Background on Multiemployer Pension Plans

In general, pension plans are a form of deferred compensation: workers do not receive income when it is earned but rather receive that income in the future. The Internal Revenue Code (IRC) provides tax advantages to certain deferred compensation schemes: rather than including such compensation in taxable income when it is earned, the compensation is included in taxable income when it is received by the individual (presumably, in retirement).

Pension plans may be classified according to whether they are (1) defined benefit (DB) or defined contribution (DC) plans and (2) sponsored by one or more than one employer. In DB plans, participants receive regular monthly benefit payments in retirement (which some refer to as a "traditional" pension).¹ In DC plans, of which the 401(k) plan is the most common, participants have individual accounts that can provide a source of income in retirement. The plans that are the subject of this report are DB 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 more than one employer (often, though not required to be, in the same industry) and maintained as part of a collective bargaining agreement. Multiple employer plans are sponsored by more than one employer but are not maintained as part of collective bargaining agreements.² The plans that are the subject of this report are multiemployer plans.

Multiemployer DB pensions are of current concern to Congress because approximately 10% to 15% of participants are in plans that may become insolvent.³ When a multiemployer pension plan becomes insolvent, the Pension Benefit Guaranty Corporation (PBGC) provides financial assistance to the plan so the plan can continue to pay benefits up to the PBGC guaranteed amount.⁴ Plans that receive PBGC financial assistance must reduce benefits to a statutory maximum benefit, currently equal to $12,870 per year for an individual with 30 years of service in the plan.⁵ Neither the guarantee amount nor benefits are adjusted for changes in the cost of living.

Using 2013 data (the most recent year for which this data point is available), PBGC estimated that 79% of participants in multiemployer plans that were receiving financial assistance receive their full benefit (i.e., their benefits were below the PBGC maximum guarantee).⁶ Among participants in plans that were terminated and likely to need financial assistance in the future, 49% of participants have a benefit below the PBGC maximum guarantee, and 51% have a benefit larger than the PBGC maximum guarantee. Among ongoing plans (neither receiving PBGC financial assistance nor terminated and expected to receive financial assistance), the average benefit is almost twice as large as the average benefit in terminated plans. This suggests that a larger percentage of participants in plans that receive PBGC financial assistance in the future are likely to see benefit reductions as a result of the PBGC maximum guarantee level.⁷

PBGC estimates that in the future it will not have sufficient resources from which to provide financial assistance for insolvent plans to pay benefits at the PBGC guarantee level. Most participants would receive less than $2,000 per year because PBGC would be able to provide annual financial assistance equal only to its annual premium revenue, which was $310 million in FY2019.⁸ There is no obligation on the part of the federal government to provide financial assistance to PBGC, although some policymakers have stated that some form of federal assistance to PBGC might be necessary to ensure that participants' benefits are not reduced to a fraction of their promised benefits.⁹

Multiemployer Pension Plan Data

CRS analyzed public-use Form 5500 data from the Department of Labor (DOL) for the 2017 plan year, the most recent year for which complete data are available.¹⁰ Most private-sector pension plans are required to annually report to the Internal Revenue Service (IRS), DOL, and PBGC information about the plan, such as the number of participants, financial information, and the companies that provide services to the plan. In addition to Form 5500, pension plans are generally required to file additional information in specific schedules. For example, most multiemployer DB plans are required to file Schedule MB, which contains information specific to multiemployer DB plans, such as the zone status of the plan (described below). Each pension plan's Form 5500 and required schedules are available by search on DOL's website.¹¹

The public-use Form 5500 data included 1,355 plans that indicated they were multiemployer DB pension plans for the 2017 plan year.¹² These plans had 11.0 million participants.¹³

The analyzed data in this report consider only multiemployer DB pension plans that filed Schedule MB for the 2017 plan year. Not all multiemployer DB pension plans file Schedule MB. For example, some plans that received PBGC financial assistance or had experienced a withdrawal of all employers in the plan (but which were still paying benefits to retired participants) did not file Schedule MB in 2017. This analysis does not include 59 plans that did not file a Schedule MB, 64 plans that received PBGC financial assistance in FY2017 or FY2018, and three terminated plans. This analysis provides information only about the remaining 1,229 plans in the 2017 plan year.

In 2017, these 1,229 active plans not receiving PBGC financial assistance that filed Schedule MB had 10.4 million participants. Among participants in these plans

• about 36.3% were active participants (working and accruing benefits in a plan);
• about 35.7% were retired participants (currently receiving benefits from a plan) or beneficiaries of deceased participants who were receiving or are entitled to receive benefits; and
• about 28.0% were separated, vested participants (not accruing benefits from a plan, but owed benefits and will receive them at eligibility age).

Plans report two values of assets and two values of liabilities: (1) the actuarial value and current value of assets and (2) the actuarial value and the current value of liabilities (also called the RPA '94 [for Retirement Protection Act of 1994] liability, passed as part of the Uruguay Round Agreements Act [P.L. 103-465]). The two values of assets are generally similar. The two values of liabilities often differ. The main difference is the value of the discount rate that is used to value plan liabilities.¹⁴ The actuarial valuation of liabilities typically discounts them using the expected return on assets. The RPA '94 valuation of liabilities discounts them using a lower rate, based on interest rates on 30-year Treasury securities.¹⁵ The RPA '94 valuation method results in a higher valuation of plan liabilities compared to the actuarial valuation method.

In 2017, these 1,229 plans had $494.5 billion in assets and owed participants $1,145 billion in benefits, resulting in total underfunding of $651.0 billion (on a current value [RPA '94] basis). On an actuarial basis, these plans had $512.5 billion in assets and owed participants $659.2 billion, resulting in total underfunding of $146.7 billion.¹⁶

Among plans that filed Schedule MB in 2017, the median RPA '94 discount rate was 3.05%, and the median discount rate used to calculate the actuarial value of liabilities was 7.25%.¹⁷ The discount rate used by PBGC is based on a survey of insurance annuity prices and is closer to the RPA '94 rate.¹⁸ For example, the PBGC for discounting multiemployer plan liabilities in 2016 (the most recent year available) was 2.81%.¹⁹

Among the 1,229 multiemployer plans in 2017 that submitted Schedule MB, 1,217 were underfunded (owed more in future benefits than they had in current assets) and 12 plans were overfunded (had more in assets than they owed in future benefits) on a current value basis. On actuarial value basis, 990 plans were underfunded, and 239 plans were overfunded.

Zone Status of Multiemployer Plans in 2017

The Pension Protection Act of 2006 (PPA; P.L. 109-280) required that multiemployer plans that meet specified financial criteria must report to the IRS their financial condition as being in one of several categories. The categories are described in Table 1. Several of the categories refer to a measure called the funded percentage, which is a measure of a plan's ability to pay benefits owed based on the plan's assets. For example, a funded percentage of 100% indicates that a plan's current value of assets is adequate to cover the present value of future owed benefits, and a percentage lower than 100% indicates that the value of a plan's liabilities exceeds the value of its assets.

Table 2 lists the number of plans, participants, and total underfunding in each zone for the 2017 plan year.

Plans that are in endangered or seriously endangered status must adopt a funding improvement plan.²⁰ A funding improvement plan is a range of options (such as increased contributions and reductions in future benefit accruals) that, when adopted, will reduce a plan's underfunding. The reduction in underfunding is by 33% during a 10-year funding improvement period (for plans in endangered status) or by 20% during a 15-year funding improvement period (for plans in seriously endangered status). Plans in endangered or seriously endangered status cannot increase benefits during the funding improvement period.

Plans in critical status must adopt a rehabilitation plan.²¹ The rehabilitation plan is a range of options (such as increased employer contributions and reductions in future benefit accruals) that, when adopted, will allow the plan to emerge from critical status during a 10-year rehabilitation period. If a plan cannot emerge from critical status by the end of the rehabilitation period using reasonable measures (referred to as a plan that has exhausted reasonable measures, or an ERM plan),²² it must either install measures to (1) emerge from critical status at a later time (after the end of the rehabilitation period) or (2) forestall insolvency. Plans in critical status may not increase benefits during the rehabilitation period. In Table 2, plans that are in critical status are classified by whether (1) they are projected to emerge from critical status within the rehabilitation period, or (2) they indicated that they have exhausted reasonable measures and would not emerge from critical status within the rehabilitation period and that the rehabilitation plan is designed to forestall insolvency.²³ Some of the ERM plans are likely to become insolvent, although they do not meet the definition of being in critical and declining status.

CRS analysis of 2017 Form 5500 data reported in Table 2 indicated the following:

• Green Zone: 794 plans were in the green zone. These plans covered 6.0 million participants, or 57.7% of participants in multiemployer DB plans that reported a zone status.
• Endangered or Seriously Endangered: 132 plans were either endangered or seriously endangered. These plans covered 1.0 million participants, or 9.6% of participants in multiemployer DB plans that reported a zone status.
• Critical: 190 plans were in critical status. These plans covered 2.2 million participants (20.8%). One hundred thirty-two plans were in critical status but were expected to emerge from critical status by the end of the rehabilitation period. Fifty-eight of the 190 plans in critical status do not expect to be able to emerge from critical status by the end of the rehabilitation period and will remain in critical status past the end of the rehabilitation period (or indefinitely), or possibly become insolvent.²⁴
• Critical and Declining: 113 plans were in critical and declining status. These plans covered 1.2 million participants, or 11.8% of participants in multiemployer DB plans that reported a zone status.

A plan in critical status must develop a rehabilitation plan, which is a set of options intended to allow the plan to emerge from critical status during the rehabilitation period. However, some plans are in such poor financial condition that they cannot adopt any reasonable options to emerge from critical status by the end of their rehabilitation period. These plans are referred to as having exhausted reasonable measures (ERM plans). Rehabilitation for ERM plans is based on forestalling plan insolvency. Some ERM plans may become insolvent (but do not meet the criteria for being in declining status). Other ERM plans indicated that they would not become insolvent but would remain in critical status after their rehabilitation period will have ended. Ninety-three plans in critical status did not indicate whether their rehabilitation plan was based on emerging from critical status or forestalling insolvency. In these cases, CRS examined the actuarial report following the Form 5500. In 84 cases, the rehabilitation plan appears to have been based on emerging from critical status; in 9 cases, it appears to have been based on forestalling insolvency. The data in the table reflect CRS's updates.

Multiemployer Plan Insolvencies by Year

As noted above, data from Schedule MB of Form 5500 for the 2017 plan year showed that 113 plans indicated that they were in critical and declining status and expected to become insolvent.

As part of their Form 5500 filings, multiemployer plans that are in critical and declining status, which are by definition expected to become insolvent, must indicate the year in which they expect insolvency.

Table 3 lists the number of pension plans in critical and declining status by expected year of insolvency. The table also contains the number of participants in these plans and the dollar amount of benefits the plans paid in 2017. The amount of benefits paid on a yearly basis at insolvency is likely to be different compared to the amount reported for 2017, particularly for plans with an insolvency year many years in the future. However, this information provides context on the scale of the problem. In addition, because of the maximum guarantee, some participants would likely not receive 100% of the benefits earned under the plan. As noted above, using 2013 data, PBGC estimated that 51% of participants in plans that were terminated at the time and likely to receive PBGC financial assistance in the future would likely see their benefits reduced because of the PBGC maximum guarantee.

An additional 63 plans in critical status had exhausted reasonable measures and would either be unable to emerge from critical status or become insolvent. These plans are not included in the analysis of Table 3.

The 25 Largest Multiemployer Plans

Table 4 provides data on the 25 largest multiemployer DB plans (by number of participants) in the 2017 plan year, which were those with more than 75,000 participants. For each plan, the table contains the number of participants, the zone status in 2017, the current and actuarial funded percentage, the current and actuarial amount of underfunding in the plan, and the amount of expected benefit payments in the 2017 plan year. Funding amount is the difference between the plan's assets and present value of future benefits owed. A negative funding amount indicates that a plan is underfunded.

In total, the plans in Table 4 have 4.8 million participants, which is 46.1% of participants in multiemployer DB plans that filed Schedule MB in plan year 2017. Three plans in Table 4 were in critical and declining status in plan year 2017: Central States, Southeast, and Southwest Areas Pension Plan; Bakery and Confectionery Union and Industry International Pension Fund; and the United Mine Workers of America 1974 Pension Plan.

5% Contributors

Some employers participate in more than one multiemployer DB pension plan, and the insolvency of one plan in which a particular employer participates could have implications for the other plans in which that employer also participates. For example, an employer that leaves a multiemployer plan generally has to pay withdrawal liability, which is the employer's share of unfunded benefits in that plan.²⁵ An employer that withdraws from a plan may be required to acknowledge the withdrawal liability in its financial statements, potentially affecting the employer's access to credit and its financial health.²⁶ Other multiemployer plans that receive contributions from an employer that is considered a large contributor could be affected if that employer is forced to withdraw from those plans because of financial difficulties.

Schedule R, Part V, Line 13 of Form 5500 requires multiemployer DB plans to list employers that contribute more than 5% of that plan's total contributions (referred to in this report as "5% contributors"). Employer contributions listed in Form 5500 include (1) regular employer contributions (for employers with active participants in the plan) and (2) employer withdrawal liability (for employers that have withdrawn from the plan).²⁷ For the purposes of calculating the 5% threshold, it is unclear whether plans should include withdrawal liability in the calculations. PBGC indicated that its staff's view was that withdrawal liability should not be included in the calculations and that other agencies were considering the issue in possible revisions to Form 5500.²⁸

In addition to the employer's name, the form lists each employer's Employer Identification Number (EIN)²⁹ and dollar amount contributed.³⁰

Of the 1,355 plans that indicated they were multiemployer DB pension plans, 1,161 plans indicated that they had at least one 5% contributor in 2017. Among plans with at least one 5% contributor, the median number of 5% contributors was four. Table 5 lists employers whose contributions as 5% contributors totaled $25 million or more in 2017.³¹ Note that an employer's total contributions to all of the multiemployer plans to which it contributed could have been larger than the amount listed in Table 5 if the employer contributed to additional plans, but whose contributions to those other plans were less than 5% of a plan's total contributions.³²

The United Parcel Service (UPS) is the largest 5% contributor in terms of the dollar amount of contributions as a 5% contributor. A number of grocery chains contributed at least $25 million as 5% contributors: Kroger, Albertsons/Safeway, and Giant Food are among the 10 largest 5% contributors (as ranked by contributions as 5% contributors).³³

5% Contributors in the Largest Critical and Declining Multiemployer DB Plans

Table 6 lists the 5% contributors in the 12 largest multiemployer DB plans that are in critical and declining status (ranked by the amount of total contributions to the plan for the 2017 plan year) and the number of plans in which each employer is a 5% contributor.

Table 6 also lists the amount of the employer's contributions, the total number of contributing employers to the plan, the total amount of contributions to the plan, and the amount of contributions from 5% contributors as a percentage of total plan contributions. Total plan contributions include both required employer contributions and withdrawal liability, although plans might not include withdrawal liability payments when determining 5% contributors.³⁴