Withdrawal liability· Congress enacted the Multiemployer Pension Plan  Amendments Act (MPPAA) of 1980 to protect the pensions of participants  in multiemployer plans by establishing a separate PBGC multiemployer  plan insurance program and by requiring any employer wanting to  withdraw from a multiemployer plan to be liable for its share of the plan’s  unfunded liability. Different premiums and benefit guarantee levels· PBGC operates two  distinct insurance programs, one for multiemployer plans and one for  single-employer plans, which have separate insurance funds, different  benefit guarantee rules, and different insurance coverage rules. In addition, unlike its role in the single-employer  program where PBGC trustees weak plans and pays benefits directly to  participants, PBGC does not take over the administration of  multiemployer plans but instead, provides financial assistance in the form  of loans when plans become insolvent. Recently, however, it appears that a combination of  stock market declines coupled with low interest rates and poor economic  conditions has reduced the assets and increased the liabilities of many  multiemployer plans. In PBGC’s 2003 annual report, the agency estimated  that total underfunding of underfunded multiemployer plans reached   $100 billion by year-end, from $21 billion in 2000, and that its  multiemployer program had recorded a year-end 2003 net deficit of   $261 million, the first deficit in more than 20 years. By 2000, the majority of multiemployer plans  reported assets exceeding 90 percent of total liabilities, with the average  plan funded at 105 percent of liabilities. However, distribution of participants by plan size for  multiemployer and single-employer plans is more comparable, with over  90 percent of both multiemployer and single-employer participants in large  plans, as shown in figure 3. 4.) Multiemployer Plans Experiencing Long-Term Declines in Plan Formation and Worker Participation

Despite their relative financial stability, the multiemployer system has  experienced a steady decline in the number of plans and in the number of  active participants over the past 2 decades. A Number of Factors Challenge the Long- Term Prospects of the Multiemployer Defined Benefit System

A number of factors pose challenges to the long-term prospects of the  multiemployer pension plan system. Experts have identified  other challenges to the future prospects of defined benefit plans generally,  including multiemployer plans. These include the growing trend among  employers to choose defined contribution plans over DB plans, including  multiemployer plans; the continued growing life expectancy of American  workers, resulting in participants spending more years in retirement, thus  increasing pension benefit costs; and increases in employer-provided  health insurance costs, which are increasing employers’ compensation  costs generally, including pensions. Certain Features of the Current Regulatory Framework and the Decline of Collective Bargaining May Discourage Future Plan Growth

Some factors raise questions about the long-term viability of  multiemployer plans are specific to certain features of multiemployer  plans themselves, including features of the regulatory framework that  some employers may well perceive as less flexible and financially riskier  than the features of other types of pension plans. Employers in multiemployer plans may also face greater financial  risks than those in other forms of pension plans. Collective bargaining, however, has been  declining in the United States since the early 1950s. 7.) This is because, as PBGC officials have noted,  the current regulatory framework governing multiemployer plans  redistributes financial risk toward employers and workers and away from  the government.
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 coverage to over 9.7 million of the 44 million participants insured by the Pension Benefit Guaranty Corporation (PBGC). The recent termination of several large single-employer plans--plans sponsored by individual firms--has led to millions of dollars in benefit losses for thousands of workers and left PBGC, their public insurer, an $11.2 billion deficit as of September 30, 2003. The serious difficulties experienced by these single-employer plans have prompted questions about the health of multiemployer plans. This testimony provides information on differences between single employer and multiemployer pension plans, recent trends in the funding of multiemployer pension plans and worker participation in those plans, and factors that may pose challenges to the future prospects of multiemployer plans. GAO will soon release a separate report on multiemployer pension issues.

What GAO Found

The framework governing multiemployer plans generally places greater financial risk on employers and participants and less on PBGC than does PBGC's single-employer program. For example, in the event of employer bankruptcy, the remaining employers in the multiemployer plan assume additional funding responsibility. Further, PBGC's guaranteed participant benefit is much lower for multiemployer participants, and PBGC does not provide financial assistance until the multiemployer plan is insolvent. Following two decades of relative financial stability, many multiemployer plans appear to have suffered recent funding losses, while long-term declines in participation and plan formation continue. At the close of the 1990s, the majority of multiemployer plans reported assets exceeding 90 percent of total liabilities. Since then, stock market declines, coupled with low interest rates and poor economic conditions, have reduced assets and increased liabilities for many plans. In its 2003 annual report, PBGC estimated that underfunded multiemployer plans now face an aggregate unfunded liability of $100 billion, up from $21 billion in 2000. PBGC also reported an accumulated net deficit of $261 million for its multiemployer program in 2003, the first since 1981. Meanwhile, since 1980, there has been a steady decline in the number of plans, from over 2,200 plans to fewer than 1,700, and a 1.4 million decline in the number of active workers in plans. The long-term prospects of the multiemployer system face a number of challenges. Some are inherent in the multiemployer design and regulatory framework, such as the greater perceived financial risk and reduced flexibility for employers, compared with other plan types. The long-term decline of collective bargaining also results in fewer participants and employers available to expand or create new plans. Other factors that pose challenges include the growing trend among employers to choose defined contribution plans; the increasing life expectancy of workers, which raises the cost of defined benefit plans; and continuing increases in employer health insurance costs, which compete with pensions for employer funding.