O n September 9, 2016, Representative John Kline, chairman of the House Committee on Education and the Workforce in the 114 th Congress, issued a discussion draft of a bill that would autho rize a new multiemployer pension plan called a composite plan . A composite plan would contain features of two types of existing pension plans: (1) defined benefit (DB), in which participants receive regular monthly benefit payments in retirement (which some refer to as a "traditional" pension), and (2) defined contribution (DC) plans (of which the 401(k) plan is the most common), in which participants have individual accounts that are the basis of income in retirement. Since composite plans would be neither DB nor DC plans, authorizing legislation is necessary to implement the proposal. This report provides background on multiemployer pension plans; summarizes the discussion draft authorizing composite plans and explains the main features of these proposed plans; and explores various policy discussions surrounding composite plans, including their potential benefits and drawbacks for employers and employees, their possible implications for the Pension Benefit Guaranty Corporation (PBGC), and their potential effects on the broader retirement system. In addition to being classified as DB or DC plans, pension plans are also classified by whether they are sponsored by one employer (single-employer plans) or by more than one employer (multiemployer and multiple employer plans). Multiemployer pension plans are sponsored by employers in the same industry and maintained as part of a collective bargaining agreement. In 2013, there were 1,435 multiemployer DB pension plans that covered 10.4 million participants. These plans had $422.9 billion in assets and owed participants $1.0 trillion in benefits for a total amount of underfunding of $610.8 billion. Multiemployer plans that meet specified financial criteria are required to report to the Internal Revenue Service (IRS) their financial condition as being in one of several categories. The categories are (1) endangered (or a subcategory called seriously endangered ) (both are sometimes called "yellow zone" ) , (2) critical (sometimes called "red zone" ) , and (3) critical and declining. Plans that do not meet the criteria for any of these categories are sometimes referred to as being in the "green zone". In 2014, PBGC reported that 164 plans were in endangered or seriously endangered status, 323 plans were in critical status, and 779 in green zone status. Congress approved changes to multiemployer DB pension funding rules in the Multiemployer Pension Reform Act of 2014 (MPRA, enacted as Division O in the Consolidated and Further Continuing Appropriations Act, 2015; P.L. 113-235 ). Among other provisions, plans in critical and declining status may be eligible to apply to the Department of the Treasury to reduce benefits. MPRA did not address new pension plan structures, such as composite plans. Some Members of Congress have indicated that the proposal for composite plans is a continuation of the work done in MPRA. The Pension Benefit Guaranty Corporation (PBGC) was established by the Employee Retirement Income Security Act of 1974 (ERISA; P.L. 93-406 ) to insure benefits in private-sector DB pension plans. It operates two insurance programs: one for single-employer pension plans and a second for multiemployer pension plans. The two programs operate independently of each other. When a multiemployer DB pension plan becomes insolvent, PBGC provides financial assistance to the plan to pay participants' benefits. When a multiemployer plan receives financial assistance from PBGC, the plan must reduce participants' benefits to a maximum per participant benefit as set in statute. The maximum benefit is calculated as: 100% of the first $11 of the monthly benefit rate, plus 75% of the next $33 of the monthly benefit rate, times the participant's years of credited service. For example, an individual with 30 years of service in the plan could receive a maximum benefit of [30 × (100% × $11 + 75% × $33)] = $12,870 per. The benefit is lower for individuals with less than 30 years of service in the plan. PBGC's multiemployer program receives funds from premiums paid by participating employers ($282 million in FY2016) and from the income from the investment of unused premium income ($143 million in FY2016). The poor financial condition of some multiemployer DB pension plans threatens the solvency of PBGC's multiemployer insurance program. There are no provisions in law that provide for assistance from the U.S. Treasury in the event of PBGC's insolvency. ERISA states that "the United States is not liable for any obligation or liability incurred by the corporation." At the end of FY2016, PBGC reported a deficit of $58.8 billion in the multiemployer insurance program. If a sufficient number of multiemployer pension plans exhaust their plan assets and become unable to pay promised benefits, it is likely that PBGC would also exhaust its assets. PBGC indicated that there is more than a 50% chance of PBGC insolvency by the end of 2025, a more than 90% chance of insolvency by the end of 2028, and a 98% chance of insolvency by 2035. The Congressional Budget Office (CBO) provided several estimates of PBGC's financial condition. CBO's cash-based estimates account for spending and revenue in the years when they are expected to occur. CBO estimates that from 2017 to 2026, PBGC will be obligated to pay $9 billion in claims but will only have sufficient resources to pay $6 billion. From 2027 to 2036, claims to PBGC will be $35 billion but PBGC will only have sufficient resources to pay $5 billion. CBO also provided fair-value estimates, which are the present value of all expected future claims for financial assistance, net of premiums received. CBO's fair-value estimate of PBGC's future obligations was $101 billion. As a result of the challenges facing multiemployer DB pension plans, stakeholders have sought alternative pension plan designs that could alleviate some of the concerns but retain some of the beneficial features. These alternative plan designs would need to be authorized in ERISA. The Canadian government and several provinces in Canada have been considering or implementing the regulatory changes needed for employers to more widely adopt alternative plan structures, which are referred to as target benefit plans in Canada. The proposal for composite plans for plan sponsors in the United States was included in Solutions Not Bailouts , a 2013 report by a coalition of labor and management groups organized by the National Coordinating Committee for Multiemployer Plans (NCCMP), an organization of multiemployer pension and health plans. A composite plan, as would be authorized in the discussion draft, would be neither a DB nor a DC pension plan, though it would contain elements of both. As discussed in greater detail in the following sections, the main features of the proposed composite plan would be the following: A participant's benefit amount would be based on a formula and payable as a life annuity. Employer contributions would remain at a fixed amount (as negotiated between labor and management) and would not be required to increase in response to underfunding. Composite plans would be required to maintain a projected funding ratio of 120%. If the amount of the plan's assets were insufficient to pay 120% of the promised benefits, the plan would be required to take corrective action to restore the funding ratio to 120%. The options for corrective actions (called a realignment program in the discussion draft) include possible employer contribution increases (if agreed to by the bargaining parties) and reductions to participants' benefits. Composite plans would not be covered by PBGC. Therefore, plan sponsors would not pay PBGC premiums and participants' benefits would not be protected if the plan were to become insolvent. Composite plans would not feature withdrawal liability. Withdrawal liability is a payment or series of payments by an employer that seeks to no longer participate in a multiemployer DB pension plan. The calculation of withdrawal liability is based on the employer's share of unfunded benefits that are owed to participants in the plan. An existing multiemployer DB pension plan could adopt a composite plan while maintaining an existing DB plan. The existing plan is referred to as a legacy plan in the discussion draft. The main features of a legacy plan would be participants in a legacy plan whose employers opted for the composite plan would cease to earn benefits in the legacy plan and begin to earn benefits in the composite plan; and employers would generally be required to contribute to the legacy plan at minimum funding levels (called a transition contribution rate in the discussion draft). The minimum funding levels should, in principle, restore the legacy plan to a 100% funding level over time. This section summarizes in greater detail the main provisions in the discussion draft. The draft authorizes the creation of multiemployer composite plans and establishes the requirements that composite plans would have to meet. The draft also establishes rules for existing multiemployer DB plans to which composite plans would be added. Legislation that affects private-sector pensions often amends both Title 29 (Labor Code) and Title 26 (Internal Revenue Code [IRC]) of the U.S. Code . The provisions in the discussion draft that amend the IRC are identical or nearly identical to the provisions that amend the Labor Code. Therefore, the IRC provisions are not included in this more detailed summary. For ease of comparison, the headings in this summary generally align with the headings in the discussion draft. A composite plan would be an employer-sponsored multiemployer pension plan that would be neither a DB plan (in which the benefit is fixed and cannot be reduced except under MPRA) nor a DC plan (in which participants have ownership of funds in an account). A composite plan would systematically pay benefits that would be calculated according to a formula specified in the plan.