	Background

In 1974, Congress passed the Employee Retirement Income Security Act  (ERISA) to protect the interests of participants and beneficiaries covered  by private sector employee benefit plans. The changes were to discourage  withdrawals, which shift liabilities to PBGC’s insurance program. The funding requirements of PPA took effect just as the nation entered a  severe economic recession in the fall of 2007. Key Differences Exist Between Multiemployer and Single-Employer Pension Plans

While ERISA and PBGC funding rules apply to both single- and  multiemployer plans, there are several important differences that affect  the structure and stability of each type of plan. Since the inception of the multiemployer insurance program in 1980,  PBGC has provided $500 million in financial assistance to 62 plans. Individual employers in multiemployer plans do not assume a fiduciary  role in plan management, which is instead handled by a board of trustees. Single-employer plans, on the other hand, are administered by one  employer and may or may not be collectively bargained, so the employer  generally assumes fiduciary duty for the pension plan. Multiemployer pension plans typically continue to operate long after an  individual employer, or sponsor, goes out of business, because the plan’s  remaining employers are jointly liable for funding benefits for all vested  participants. Portability of benefits: Multiemployer plans provide participants some  benefit portability because they allow workers to keep and continue to  accrue pension benefits when they change jobs as long as their new  employer also participates in the same plan. According to PBGC, this greater financial risk on employers  and lower guaranteed benefit level for participants in multiemployer plans,  in practice, create incentives for employers, participants, and their  collective bargaining representatives to avoid insolvency and to  collaborate in trying to find solutions to the plan’s financial difficulties. Multiemployer Plans Continue to Face Funding and Demographic Challenges That Could Significantly Affect PBGC

Multiemployer plans face ongoing funding and demographic challenges  that have the potential to place an additional financial burden on PBGC. According to PBGC, multiemployer plans have not been fully funded at the  100 percent or above level since 2000 and their net funding has declined  significantly since that time. 1.) Multiemployer plans also face demographic challenges: reductions in the  number of plans, an aging workforce, and few opportunities to attract new  employers and workers into plans. 2.) Yet collective bargaining has declined in the United  States since the early 1950s. The conditions that  plans currently face increase the risk of insolvency and the likelihood  PBGC will be forced to provide financial assistance. Congress has given  PBGC tools to monitor the overall financial health of multiemployer plans  and a means to provide financial assistance to help these plans weather  difficult financial times.
Why GAO Did This Study

Multiemployer defined benefit pension plans, which are created by collective bargaining agreements covering more than one employer and generally operated under the joint trusteeship of labor and management, provide pension coverage to over 10.4 million participants in the 1,500 multiemployer plans insured by the Pension Benefit Guaranty Corporation (PBGC). Changes to the structure of the multiemployer plan framework and to PBGC's role as insurer have sought to improve plan funding. Reports of declines in plan funding have prompted questions about the financial health of these plans. The committee asked GAO to provide information on (1) the unique characteristics of multiemployer plans and (2) the challenges that multiemployer plans face and how they may affect PBGC. GAO provided a draft of this testimony to PBGC for review and comment. PBGC provided technical comments, which were incorporated, as appropriate. To address these objectives, GAO relied primarily on its previously published reports on multiemployer plans ( GAO-04-423 and GAO-04-542T), and data publicly available from PBGC. GAO is not making new recommendations in this testimony.

What GAO Found

While the Employee Retirement Income Security Act of 1974 funding rules apply to most private sector pension plans, the nation's collectively bargained multiemployer plans have a unique structure intended to provide a certain level of plan stability and benefit portability while mitigating the risks to their insurer, PBGC. Multiemployer plans provide portable benefits to workers who change employers, distribute risk among participating employers and participants, and continue to operate long after an individual employer, or sponsor, goes out of business, because their framework makes remaining employers jointly liable for funding benefits for all vested participants. Multiemployer plans also pay a low insurance premium to PBGC because they typically do not require PBGC assistance. When needed, PBGC will provide loans to a plan that becomes insolvent and can no longer pay benefits at the level guaranteed by PBGC. Since the inception of the multiemployer insurance program in 1980, PBGC has paid $500 million in financial assistance to 62 insolvent plans. Multiemployer plans face ongoing funding and demographic challenges that potentially increase the financial burden on PBGC. According to PBGC, multiemployer plans have not been fully funded at the 100 percent or above level since 2000. Other challenges include continuing decreases in the number of these plans and an aging participant base. Further, a decline in collective bargaining in the United States has left few opportunities for plans to attract new employers and workers. As a result, the proportion of active participants paying into the fund to others who are no longer paying into the fund has decreased, thereby increasing plan liabilities and the likelihood that PBGC will have to provide financial assistance in the future.