Overall, since 2009, the funding status of multiemployer plans has  improved, but a sizeable number of plans are still critical or endangered. In addition to the difficulties many multiemployer plans face, the  challenges that PBGC faces have led us to designate its insurance  programs as a “high-risk” federal program. Plans in Poor Funded Status Have Taken Steps to Cut Benefits to Current Employees and Increased Employer Contributions, and the Financial Outlook for Some Plans Remains Bleak

According to a 2011 survey of 107 critical status plans conducted by the  Segal Company, the large majority of critical status plans have developed  rehabilitation plans that both increase required employer contributions  and reduce participant benefits in an effort to improve plans’ financial  positions. Plan officials explained that these changes can have a range of  effects and, in some cases, may severely affect employers and  participants. While most critical status plans expect to recover from their  current funding difficulties, about 25 percent do not and instead seek to  delay eventual insolvency. Funding Improvement Efforts Sometimes Require Significant Sacrifices by Employers and Participants

While the data are informative, they do not get to the heart of the issue— what impact will these changes have on employers, participants, and  plans themselves? At the same time, some  plans also eliminated or imposed limitations on disability retirement so  workers who have developed physical limitations will have to either  continue to work or retire on substantially reduced benefits. Importantly, while most plans expected to emerge from critical status  eventually, a significant number did not and instead project eventual  insolvency. Total Financial Assistance Increased More Rapidly in Recent Years, and Current and Projected Insolvencies Will Exhaust Multiemployer Insurance Fund

		Total PBGC Financial Assistance to Plans Increased More Rapidly in Recent Years, and Current and Projected Plan Insolvencies Will Exhaust Insurance Fund

			Increases in PBGC Loans and Other Financial Assistance

In recent years, the total amount of financial assistance PBGC has  provided to insolvent plans has increased markedly. For  example, the present value of PBGC’s liability associated with “probable”  plans increased from $1.8 billion in fiscal year 2008 to $7.0 billion in fiscal  year 2012 (see fig. 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. Importantly, the PBGC’s projection of program insolvency by 2023 does  not account for the impact of these two plans because their projected  insolvency is more than 10 years in the future. When a  multiemployer plan becomes insolvent and relies on PBGC loans to make  benefit payments to plan retirees, retirees will most likely see a reduction  in their monthly benefits. In the event that the multiemployer insurance fund is exhausted,  participants relying on the guarantee would receive a small fraction of  their already-reduced benefit.
Why GAO Did This Study

Multiemployer pension plans--created by collective bargaining agreements including more than one employer--cover more than 10 million workers and retirees, and are insured by the PBGC. As a result of investment market declines, employers withdrawing from plans and demographic challenges in recent years, many multiemployer plans have had large funding shortfalls and face an uncertain future. Also, both PBGC's single-employer and multiemployer insurance programs have been on GAO's list of high-risk federal programs for a number of years.
This testimony provides information on (1) recent actions that multiemployer plans in the worst financial condition have taken to improve their funding levels; and (2) the extent to which plans have relied on PBGC assistance since 2009, and the financial condition of PBGC's multiemployer plan insurance program.
GAO analyzed government and industry data, interviewed representatives of selected pension plans, and a wide range of industry experts and stakeholders and reviewed relevant federal laws, regulations, and documentation from plans.
GAO is not making recommendations in this testimony. GAO will soon release a separate report on multiemployer pension issues.

What GAO Found

The most severely distressed multiemployer plans have taken significant steps to address their funding problems and, while most plans expected improved financial health, some did not. A survey conducted by a large actuarial and consulting firm serving multiemployer plans suggests that the majority of the most severely underfunded plans--those designated as being in critical status--developed plans to increase employer contributions or reduce certain participant benefits. In some cases, these measures will have significant effects on employers and participants. For example, one plan representative stated that contribution increases had damaged some firms' competitive position in the industry. Similarly, reductions or limitations on certain benefits--such as disability benefits--may create hardships for some older workers, such as those with physically demanding jobs. Most of the 107 surveyed plans expected to emerge from critical status, but about 26 percent did not and instead seek to delay eventual insolvency.
The Pension Benefit Guaranty Corporation's (PBGC) financial assistance to multiemployer plans continues to increase, and plan insolvencies threaten PBGC's multiemployer insurance fund. As a result of current and anticipated financial assistance, the present value of PBGC's liability for plans that are insolvent or expected to become insolvent within 10 years increased from $1.8 to $7.0 billion between fiscal years 2008 and 2012. Yet PBGC's multiemployer insurance fund only had $1.8 billion in total assets in 2012. PBGC officials said that financial assistance to these plans would likely exhaust the fund in or about 2023. If the fund is exhausted, many retirees will see their pension benefits reduced to a small fraction of their original value because only a reduced stream of insurance premium payments will be available to pay benefits.