	Background

CSPF is a defined benefit multiemployer pension plan. The Central States, Southeast and Southwest Areas Pension Fund (CSPF)

CSPF was established in 1955 to provide pension benefits to  International Brotherhood of Teamsters union members (Teamsters) in  the trucking industry, and it is one of the largest multiemployer plans. In 2016,  16 percent of about 385,000 participants were active, i.e., still working in  covered employment that resulted in employer contributions to the plan. In comparison, CSPF reported in 1982 that 69 percent of more than  466,000 participants were active participants. CSPF’s Critical Financial Condition Is a Result of Factors That Reflect Challenges Experienced by the Multiemployer System

		CSPF Has Been Underfunded Since the Consent Decree Was Established

At the time the consent decree was established in 1982, CSPF had less  than half the estimated funds needed to cover plan liabilities (and to pay  associated benefits over the lifetime of participants) and it has not  attained 100 percent of its estimated funding need since then, according  to regulatory filings. Over the next two decades, the plan generally made  progress toward achieving its targeted level of funding but was never  more than 75 percent funded, and funding has generally deteriorated  since its 2002 filing (see fig. Investment Performance and Market Downturns

Stakeholders highlighted the effects of market downturns on  multiemployer plan assets as another contributing factor to CSPF’s critical  financial condition and that of other multiemployer plans. While the plan used  an assumed rate of return of 7.5 to 8.0 percent per year between 2000  and 2014, our analysis of the plan’s regulatory filings shows that the  plan’s weighted-average investment return over this period was about 4.9  percent per year. Additionally, stakeholders noted that although each of the factors that  contributed to CSPF’s critical financial condition individually is important,  their interrelated nature also had a cumulative effect on the plan. CSPF’s Investment Policy Since 1982 Generally Increased Allocation to Equities, but Shifted Toward Fixed Income in 2017, Ahead of Projected Insolvency

There have been three distinct periods related to CSPF’s investment  policy after the original consent decree took effect:  the early period, from the consent decree’s effective date in  September 1982 through October 1993, during which named  fiduciaries set different investment policies and sold many of CSPF’s  troubled assets—mostly real estate; a middle period from November 1993 through early 2017, during  which CSPF’s investment policies were consistently weighted towards  equities and its asset allocation varied, with notable equity allocation  increases occurring from year-ends 1993-1995 and 2000-2002; and  the current period, starting in January 2017, during which named  fiduciaries and CSPF trustees are moving assets into fixed income  ahead of insolvency. Additionally, the original consent decree  prohibited CSPF trustees from managing assets or making investment  decisions and gave a single named fiduciary the authority to set and  change the plan’s investment objectives and policies, subject to court  approval (see fig. Between 2003  and 2010, the portion of assets that named fiduciaries managed  declined as the plan moved 50 percent of its assets into three  passively-managed accounts. CSPF officials and named fiduciary representatives also said that the  plan’s investment policies did not change in response to a couple of the  events that contributed to CSPF’s critical financial condition. Current Period: January 2017 – Present

CSPF’s deteriorating financial condition precipitated a recent investment  policy change that will move plan assets into fixed income and cash  equivalent investments ahead of projected insolvency. Northern Trust representatives and CSPF officials revised  applicable plan investment policy statements and started to gradually  transition the plan’s “return seeking assets”—such as equities and high  yield and emerging markets debt—to high quality investment grade debt  and U.S. Treasury securities with intermediate and short-term  maturities. CSPF officials and Northern Trust representatives said these asset  allocation changes are intended to provide participants greater certainty  regarding their benefits and reduce the plan’s exposure to market risk and  volatility until it is projected to become insolvent on January 1, 2025 (see  fig. The comparison group  data is from Wilshire’s Trust Universe Comparison Service (TUCS)—a  tool used by CSPF to compare its investment returns to a group of  peers. CSPF Investment Returns Compared to Other Similar Multiemployer Plans

Similar to our findings when comparing the returns on CSPF’s  investments to a customized peer group of other large institutional funds,  the annual returns on CSPF’s investments in recent decades have also  generally been in line with the annual returns for a group of similar  multiemployer pension plans. Fees and Expenses Paid by CSPF Were Similar to Other Large Multiemployer Plans

Our analysis of Form 5500 data shows CSPF’s investment fees and  administrative expenses were in line with other large multiemployer  plans. To compare CSPF’s fees and expenses against  similarly sized plans, we tallied various investment fee-related and other  administrative expenses and compared CSPF to a group of  multiemployer defined benefit plans that were among the 19 largest plans  in terms of assets as of January 1, 2014. Over the 2000 to 2014 period, CSPF’s  average annual investment fee expense ratio was 34 basis points (0.34  percent) while the median of the averages for our large plan comparison  group was 37 basis points (0.37 percent). CSPF’s annual  investment-fee expense ratio was consistently at or above the median  from 2000 through 2006, but was below the median thereafter. In addition, CSPF’s annual administrative expenses as a  percentage of benefits were below the median of our peer group of large  plans in all years we reviewed. Appendix I: Objectives, Scope, and Methodology

Our objectives were to review: (1) what is known about the factors that  contributed to the Central States, Southeast and Southwest Areas  Pension Fund’s (CSPF) critical financial condition; (2) what has been  CSPF’s investment policy, and the process for setting and executing it,  since the consent decree was established; and (3) how has CSPF  performed over time, particularly compared to similar pension plans. In addition, CSPF’s administrative expenses as a percentage of benefits  were consistently below the median. Specifically, the  independent special counsel: has full authority to examine the plan’s activities and oversee and  report on the plan’s performance of the undertakings of the consent  decree; may, with court approval, employ attorneys, accountants,  investigators, and others reasonably necessary and appropriate to aid  him in the exercise of his responsibilities; has full access to all documents, books, records, personnel, files, and  information of whatever type or description in the possession,  custody, or control of the plan; may attend meetings of the plan, including meetings of the board of  trustees and any meetings at which plan-related matters are  discussed or considered;  can petition the court to compel the plan to cooperate with the  independent special counsel in the performance of his duties and  responsibilities; may consult with DOL, the Internal Revenue Service, and other  agencies, as appropriate, but must provide access to DOL upon its  request to any documents prepared by the independent special  counsel within the exercise of his power;  is required to file quarterly reports, as well as any other reports the  independent special counsel deems necessary or appropriate, with  the court, and provide copies to DOL and the plan; may have other powers, duties, and responsibilities that the court may  later determine are appropriate; and  cannot be discharged or terminated during the duration of the consent  decree except for leave of court, and upon the termination, discharge,  death, incapacity, or resignation of an independent special counsel,  the court will appoint a successor.
Why GAO Did This Study

Multiemployer plans are collectively bargained pension agreements often between labor unions and two or more employers. CSPF is one of the nation's largest multiemployer defined benefit pension plans, covering about 385,000 participants. Since 1982, the plan has operated under a court-enforceable consent decree which, among other things, requires that the plan's assets be managed by independent parties. Within 7 years, CSPF estimates that the plan's financial condition will require severe benefit cuts. GAO was asked to review the events and factors that led to the plan's critical financial status and how its investment outcomes compare to similar plans.
GAO describes (1) what is known about the factors that contributed to CSPF's critical financial condition; (2) what has been CSPF's investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how CSPF's investments have performed over time, particularly compared to similar pension plans.
GAO reviewed relevant federal laws and regulations; interviewed CSPF representatives, International Brotherhood of Teamsters officials and members, federal officials, and knowledgeable industry stakeholders; reviewed CSPF documentation including investment policy statements and board of trustee meeting minutes; and analyzed investment returns and fees from required, annual pension plan filings and from consultant benchmarking reports.

What GAO Found

The Central States, Southeast and Southwest Areas Pension Fund (CSPF) was established in 1955 to provide pension benefits to trucking industry workers, and is one of the largest multiemployer plans. According to its regulatory filings, CSPF had less than half the estimated funds needed to cover plan liabilities in 1982 at the time it entered into a court-enforceable consent decree that provides for oversight of certain plan activities. Since then, CSPF has made some progress toward achieving its targeted level of funding; however, CSPF has never been more than 75 percent funded and its funding level has weakened since 2002, as shown in the figure below.
Stakeholders GAO interviewed identified numerous factors that contributed to CSPF's financial condition. For example, stakeholders stated that changes within the trucking industry as well as a decline in union membership contributed to CSPF's inability to maintain a healthy contribution base. CSPF's active participants made up about 69 percent of all participants in 1982, but accounted for only 16 percent in 2016. The most dramatic change in active participants occurred in 2007 when the United Parcel Service, Inc. (UPS) withdrew from the plan. At that time, UPS accounted for about 30 percent of the plan's active participants (i.e. workers). In addition, the market declines of 2001 to 2002 and 2008 had a significant negative impact on the plan's long-term investment performance. Stakeholders noted that while each individual factor contributed to CSPF's critical financial condition, the interrelated nature of the factors also had a cumulative effect on the plan's financial condition.
Both CSPF's investment policy and the process for setting and executing it have changed several times since the consent decree was established in 1982. The original consent decree gave an independent asset manager—called a named fiduciary—exclusive authority to set and change the plan's investment policies and manage plan assets, and prohibited CSPF trustees from managing assets or making investment decisions. Initially, the named fiduciaries sold the troubled real estate assets acquired during the pre-consent decree era. Subsequent changes include the following:
In 1993, the named fiduciaries started to increase investment in equities, and their policies continued to direct that asset allocations be weighted toward equities until early 2017.
Between 2003 and 2010, the court approved three plan decisions to move a total of 50 percent of CSPF's assets into passively-managed accounts (passive management typically seeks to match the performance of a specific market index and reduce investment fees).
An early-2017 investment policy change precipitated by CSPF's deteriorating financial condition will continue to move plan assets into fixed income investments ahead of projected insolvency, or the date when CSPF is expected to have insufficient assets to pay promised benefits when due. As a result, assets will be gradually transitioned from “return-seeking assets”—such as equities and emerging markets debt—to high-quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities. The plan is projected to become insolvent on January 1, 2025. CSPF officials and named fiduciary representatives said these changes are intended to reduce the plan's exposure to market risk and volatility, and provide participants greater certainty prior to projected insolvency.
GAO found that CSPF's investment returns and expenses were generally in line with similarly sized institutional investors and with demographically similar multiemployer pension plans. For example, GAO's analysis of returns using the peer group measure used by CSPF known as the Wilshire Associates' Trust Universe Comparison Service (TUCS), showed that CSPF's annual investment returns since 1995 were above the median about as many times as they were below. Similarly, comparing CSPF's returns to a peer group of similar multiemployer defined benefit plans using federally required annual reports found that CSPF's annual investment returns were in line with those of its peers. Specifically, CSPF's annual returns were above the median nine times and below it six times—and CSPF's overall (dollar-weighted) average annual return from 2000 through 2014 was close to that of the peer median average return of 4.8 percent.
In addition, GAO found that CSPF's investment fees and other administrative expenses have also been in line with other large multiemployer plans. For example:
CSPF's investment fees as a percentage of assets were about 9 percent lower than the median of large defined benefit multiemployer plans over the 2000 through 2014 period—though much of that difference is accounted for by a relative reduction in investment fees since 2007. CSPF's investment fees as a percentage of assets were, on average, about 34 basis points (or 0.34 percent).
CSPF's administrative expenses related to the day-to-day operations of the plan have also been in line with other large multiemployer plans. CSPF's administrative expenses per participant were below the median for large defined benefit multiemployer plans for 12 of the 15 years over the 2000 through 2014 period. As of 2014, CSPF's administrative expense was $98 per participant, which is about 16 percent less than the median for large defined benefit multiemployer plans.

What GAO Recommends

GAO is not making recommendations in this report.