paying financial 

assistance twice to the same plan. While PBGC has helped to facilitate 

some mergers, several plan representatives and a representative from an 

actuarial firm said more plans could merge if PBGC provided additional 

financial assistance. Alternatively, other stakeholders said similar costsaving benefits from consolidation could be achieved by allowing plans to 

form alliances. In contrast to a merger, alliances allow plans to combine 

administrative and investment management services, but retain separate 

Encourage Mergers and 

Alliances 
 

Page 51 GAO-13-240 Private Pensions

liabilities and funding accounts. Consequently, in an alliance, each plan 

would retain its own liabilities and withdrawal liability obligations would not 

be shared across plans.

Along with cost savings from consolidating administrative services, plan 

representatives and industry experts said mergers and alliances can offer 

other important benefits. In particular, a merger or alliance would provide 

plans a larger asset pool that can also help plans reduce investment 

management fees. According to a representative from an actuarial firm, 

combined with administrative cost savings, consolidating investment 

management services can significantly reduce costs for small plans and 

may save some from insolvency. For example, some of their small plan 

clients pay between 30 and 40 percent of contributions towards 

administrative and investment management expenses while a larger plan

would pay closer to 5 percent. However, another expert said cost savings 

for some plans may be negligible depending on the plan’s circumstances. 

For example, if a plan is already sufficiently large and efficiently 

managed, cost savings from merging with another plan may be relatively 

small. In addition, several stakeholders said that by helping plans avoid 

insolvency, PBGC may also benefit from plan mergers or alliances 

because the participants of these plans would continue to receive benefits 

from the plan rather than becoming insolvent and relying on benefit 

payments from PBGC. Consequently, the cost PBGC incurs to facilitate 

such arrangements may be more than offset by preventing the plan from 

becoming insolvent.57

While mergers can provide cost-savings and other benefits, plans face 

barriers to implementing them. For example, representatives from one of 

the largest plans said that due to the relatively large size of their plan and 

the amount of their funding shortfall, a merger is not an option for them. 

Several stakeholders said a merger between a plan that is relatively wellfunded and a financially weaker plan poses concerns for plan trustees 

who have a fiduciary duty to act in the best interests of their plan’s 

participants. One employer representative said that a merger poses risks 

to the healthier plan and may not be in the best interests of those 

participants. To address potential risks to the healthier plan, some 

stakeholders said PBGC should be given greater resources to facilitate 

 

57 In fiscal year 2011, PBGC provided $15.1 million to help plan sponsors close out or 

merge five plans.
 

Page 52 GAO-13-240 Private Pensions

more mergers. In addition, some employer representatives said plans that 

undertake mergers could be afforded legal protection under a safe harbor 

to further alleviate concerns over fiduciary responsibility. While alliances 

may avoid some of these concerns—they would not require plans to 

harmonize their funding status as each plan retains its own liabilities—

such arrangements are not currently permitted and would therefore 

require a change in law according to NCCMP.

Despite unfavorable economic conditions, most multiemployer plans are 

currently in adequate financial condition and may remain so for many 

years. However, a 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. As a result, 

without Congressional action, the plans face the likelihood of eventual 

insolvency. While the multiemployer system was designed to limit 

PBGC’s exposure by having employers serve as principal guarantors, 

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 fully mitigate the 

effects of anticipated insolvencies. Should a critical mass of plan 

insolvencies drain the PBGC multiemployer insurance fund, PBGC will 

not be able to pay either current or future retirees more than a very small 

fraction of the benefit they were promised. Consequently, a substantial, 

and in some cases catastrophic, loss of income in old age looms as a real 

possibility for the hundreds of thousands of workers and retirees 

depending on these plans.

Congressional action is needed to avoid this scenario, and stakeholders 

suggested a number of key policy options. For example, various 

stakeholders suggested that, as a last resort to avert insolvency, 

Congress could enact legislation permitting plans—subject to certain 

limitations, protections, and oversight—to reduce accrued benefits of both 

working participants and retirees. In addition, some stakeholders 

suggested that Congress could give PBGC the authority and resources to 

assist the most severely underfunded plans. Stakeholders acknowledged 

that each of these options poses tradeoffs. Providing PBGC with 

additional resources, as well as other more direct financial assistance to 

plans, would create yet another demand on an already strained federal 

budget. Similarly, reducing accrued benefits for active workers, and 

especially for those already in retirement, could result in significant 

Conclusions 
 

Page 53 GAO-13-240 Private Pensions

reductions in income for a group that may have limited income 

alternatives and may be too infirm to return to the labor force. Such an 

option would also significantly compromise one of the key founding 

principles of ERISA—that accrued benefits cannot be reduced—

essentially rupturing a promise to workers and retirees who have labored 

for many years, often in dangerous occupations, and in some of the 

nation’s most vital industries.

The scope and severity of the challenges outlined by stakeholders 

suggest that a broad, comprehensive response is needed and Congress 

faces difficult choices in responding to these challenges. However, as the 

recent tri-agency federal report on multiemployer plans noted, unless 

timely action is taken to provide additional tools for the multiemployer plan 

trustees to stabilize the financial conditions of their plans, more costly and 

intrusive measures may later be necessary. Nevertheless, this situation 

can also be viewed as an opportunity both to protect the benefits of 

hundreds of thousands of older Americans and stabilize a pension system 

that has worked fairly well for decades. Without a comprehensive 

approach, efforts to improve the long-term financial condition of the 

multiemployer system may not be effective.

Given the serious challenges facing PBGC’s multiemployer insurance 

fund and critically underfunded multiemployer plans, and to prevent the 

significant adverse effects of PBGC insolvency on workers and retirees, 

Congress should consider comprehensive and balanced structural 

reforms to reinforce and stabilize the multiemployer system. In doing so, 

Congress should consider the relative burdens, as identified by key 

stakeholders, that each reform option would impose on the competing 

interests of employers, plans, workers and retirees, PBGC, and 

taxpayers.

We provided a draft of this report to the Department of Labor, the 

Department of the Treasury, and the PBGC for review and comment. We 

received formal written comments from the PBGC, which generally 

agreed with our findings and analysis. During the review period, PBGC 

officials raised the potential role that increased multiemployer insurance 

program premiums could play in strengthening the program, and hence in 

helping to ensure that participants in insolvent plans received some 

financial protection in the long term. In addition, the issue of PBGC 

premiums was raised repeatedly during a March 5, 2013 hearing held by 

the House Subcommittee on Health, Employment, Labor and Pensions, 

Matters for 

Congressional 

Consideration 

Agency Comments
 

Page 54 GAO-13-240 Private Pensions

Committee on Education and the Workforce. In light of the level of interest 

on this issue, we included a brief discussion of the matter of premiums in

the final version of our report. PBGC, Labor, and Treasury also provided 

technical comments which we incorporated as appropriate. PBGC’s 

formal comments are reproduced in appendix II.

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

issue date. At that time, we will send copies of this report to relevant 

congressional committees, PBGC, the Secretary of Labor, the Secretary 

of the Treasury, and other interested parties. In addition, the report will be 

made available at no charge on the GAO Web site at http://www.gao.gov. 

If you have any questions about this report, please contact Charles 

Jeszeck at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Key contributors to this report are found in 

appendix III.

Sincerely yours,

Charles A. Jeszeck

Director

Education, Workforce, and Income Security
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-13-240 Private Pensions

Our objectives were to answer the following research questions:

1) What actions have multiemployer plans in the weakest financial 

condition taken in recent years to improve their long-term financial 

position?

2) To what extent have plans relied on PBGC assistance since 2009, and 

what is known about the prospective financial condition of the 

multiemployer plan insurance program?

3) What options are available to address PBGC’s impending funding 

crisis and enhance the program’s future financial stability?

We sought to answer the first question in two primary steps. First, we 

obtained data on the results of a survey of critical status plans performed 

by The Segal Company, a large actuarial firm that has a client base 

consisting of about 25 percent of all multiemployer plans, representing 

about 30 percent of all multiemployer plan participants. As figure 13 

below illustrates, the industry distribution of Segal’s client base 

substantially parallels that of the broader multiemployer universe. 

Included as an addendum to Segal’s annual survey of plan funded status, 

the survey instrument requested information about the nature and size of 

contribution increases and benefit reductions, whether plans expected to 

emerge from the critical zone within statutory time frames, and the 

estimated number of years until emergence from the critical zone or, for 

plans not expecting to emerge, the number of years to plan insolvency. 

The information pertaining to each of the 107 critical plans in the survey 

was completed by Segal’s professional actuaries responsible for those 

clients. The survey was initiated in December 2010, and responses were

received through February 2011. Through a review of the methodology 

underlying the survey, and discussions with a Segal representative 

knowledgeable about the survey, we determined that the results were 

reliable and useful for our research. Second, we supplemented this data 

with in-depth interviews with representatives of 13 multiemployer plans—

8 were in critical status, 2 in endangered or seriously endangered status, 

and 3 in neither critical nor endangered status. We selected the plans to 

ensure that we included a range of plan sizes, industries, geographical 

areas, and funding status. Plans selected ranged in size from about 2,000 

participants to more than 531,000 participants and represented a variety 

of industries including those featuring some of the largest concentrations 

of multiemployer plans—construction, manufacturing, and transportation. 

Before speaking with plan officials, we reviewed available data, including 

rehabilitation or funding improvement plans, and other relevant 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-13-240 Private Pensions

documents. Our in-depth discussions with plan representatives covered 

various issues, including plans’ use of and views regarding funding relief, 

the nature and size of the contribution increases and benefit reductions, 

and the probable impact of contribution increases and benefit reductions 

on employers and plan participants.

Figure 13: Comparison of the Segal Client Base and Multiemployer Universe, by 

Major Industry

To answer the second question, we interviewed officials and analyzed 

data from PBGC, including recent PBGC annual reports and data books. 

We also developed several data requests for PBGC that were tailored to 

this objective, and reviewed information provided by PBGC in response. 

For example, we obtained data on the amount of PBGC’s annual 

assistance to plans due to plan insolvencies, plan partitions, and 

assistance granted for other reasons, such as plan mergers or closures. 

We also obtained and analyzed updated data regarding PBGC’s overall 

financial position and the size of its long-term deficits. Specifically, we 

obtained data on the liabilities attributable to plans on PBGC’s list of plans 

that are insolvent or considered likely to become insolvent in the next 10 

years, as well as those thought likely to become insolvent in the next 10 

to 20 years. To better understand the consequences of plan insolvency 
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-13-240 Private Pensions

on retirees, we interviewed relevant PBGC officials and requested data 

regarding the impact of insolvency on retirees of various wage levels and 

tenures. Finally, we discussed the impact of potential PBGC insolvency in 

our discussions with multiemployer plan officials.

To answer the third objective, we distinguished between options that 

would address the more immediate funding crisis facing plans headed 

toward insolvency and options that may enhance the long-run stability of 

the multiemployer system for plans that may not be headed for 

insolvency, but, nevertheless, face financial challenges. We assessed the 

tradeoffs of various options for current workers, retirees, and employers, 

as well as the federal government. To identify and assess available 

options, we interviewed a wide range of pension experts—including 

academics, actuaries, attorneys, plan trustees and administrators, 

employers and trade associations, unions, advocacy organizations, 

government officials, and other relevant stakeholders. We also reviewed 

relevant research and documentation, including a proposal by the 

National Coordinating Committee for Multiemployer Plans (NCCMP) and 

research by other industry experts.

As appropriate for each of our objectives, we reviewed existing literature 

and relevant federal laws and regulations.

We conducted this performance audit from March 2012 through March 

2013 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 
Appendix II: Comments from the Pension 

Benefit Guaranty Corporation

Page 58 GAO-13-240 Private Pensions

Appendix II: Comments from the Pension 

Benefit Guaranty Corporation
Appendix II: Comments from the Pension 

Benefit Guaranty Corporation

Page 59 GAO-13-240 Private Pensions
Appendix III: GAO Contacts and 

Acknowledgments

Page 60 GAO-13-240 Private Pensions

Charles A. Jeszeck, Director, (202) 512-7215 or jeszeckc@gao.gov

In addition to the contact named above, David Lehrer (Assistant Director), 

Michael Hartnett, Sharon Hermes, and Kun-Fang Lee made key 

contributions to this report.

In addition, support was provided by Frank Todisco, GAO Chief Actuary, 

James Bennett, David Chrisinger, Julianne Cutts, Jessica Gray, Theresa 

Lo, Ashley McCall, Sheila McCoy, and Walter Vance.

Appendix III: GAO Contacts and 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments

(131161)
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