Central States Pension Fund: Department of Labor Activities under the Consent Decree and Federal Law

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 the oversight DOL provides under the consent decree and under other federal laws.

GAO reviewed (1) what is known about the factors that contributed to CSPF's critical financial condition, (2) DOL's role in the administration of the 1982 CSPF consent decree and what actions the agency has taken under that role, and (3) what actions, if any, DOL has taken to oversee CSPF, beyond those required under the consent decree. GAO reviewed the consent decree and its amendments, relevant federal laws and regulations, agency guidance on plan management, and DOL protocols for investigating plans; interviewed CSPF representatives, International Brotherhood of Teamsters officials and members, federal officials, and industry stakeholders; and reviewed correspondence between DOL and CSPF and documents related to DOL investigations.

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.

The 1982 consent decree between the U.S. Department of Labor (DOL) and CSPF came about as a result of an investigation of alleged breaches of fiduciary duty and mismanagement of plan assets, and is intended to prevent their reoccurrence. In addition to reiterating the requirement that the plan comply with the Employee Retirement Income Security Act of 1974 (ERISA)—the primary law governing the treatment of private-sector pensions in the United States—the consent decree further outlines requirements for the plan to help ensure fiduciary controls and plan management, including seeking court approvals for the appointment of new trustees and changes to the plan's investment policy. The consent decree also delineates roles for DOL and other stakeholders. For example, it allows DOL to object to or comment on certain proposed plan actions, but does not require the agency to do so. GAO's review of plan documents found that the agency provided oversight and technical assistance in the areas specifically identified for its involvement under the consent decree, such as vetting proposed trustees prior to the court's approval.

DOL is primarily responsible for enforcing the reporting, disclosure, and fiduciary provisions of ERISA for all tax-qualified pension plans, including CSPF. ERISA sets forth a “prudent man standard of care” in the execution of fiduciary duties that, according to DOL, focuses on the process for making proper fiduciary decisions. Plan fiduciaries are responsible for selecting and monitoring investment managers, but are generally not liable for the individual investment decisions of those managers. To enforce ERISA, DOL conducts examinations and investigations. Since the consent decree was established, DOL officials reported that the agency has completed two investigations of CSPF. The two investigations—completed in 1998 and 2004—were closed without adverse findings against the plan. Beyond the agencies' oversight role, DOL collaborated with CSPF and others on steps intended to improve the plan's financial position, including contributing to discussions on proposed legislation and working with CSPF on its application to reduce benefits under the Multiemployer Pension Reform Act of 2014. The application was not approved by the U.S. Department of the Treasury.

GAO is not making recommendations in this report.

Established in 1955 to provide pension benefits to trucking industry  workers, the Central States, Southeast and Southwest Areas Pension  Fund (CSPF) is one of the nation’s largest multiemployer pension plans,  with $15.3 billion in assets at the end of 2016. About 1,400 employers are  obligated to contribute to CSPF, and the plan covers almost 385,000  participants. Since 1982, the plan has operated under a court- enforceable consent decree which, among other things, requires it to  obtain approval from the U.S. District Court for the Northern District of  Illinois, Eastern Division, for certain plan activities and allows for U.S.  Department of Labor (DOL) input prior to the court’s approval. Currently,  CSPF is projected to become insolvent within 7 years and is classified as  a “critical and declining” plan under the Employee Retirement Income  Security Act of 1974 (ERISA), as amended by subsequent laws, including  the Multiemployer Pension Reform Act of 2014 (MPRA). In addition to  causing financial hardship for hundreds of thousands of CSPF retirees  who are at risk of severe benefit cuts, CSPF’s projected insolvency is also  likely to coincide with the projected insolvency of the multiemployer  insurance program managed by the Pension Benefit Guaranty  Corporation (PBGC). The insolvency of PBGC’s multiemployer program  would significantly impact the level of PBGC-guaranteed benefits to current and future beneficiaries in all multiemployer plans receiving PBGC  assistance. In light of these issues, you asked us to review the events  and factors that led to CSPF’s critical financial condition, how it compares  to similar plans, and the oversight DOL provides under the consent  decree and under ERISA.

In this report, we reviewed (1) what is known about the factors that  contributed to CSPF’s critical financial condition; (2) DOL’s role in the  administration of the 1982 CSPF consent decree and what actions DOL  has taken under that role; and (3) what actions, if any, DOL has taken to  oversee CSPF, beyond those required under the consent decree.

To answer these questions, we used several methodologies. For all  objectives, we reviewed CSPF and DOL documentation and available  literature; reviewed relevant federal laws and regulations; and interviewed  CSPF officials, federal officials, and other knowledgeable industry  stakeholders. To describe the major factors that led to CSPF’s critical  financial condition, we conducted 23 semi-structured interviews with  federal agency officials and other stakeholders knowledgeable about  unions, participants and retirees, the trucking industry, collective  bargaining agreements, and multiemployer pension plans. We also  interviewed three stakeholders with actuarial expertise to specifically  understand actuarial standards and procedures. In our semi-structured  interviews we asked about key factors affecting the plan and the broader  regulatory and financial environment in which multiemployer plans  operate. We selected knowledgeable stakeholders based on a review of  literature and prior GAO work, and recommendations from other  stakeholders. Additionally, we selected stakeholders whose expertise  coincided with the scope of our objectives and who would be able to  provide a broad range of perspectives. We also collected actuarial,  financial, and other data on current and historical measures of plan  assets, liabilities, investment performance, and other factors, and  performed our own analyses of this data. The data and documentation  collected was generally from the plan or agencies that oversee pensions.  We determined the information to be generally reliable for the purposes of  our objectives.

To describe DOL’s oversight role under the consent decree and under  federal laws and regulations, we reviewed the consent decree and its  amendments, relevant federal laws and regulations, multiemployer plan  management guidance available to plans on DOL’s website, and DOL’s  protocols for investigating and overseeing pension plans. We also  reviewed correspondence between CSPF and DOL since 1982, when the  consent decree was put into place. Correspondence was provided by  CSPF in response to our request for documentation of DOL oversight,  and to our follow-up requests for additional documentation related to  specific time periods and topics, such as investigations and steps taken to  vet trustee candidates. DOL also provided documentation throughout the  course of our engagement, including documentation it provided between  September and October 2017 that it had not previously identified as being  relevant to our review. We completed an on-site file review at DOL in  September 2017, and DOL sent us additional electronic documentation in  September and October 2017. Overall, we reviewed extensive  documentation from DOL—spanning over 10,000 pages of paper-based  and electronic files—and spent substantial time cataloging and  categorizing it. However, DOL officials reported that certain  documentation related to CSPF was no longer available because it had  only been retained for the time specified in the records retention policy of  the relevant office, and that many individuals at DOL and the plan who  were involved in establishing the consent decree in 1982 and ensuring  compliance in the intervening years were no longer available. However,  we believe the information provided by CSPF and DOL was sufficient to  determine the nature of DOL’s oversight.

We conducted this performance audit from March 2016 to June 2018 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe the  evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

CSPF is a defined benefit multiemployer pension plan. Multiemployer  plans are often created and maintained through collective bargaining  agreements between labor unions and two or more employers, so that  workers who move from job to job and employer to employer within an  industry can continue to accrue pension benefits within the same plan  over the course of their careers. Multiemployer plans are typically found in  industries with many small employers such as trucking, building and  construction, and retail food sales. In 2017, there were about 1,400  defined benefit multiemployer plans nationwide covering more than 10  million participants.

Multiemployer Plan Administration, Funding, and Benefits

Most multiemployer plans are jointly administered and governed by a  board of trustees selected by labor and management. The labor union  typically determines how the trustees representing labor are chosen and  the contributing employers or an employer association typically  determines how the trustees representing management are chosen. The  trustees set the overall plan policy, direct plan activities, and set benefit  levels (see fig. 1).

Multiemployer plans are “prefunded,” or funded in advance, primarily by  employer contributions. The employer contribution is generally  negotiated through a collective bargaining agreement, and is often based  on a dollar amount per hour worked by each employee covered by the  agreement. Employer contributions are pooled in a trust fund for  investment purposes, to pay benefits to retirees and their beneficiaries,  and for administrative expenses. Multiemployer plan trustees typically  decide how the trust fund should be invested to meet the plan’s  objectives, but the trustees can use investment managers to determine  how the trust fund should be invested.

A plan’s funded percentage is its ratio of plan assets to plan liabilities.  Because the amount needed to pay pension benefits for many years into  the future cannot be known with certainty due to a variety of economic  and demographic factors, including the potential volatility of asset values,  estimates of a plan’s funded percentage may vary from year to year.  Defined benefit pension plans use a “discount rate” to convert projected  future benefits into their “present value.” The discount rate is the interest  rate used to determine the current value of estimated future benefit  payments and is an integral part of estimating a plan’s liabilities. The  higher the discount rate, the lower the plan’s estimate of its liability.  Multiemployer plans use an “assumed-return approach” that bases the  discount rate on a long-term assumed average rate of return on the  pension plan’s assets. Under this approach, the discount rate depends on  the allocation of plan assets. For example, a reallocation of plan assets  into more stocks and fewer bonds typically increases the discount rate,  which reduces the estimated value of plan liabilities, and therefore,  reduces the minimum amount of funding required.

Looking at the entire “multiemployer system”—the aggregation of  multiemployer plans governed by ERISA and insured by PBGC—shows  that while the system was significantly underfunded around 2001 and  2009, its funded position has improved since 2009. Specifically,  analyses published by the Center for Retirement Research at Boston  College and the Society of Actuaries used plan regulatory filings to  calculate the funded status for the system and determined that it was  approaching 80 percent funded by 2014 after falling during the 2008  market downturn. However, some observers have noted that while  many plans are making progress toward their minimum targets, a subset  of plans face serious financial difficulties.

Multiemployer retirement benefits are generally determined by the board  of trustees. The bargaining parties negotiate a contribution rate and the  trustees adopt or amend the plan’s benefit formulas and provisions.  Decisions to increase benefits or change the plan are also typically made  by the board of trustees. Benefit amounts are generally based on a worker’s years of service and either a flat dollar amount or the worker’s  wage or salary history, subject to further adjustment based on the age of  retirement.

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  the late 1970s, CSPF was the subject of investigations by the IRS within  the U.S. Department of the Treasury (Treasury), and by DOL and the  U.S. Department of Justice (DOJ). The DOL investigation ultimately  resulted in the establishment of a federal court-enforceable consent  decree in 1982 that remains in force today. CSPF held more than $4.3  billion in Net Assets at the end of 1982 after the consent decree was  established. The plan’s Net Assets peaked at nearly $26.8 billion at the  end of 2007 and declined to about $15.3 billion at the end of 2016 (see  fig. 2). As of 2016, CSPF reported that it had about 1,400 contributing  employers and almost 385,000 participants.

The number of active CSPF participants has declined over time. 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. Since the 1980s, CSPF’s  ratio of active to nonworking participants has declined more dramatically  than the average for multiemployer plans. By 2015, only three of the  plan’s 50 largest employers from 1980 still paid into the plan, and for each  full-time active employee there were over five nonworking participants,  mainly retirees. As a result, benefit payments to CSPF retirees have  exceeded employer contributions in every year since 1984. Thus, CSPF  has generally drawn down its investment assets. In 2016, CSPF withdrew  over $2 billion from investment assets (see fig. 3.).

CSPF has historically had fewer plan assets than were needed to fully  fund the accrued liability—the difference referred to as unfunded liability.  In 1982, we reported that CSPF was “thinly funded”—as the January 1,  1980, actuarial valuation report showed the plan’s unfunded liability was  about $6 billion—and suggested that IRS should closely monitor CSPF’s  financial status. In 2015, the plan’s actuary certified that the plan was in  “critical and declining” status. The plan has been operating under an  ERISA-required rehabilitation plan since March 25, 2008, which is  expected to last indefinitely. As of January 1, 2017, the plan was funded  to about 38 percent of its accrued liability. In September 2015, CSPF  filed an application with Treasury seeking approval to reduce benefits  pursuant to provisions in the Multiemployer Pension Reform Act of 2014  (MPRA), which is fully discussed later in this section. The application was  denied in May 2016 based, in part, on Treasury’s determination that the  plan’s proposed benefit suspensions were not reasonably estimated to  allow the plan to remain solvent. In 2017, CSPF announced it would no  longer be able to avoid the projected insolvency. (See app. I for a  timeline of key events affecting CSPF.)

As previously mentioned, CSPF was the subject of investigations in the  1970s by IRS, DOL, and DOJ. DOL’s investigation focused on  numerous loan and investment practices alleged to constitute fiduciary  breaches under ERISA, such as loans made to companies on the verge  of bankruptcy, additional loans made to borrowers who had histories of  delinquency, loans to borrowers to pay interest on outstanding loans that  the fund recorded as interest income, and lack of controls over rental  income. As a result of its investigation, DOL filed suit against the former  trustees of CSPF and, in September 1982, the parties entered into a  consent decree, which remains in force today. The consent decree  provides measures intended to ensure that the plan complies with the  requirements of ERISA, including providing for oversight by the court and  DOL, and prescribes roles for multiple parties in its administration. For  example, certain plan activities must be submitted to DOL for comment  and to the court for approval, including new trustee approvals and some  investment manager appointments. According to DOL, to prevent  criminal influence from regaining a foothold of control over plan assets,  the consent decree generally requires court-approved independent asset  managers—called “named fiduciaries”—to manage CSPF’s investments.  CSPF’s trustees are generally prohibited from managing assets; however,  they remain responsible for selecting, subject to court approval, and  overseeing named fiduciaries and monitoring plan performance. To focus  attention on compliance with ERISA fiduciary responsibility provisions, the  consent decree provides for a court-appointed independent special  counsel with authority to observe plan activities and oversee and report  on the plan. (See app. II for additional detail on the key provisions of the  consent decree.)

Employee Retirement Income Security Act of 1974

In 1974, Congress passed ERISA to protect the interests of participants  and beneficiaries of private sector employee benefit plans. Among other  things, ERISA requires plans to meet certain requirements and minimum  standards. DOL, IRS, and PBGC are generally responsible for  administering ERISA and related regulations.

DOL has primary responsibility for administering and enforcing the  fiduciary responsibility provisions under Part 4 of Title I of ERISA, which  include the requirement that plan fiduciaries act prudently and in the sole  interest of participants and beneficiaries.

Treasury, specifically the IRS, is charged with determining whether a  private sector pension plan qualifies for preferential tax treatment under  the Internal Revenue Code. Additionally, the IRS is generally  responsible for enforcing ERISA’s minimum funding requirements, among other things. ERISA generally requires that multiemployer plans meet  minimum funding standards, which specify a funding target that must be  met over a specified period of time. The funding target for such plans is  measured based on assumptions as to future investment returns, rates of  mortality, retirement ages, and other economic and demographic  assumptions. Under the standards, a plan must collect a minimum level of  contributions each year to show progress toward meeting its target, or the  plan employers may be assessed excise taxes and owe the plan for  missed contributions plus interest. Minimum contribution levels may vary  from year to year due to a variety of economic and demographic factors,  such as addressing differences between assumed investment returns and  the plan’s actual investment returns.

To protect retirees’ pension benefits in the event that plan sponsors are  unable to pay plan benefits, PBGC was created by ERISA. PBGC is  financed through mandatory insurance premiums paid by plans and plan  sponsors, with premium rates set by law. PBGC operates two distinct  insurance programs: one for multiemployer plans and another for single- employer plans. Each program has separate insurance funds and  different benefit guarantee rules.

The events that trigger PBGC intervention differ between multiemployer  and single-employer plans. For multiemployer plans, the triggering event  is plan insolvency, the point at which a plan begins to run out of money  while not having sufficient assets to pay the full benefits that were  originally promised when due. PBGC does not take over operations of an  insolvent multiemployer plan; rather, it provides loan assistance to pay  administrative expenses and benefits up to the PBGC-guaranteed level.  According to PBGC, only once in its history has a financial assistance  loan from the multiemployer pension insurance program been repaid. In  2017, PBGC provided financial assistance to 72 insolvent multiemployer  plans for an aggregate amount of $141 million. For single-employer plans  the triggering event is termination of an underfunded plan—generally,  when the employer goes out of business or enters bankruptcy. When this  happens, PBGC takes over the plan’s assets, administration, and  payment of plan benefits (up to the statutory limit).

The PBGC-guaranteed benefit amounts for multiemployer plans and the  premiums assessed by PBGC to cover those benefit guarantees are  significantly lower than those for single-employer plans. Each insured  multiemployer plan pays flat-rate insurance premiums to PBGC based on  the number of participants covered. The annual premium rate for plan  years beginning in January 2017 was $28 per participant and it is  adjusted annually based on the national average wage index. (See app.  I for the PBGC premium rates that have been in effect since the consent  decree was established in 1982.) When plans receive financial  assistance, participants face a reduction in benefits. For example, using  2013 data, PBGC estimated 21 percent of more than 59,000 selected  participants in insolvent multiemployer plans then receiving financial  assistance from PBGC faced a benefit reduction. The proportion of  participants facing reductions due to the statutory guarantee limits is  expected to increase. About 51 percent of almost 20,000 selected  participants in plans that PBGC believed would require future assistance  were projected to face a benefit reduction.

Since 2013, the deficit in PBGC’s multiemployer program has increased  by nearly 700 percent, from a deficit of $8.3 billion at the end of fiscal year  2013 to $65.1 billion at the end of fiscal year 2017. PBGC estimated that  at of the end of 2016, the present value of net new claims by  multiemployer plans over the next 10 years would be about $24 billion, or  approximately 20 percent higher than its 2015 projections. The program  is projected to become insolvent within approximately 8 years. If that  happens, participants who rely on PBGC guarantees will receive only a  very small fraction of current statutory guarantees. According to PBGC,  most participants would receive less than $2,000 a year and in many  cases, much less.

We have identified PBGC’s insurance programs as high-risk. This  designation was made in part because multiemployer plans that are  currently insolvent, or likely to become insolvent in the near future,  represent a significant financial threat to the agency’s insurance program.  We designated the single employer program as high-risk in July 2003,  and added the multiemployer program in January 2009. Both insurance  programs remain on our high-risk list.

Key Amendments to ERISA Affecting Multiemployer Plans

Multiemployer Pension Plan Amendments Act of 1980  Among other things, the Multiemployer Pension Plan Amendments Act of  1980 (MPPAA) made employers liable for a share of unfunded plan  benefits when they withdraw from a plan, unless otherwise relieved of  their liability, and strengthened certain funding requirements. An  employer that chooses to withdraw from a multiemployer plan may be  required to continue to contribute if the plan does not have sufficient  assets to cover the plan’s current and known future liabilities at the time  the employer withdraws; however, these payments may not fully cover  the withdrawing employer’s portion of the plan’s liabilities. In such  cases, the employers remaining in the plan may effectively assume the  remaining liability.

The Pension Protection Act of 2006  The Pension Protection Act of 2006 (PPA) was intended to improve the  funding of seriously underfunded multiemployer plans, among other  things. It included provisions that require plans in poor financial health to  take action to improve their financial condition over the long term and  established two categories of troubled plans: (1) “endangered status” or  “yellow zone” plans (this category also includes a sub-category of  “seriously endangered”), and (2) more seriously troubled “critical status”  or “red zone” plans. PPA further required plans in the endangered and critical zones to develop written plans to improve their financial condition,  such as by revising benefit structures, increasing contributions, or both,  within a prescribed time frame. Multiemployer plans in yellow or red  zone status must document their remediation strategies in a written plan,  notify plan participants, and report annually on whether scheduled  progress has been made. Since the 2008 market decline, the number of  participants in endangered and critical plans has generally been  decreasing (see fig. 4).

The Multiemployer Pension Reform Act of 2014  In response to the funding crisis facing PBGC and multiemployer pension  plans, the Multiemployer Pension Reform Act of 2014 (MPRA) made  changes to the multiemployer system that were intended to improve its  financial condition. Key changes included:

Creation of critical and declining status. MPRA created a new  category, “critical and declining,” for plans in critical status projected to  become insolvent during the current plan year or within any of the 14  succeeding plan years, or in certain circumstances, within any of the  19 succeeding plan years. In 2017, PBGC reported that more than  100 multiemployer plans (more than 7 percent of plans) representing  approximately 1 million participants (about 10 percent of participants)  have been determined to be “critical and declining.”

Permitted reduction of accrued benefits. MPRA permits plans to  reduce participants’ and beneficiaries’ accrued retirement benefits if  the plan can demonstrate such action is necessary to remain solvent.  Plans apply to Treasury for the authority to reduce benefits. Treasury,  in consultation with PBGC and DOL, reviews the applications and  determines whether the proposed changes would enable the plan to  remain solvent.

Increased PBGC premiums. MPRA also increased the PBGC premiums for multiemployer plans from $12 to $26 (per participant per plan year) in 2015 and from $26 to $28 in plan year 2017. The annual premium in subsequent years is indexed to changes in the national average wage index.

Creation of new framework of rules for partition. Partition allows a multiemployer plan to split into two plans—the original and a successor. Partitions are intended to relieve stress on the original plan by transferring the benefits of some participants to a successor plan funded by PBGC and to help retain participant benefits in the plans at levels higher than the PBGC-guaranteed levels.

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. CSPF’s 1982 Form 5500 we reviewed shows that the  plan was less than 40 percent funded prior to the consent decree  becoming effective. 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. 5). Overall, the plan’s unfunded liability  increased by approximately $11.2 billion (in inflation-adjusted dollars)  between January 1983 and January 2016. As a consequence,  participant benefits were never fully secured by plan assets over this  period, as measured by ERISA’s minimum funding standards, and the  plan consistently needed to collect contributions in excess of those  needed to fund new benefit accruals to try to make up for its underfunded  status.

Stakeholders Described Multiple Factors That Contributed to CSPF’s Critical Financial Condition, Many of Which Have Been Experienced by Other Multiemployer Plans

CSPF officials and other stakeholders identified several factors that  contributed to CSPF’s critical financial condition and reflect the  challenges faced by many multiemployer plans. For example, like CSPF,  many multiemployer plans have experienced financial difficulties due to a  combination of investment losses and insufficient employer contributions.  In addition to being underfunded prior to the consent decree going into  effect, stakeholders identified other specific factors that contributed to  CSPF’s critical financial condition, such as trends within the national  trucking industry and its workforce, funding challenges and common  investment practices of multiemployer plans, and the impact of market  downturns on long-term investment performance. Stakeholders also  described the effects of the 2007 withdrawal of a key employer, United  Parcel Service (UPS), on CSPF’s critical financial condition.

Stakeholders we interviewed said changes to the workforce, such as  declining union membership rates and changes resulting from industry  deregulation, affected CSPF and some other multiemployer plans by  reducing the number of workers able to participate in their plans. While  the multiemployer structure distributes bankruptcy risk across many  employers, for any particular multiemployer plan employers are often  concentrated in the same industry, making the plans vulnerable to  industry-specific trends and risks. For example, stakeholders noted the  impact that the Motor Carrier Act of 1980 had on the trucking industry.  Specifically, deregulation of the trucking industry reduced government  oversight and regulation over interstate trucking shipping rates. The  trucking industry became increasingly dominated by nonunion trucking  companies resulting in the bankruptcy of many unionized trucking  companies, according to stakeholders. New trucking companies typically  did not join multiemployer plans because their labor force was not  unionized and this, coupled with the bankruptcy of many contributing  employers, contributed to a decrease in active participant populations for  many plans serving the industry. As the total number of active participants  in a plan declines, the resources from which to collect employer  contributions declines proportionally. Stakeholders also said these  changes were unforeseeable. Limitations on a plan’s ability to increase  contributions mean that a plan has less capacity to recover from an  underfunded position or to make up for investment returns that fall short  of expectations.

A decline in the number of active workers can also accelerate plan  “maturity,” as measured by the ratio of nonworking to working  participants. Plan maturity has implications for a plan’s investment  practices and the time frame over which the plan must be funded.  According to PBGC’s data for the multiemployer plans it insures, there  were approximately three active participants for every nonworking  participant in 1980 (3:1); by 2014, the ratio was approximately one active  worker for every two nonworking participants (1:2). Figure 6 shows the  change in the percentages of active and nonworking participants for the  multiemployer plans that PBGC insures.

CSPF saw an even more dramatic change in its active to nonworking  participant ratio from 1982 through 2015. In 1982, there were more than  two active workers for every nonworking participant (2:1) and by 2016  that ratio had fallen to approximately one active worker for every five  nonworking participants (1:5) (see fig. 7). Because CSPF’s contributing  employers were largely trucking companies, stakeholders said this made  the fund especially vulnerable to industry-wide shocks. Like the industry  as a whole, CSPF was unable to attract new employers to replace exiting  employers, in part because of the lack of new unionized employers.

CSPF officials said that changes to the trucking industry and its workforce  also led to other challenges for the plan. For example, contributions to the  plan declined with the shrinking number of active workers. CSPF officials  told us they could not significantly increase the contribution rate paid by  remaining employers because of the financial hardship it would cause,  and as a result, the plan’s ability to recover from its underfunded position  was limited. CSPF officials said that this increased the plan’s reliance on  investment returns to try to close the gap between its assets and  liabilities.

Funding Challenges and Investment Practices

Stakeholders we interviewed cited challenges inherent in multiemployer  plans’ funding and investment practices, and described how the  challenges may have contributed to the critical financial condition of some  plans, including CSPF.

Stakeholders said that CSPF and many other multiemployer plans have  been challenged by employer withdrawals. An employer withdrawal  reduces the plan’s number of active worker participants, thereby reducing  its contribution base and accelerating plan maturity. A withdrawing  employer generally must pay a share of any unfunded benefits.  Stakeholders identified several ways in which the withdrawal liability  framework could result in a withdrawing employer underpaying its share  of an unfunded liability. We have previously reported on the challenges  associated with withdrawal liability, including: withdrawal liability assessments are often paid over time, and  payment amounts are based on prior contribution rates rather than the  employer’s actual withdrawal liability assessment; withdrawal liability payments are subject to a 20-year cap, regardless  of whether an employer’s share of unfunded benefits has been fully  paid within this 20-year timeframe; plans often did not collect some or all of the scheduled withdrawal  liability payments because employers went bankrupt before  completing their scheduled payments; and  fears of withdrawal liability exposure increasing over time could be an  incentive for participating employers to leave a plan and a disincentive  for new employers to join a plan.

Stakeholders we interviewed also added that the calculation used to  determine withdrawal liability may use an investment return assumption  that inherently transfers risk to the plan.

When exiting employers do not pay their share of unfunded benefits, any  remaining and future employers participating in the plan may effectively  assume the unpaid share as a part of their own potential withdrawal  liability as well as responsibility for the exiting employer’s “orphaned”  participants. Participating employers may negotiate a withdrawal if they  perceive a risk that the value of their potential withdrawal liability might  grow significantly over time.

In its MPRA application, CSPF cited employer withdrawals and  bankruptcies as a significant challenge for the plan. CSPF reported that  after deregulation, the number of contributing employers dropped by over  70 percent. While some of the drop could be due to the consolidation of  trucking companies after deregulation, CSPF officials cited several cases  in which employers went bankrupt or withdrew from the plan, which  reduced the plan’s contribution base and accelerated its maturity.  Additionally, when employers went bankrupt, they often did not pay their  full withdrawal liability. For example, CSPF said two of its major  contributing employers left the plan between 2001 and 2003, and left  $290 million of more than $403 million in withdrawal liability unpaid after  they went bankrupt.

Stakeholders identified funding timeframes as a factor that contributed to  the challenges facing many multiemployer plans, including CSPF.  ERISA’s minimum funding standards have historically allowed  multiemployer plans to amortize, or spread out the period of time for  funding certain events, such as investment shortfalls and benefit  improvements. For example, CSPF began a 40-year amortization of  approximately $6.1 billion in underfunding on January 1, 1981, giving the  plan until the end of 2021 to fully fund that amount. Longer amortization  periods increase the risk of plan underfunding due to the number and  magnitude of changes in the plan’s environment that may occur, such as  a general decline in participants or deregulation of an industry. The  Pension Protection Act of 2006 shortened amortization periods for single- employer plans to 7 years and the amortization periods for multiemployer  plans to 15 years. Shorter amortization periods provide greater benefit  security to plan participants by reducing an unfunded liability more  rapidly. In addition, shorter amortization periods can be better aligned  with the projected timing of benefit payments for a mature plan. However,  shorter periods can be a source of hardship for plans with financially  troubled contributing employers because they may require higher  contributions. According to CSPF officials, CSPF requested and received  an additional 10-year amortization extension from the IRS in 2005 after  relating that contribution requirements could force participating employers  into bankruptcy. One CSPF representative said an amortization extension  can also help avoid subjecting the plan’s employers to IRS excise taxes  for failing to make required minimum contributions.

Stakeholders we interviewed said that certain common investment  practices may have played a role in the critical financial condition of  CSPF and other mature and declining plans. In general, multiemployer  plans invest in portfolios that are expected, on average, to produce higher  returns than a low-risk portfolio, such as one composed entirely of U.S.  Treasury securities. Stakeholders also stated that these investment  practices may have been too risky because returns can be more volatile,  and the higher expected returns might not be achieved. In addition, the  Congressional Budget Office has reported that if “plans had been  required to fund their benefit liabilities—at the time those liabilities were  accrued—with safer investments, such as bonds, the underfunding of  multiemployer plans would have been far less significant and would pose  less risk to PBGC and beneficiaries.”

Stakeholders also told us that for mature plans like CSPF, these  investment practices can pose further challenges. Mature plans, with  fewer active employees, have less ability to recoup losses through  increased contributions and have less time to recoup losses through  investment returns before benefits must be paid. Market corrections, such  as those that occurred in 2001 through 2002 and in 2008, can be  particularly challenging to mature plans and their participants, especially if  a mature plan is also significantly underfunded. Mature plans could  mitigate these risks by investing more conservatively, however, the  resulting lower expected returns from more conservative investing  necessitates higher funding targets and contribution rates, which could be  a hardship for employers in an industry with struggling employers.  Alternatively, a plan that invests more conservatively may provide lower  promised benefits to accommodate the level of contributions it can collect.  Lower investment returns from a more conservative investment policy  would cost employers more in contributions and could potentially result in  employers leaving the plan. Further, investing in a conservative portfolio  would be relatively unique among multiemployer plans, and stakeholders  said plan managers may feel they are acting in a prudent fashion by  investing similarly to their peers. Underfunded plans like CSPF may not  see conservative investment as an option if they cannot raise the  contributions necessary to fully fund their vested benefits. Officials from  CSPF told us that, because they lacked the ability to significantly increase  revenue or decrease accrued benefits, the named fiduciaries sought  incrementally higher investment returns to meet funding thresholds  required by the amortization extension they received in 2005.

On the other hand, there are challenges associated with risk-bearing  investments. In our prior work, we reported that multiemployer plans  generally develop an assumed average rate of investment return and use  that assumption to determine funding targets, required contributions, and  the potential cost of benefit improvements. Experts we interviewed for  that report told us that using a portfolio’s expected return to value the cost  of benefits increases the risk that insufficient assets could be on hand  when needed. They also told us that using the portfolio’s expected return  to calculate liabilities could incentivize plans to invest in riskier assets and  to negotiate higher benefit levels because the higher returns expected  from riskier portfolios can result in lower reported liabilities.

Plan Terms Set through Collective Bargaining  Stakeholders we interviewed said that plan terms, such as contribution  rates, which are set through the collective bargaining process, can create  an additional challenge for multiemployer plans. Employers in  multiemployer plans generally are not required to contribute beyond what  they have agreed to in collective bargaining, and these required employer  contributions generally do not change during the term of a collective  bargaining agreement. CSPF officials said that up until the early 2000s,  plan officials did not request modifications to collective bargaining  agreements, such as reallocating contribution dollars, to respond to  adverse investment returns.

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. Failure to  achieve assumed returns has the effect of increasing unfunded liabilities.  For the multiemployer system in aggregate, the average annual return on  plan assets over the 2002 to 2014 period was about 6.1 percent, well  short of typical assumed returns of 7.0 or 7.5 percent in 2002.

Many multiemployer plans were especially impacted by the 2008 market  downturn. PBGC estimated that from 2007 to 2009, the value of all  multiemployer plan assets fell by approximately 24 percent, or $103  billion, after accounting for contributions to and payments from the  plans. Although asset values recovered to some extent after 2009,  some plans continued to be significantly underfunded, and stakeholders  said this could be due to the contribution base not being sufficient to help  recover from investment shortfalls.

CSPF’s investment performance since 2000 has reflected performance  similar to other multiemployer plans and the plan went from 73 percent  funded in 2000 to about 38 percent funded in 2017. 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. CSPF officials said the 2008 downturn significantly  reduced CSPF’s assets and it was unable to sufficiently recoup those  losses when the market rebounded in 2009. Plan assets declined from  $26.8 billion at the beginning of 2008 to $17.4 billion at the beginning of  2009, with $7.5 billion of the decline attributable to investment losses.  Despite reporting a 26 percent return on assets during 2009, CSPF had  only $19.5 billion in assets at the end of 2009 because benefits and  expenses exceeded the contributions it collected and because it had  fewer assets generating returns for the plan. By the end of 2009, CSPF’s  funding target was $35.9 billion but the fund had less than $20 billion that  could be used to generate investment returns.  If CSPF’s portfolio had  returned 7.5 percent per year over the 2000-2014 period, instead of the  approximately 4.9 percent we calculated, we estimate that the portfolio  value would have exceeded $32.0 billion at the end of 2014, or 91  percent of its Actuarial Accrued Liability.

In addition to the factors mentioned that affected many multiemployer  plans, stakeholders we interviewed also noted the unique effect of the  UPS withdrawal on CSPF. In 2007, UPS negotiated with the International  Brotherhood of Teamsters for a withdrawal from CSPF and paid a  withdrawal liability payment of $6.1 billion. This payment was invested  just prior to the 2008 market downturn. Moreover, the loss of UPS,  CSPF’s largest contributing employer, reduced the plan’s ability to collect  needed contributions if the plan became more underfunded. A UPS  official said that, following the market decline of 2001-2002, the company  considered whether it should withdraw from all multiemployer plans  because it did not want to be the sole contributing employer in any plan.  According to this official, UPS considered the large number of UPS  employees in CSPF and the plan’s demographics—such as an older  population and fewer employers—in its decision to withdraw. CSPF  officials said they did not want UPS to withdraw because its annual  contributions accounted for about one-third of all contributions to the plan.  CSPF officials also told us that, prior to the UPS withdrawal, they had  expected the population of active UPS workers in the plan to grow over  time.

UPS’ withdrawal of 30 percent of CSPF’s active workers, in combination  with the significant market downturn just after UPS withdrew, reflected the  loss of working members and investment challenges on a large scale.  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. Industry  deregulation, declines in collective bargaining, and the plan’s significantly  underfunded financial condition all impaired CSPF’s ability to maintain a  population of active workers sufficient to supply its need for contributions  when investment shortfalls developed. Given historical rules for plan  funding and industry stresses, CSPF was unable to capture adequate  funding from participating employers either before or after they withdrew  from the plan. The plan’s financial condition was further impaired when  long-term investment performance fell short of expectations. For an  underfunded, mature plan such as CSPF, the cumulative effect of these  factors was described by some stakeholders as too much for CSPF to  overcome.

DOL Has Provided Oversight in Its Role As Described in the Consent Decree

Roles and Responsibilities Identified in the Consent Decree

The consent decree describes roles and responsibilities for several  parties, including CSPF, its trustees, and DOL. Generally, it reiterates the  requirement that CSPF must comply with ERISA, and gives DOL the  authority to provide input on certain actions proposed by the plan.  Additionally, the consent decree requires CSPF to employ a named  fiduciary to administer and manage the plan’s investment assets, set  investment policy, and select and supervise investment managers to  create separation of plan trustees and staff from the management of plan  investments. The plan must seek court approval for certain actions,  such as the appointment of new trustees and named fiduciaries, and DOL  can raise objections to these proposed actions. The named fiduciary must  also seek court approval for proposed changes to the investment policy.  (Appendix II provides a more comprehensive description of roles and  other key provisions of the consent decree and its amendments.) The  consent decree also provides for a court-appointed independent special  counsel to assist the court in overseeing the plan, attend meetings of the  board of trustees, and submit quarterly reports on plan activities to the  court (see table 1).

Although certain stakeholders have stated that the consent decree has  achieved its purpose, DOL and CSPF agree that it still provides valuable  protections, and the consent decree remains in place. The intent of the  consent decree was to address alleged breaches of fiduciary duties under  ERISA, including plan officials’ roles in the mismanagement of assets that  were identified during DOL’s investigation of the plan in the 1970s. The  former Assistant Secretary for the Employee Benefits Security  Administration (EBSA) stated that the consent decree was primarily  focused on preventing corrupt conduct and the influence of organized  crime found during investigations prior to the consent decree’s  establishment. Stakeholders agreed the consent decree accomplished  its objectives by requiring the plan to seek court approval for certain  activities. In 2004, the presiding judge noted in a memorandum opinion  and order that the “professional management guidelines” that arose from  the consent decree had worked well. In 2002, discussions arose  between CSPF and DOL as to whether the consent decree should be  dissolved. In 2011, the independent special counsel wrote in a letter to  the court that he believed the plan was well-run and the role of the  independent special counsel was no longer necessary. However, DOL  officials stated that the provisions of the consent decree have created a  strong incentive for ERISA compliance and have had a positive impact on  the administration of the plan and the selection of trustees. Similarly,  CSPF officials stated they had not requested the consent decree be  dissolved because its requirements have provided valuable protection  from stakeholder influence.

DOL Conducted a Number of Oversight Activities under the Consent Decree

In accordance with the requirements of the consent decree, DOL may  provide input on and oversight to certain plan activities. For example,  DOL may comment on or object to proposedboard of trustee candidates  and proposed named fiduciaries prior to court approval. CSPF must  provide notice to the court and DOL within specific time frames when  seeking court approval for such actions. The consent decree requires  CSPF to submit trustee and named fiduciary candidates to the court and  DOL 60 days before filing their request for court approval (see fig. 8). In  addition, the consent decree states that CSPF must notify DOL of new  trustee candidates, selected by union or employer processes, 60 days  prior to the proposed effective date of the candidate’s term and DOL may  object to, or comment on, the approval of trustee candidates within 30  days.

Although the consent decree does not require DOL to take any specific  actions in determining whether it will comment on or object to a trustee  candidate, DOL officials reported that with the assistance of other  agencies they have taken the following steps to review trustee  candidates:

Requesting trustee candidate information. DOL requests that CSPF  provide information on prospective trustee candidates;

Providing questionnaires to trustee candidates via CSPF. Responses  to questionnaires are reviewed by DOL’s Offices of Labor- Management Standards and Inspector General, the Department of  Justice, the Federal Bureau of Investigation, and the Office of the  Chief Investigator at the Teamster’s Independent Review Board (IRB);

Compiling additional information. DOL searches internal and external  databases for information regarding the trustee candidates;

Assessing the information. DOL reviews any findings identified by the  attorney assigned to CSPF in DOL’s Office of the Solicitor, officials in  DOL’s Plan Benefits Security Division, and EBSA management staff.  A recommendation regarding whether to file an objection is discussed  and, if filing an objection is being considered, it is first discussed with  the plan; and

Filing objections. If any identified issues cannot be resolved, DOL files  an objection with the court.

Documents submitted to the court by DOL also indicated the agency has  sought input on trustee candidates from PBGC, IRS, and the National  Labor Relations Board. Several trustees we interviewed confirmed that  DOL’s process to vet them included background checks. Our review of  correspondence and other documentation found DOL routinely took such  steps to vet trustee candidates. CSPF and DOL provided documents  associated with the appointment and approval process of the 21 trustees  appointed to the board since 1982 and one additional trustee candidate  who was not presented to the court for approval because DOL identified  issues during the vetting process. Vetting trustees took from  approximately 1 to 5 months for the cases we reviewed. Our review of  documentation also found that DOL provided input and collaborated with  CSPF in two cases where approved trustees were asked to resign post- approval.

The length of time for the process to vet trustee candidates (in advance of  submitting them to the court) varied, but, in the cases we reviewed, took  as long as 5 months. Correspondence showed various factors contributed  to in the duration of DOL’s vetting process prior to submitting candidates  to the court for approval, including DOL officials’ workload and vacation  schedules, scheduling, and additional time spent clarifying any issues  identified during the vetting process.

In 2009, the vetting processes used by CSPF and DOL identified  concerns with a trustee candidate before the candidate was presented  to the court. During the 4-month vetting process, the candidate was  found to be involved in two ongoing court cases in his role as a  fiduciary for two other pension plans. Although the nominating  employer association did not consider his involvement in the suit to be  a problem, they eventually withdrew the nomination and proposed  another candidate.

In 2012, DOL’s review of a candidate to fill a vacancy left by a trustee  who died during his term in office was completed in approximately 1  month.

In 2015, DOL’s vetting process for a trustee candidate identified and  resolved a concern before the candidate was presented to the court.  DOL reported that they made inquiries to agencies and the  Teamsters’ Independent Review Board (IRB) about the candidate  during the vetting process, and the IRB did not report any issues with  the trustee candidate at the time of DOL’s inquiry. More than 7  months after the candidate was approved, DOL received a report from  the IRB that alleged lapses in financial controls and expense payment  practices and procedures at a Teamsters’ local union office when the  then-trustee had served as president. The trustee resigned from  CSPF’s board 7 weeks later, but continued to serve as a trustee for  an additional 5 months until a replacement was vetted by DOL and  presented to the court for approval.

In 2007 and 2009, CSPF kept DOL apprised of trustees who resigned  and were replaced because employers were leaving the plan.

The consent decree does not discuss court or DOL involvement in  resolving issues with trustees already serving on the board, but in  1996, DOL assisted the CSPF board of trustees when they learned  that one of their trustees, who had been on the board of CSPF for  about 11 years, was accused of fiduciary misconduct in carrying out  his duties for another pension plan. To assist the nominating board  and the plan’s board of trustees in determining the proper course of  action, CSPF consulted with DOL and the court before filing a motion  with the court to appoint a special counsel to investigate, and to  authorize expenditures for the investigations. Following the special  counsel’s report, the nominating board recommended that trustee be  removed, and the trustee chose to resign.

Documents we reviewed also indicated DOL provided input to CSPF and  the court on proposed amendments to the consent decree. For example,  DOL assisted in writing a proposed amendment that would allow for the  addition of a second named fiduciary and for named fiduciaries to act as  investment managers for the plan. In addition, in 2007, a named  fiduciary requested that CSPF assume responsibility for determining the  plan’s asset allocation and indemnify it for any losses it might incur in  fulfilling its role. In response to the request, CSPF considered several  approaches to insulating the named fiduciary from fiduciary risk, and  whether they would be inconsistent with the consent decree; however,  CSPF decided against requesting the consent decree be dissolved.  CSPF officials consulted with DOL regarding the approaches they  considered, including one that would allow for flexibility in the allocation of  investment assets within prescribed bands. CSPF waited to file its motion  to amend the consent decree until DOL had an opportunity to evaluate  the proposals. CSPF decided not to proceed with the proposed  amendments, and instead worked with the named fiduciary to make  changes to the investment policy to reduce risk for the named fiduciary.  In our review of documents provided by CSPF, we also found that DOL  regularly reviewed the quarterly reports from the independent special  counsel, which included topics of discussion at the meetings of the board  of trustees, a quarterly financial report, and other recent events of  significance to the plan.

Our review of communication between CSPF and DOL showed the plan  also provided updates and allowed for DOL’s input on other actions. For  example, CSPF responded to DOL inquiries about changes in the number  of participants and the plan’s funded status in 2011 and 2014,  respectively. In 2009, CSPF also provided details about a possible  arrangement to allow a contributing employer that was at risk of  bankruptcy to defer its contribution payments instead of suspending its  participation in the plan. CSPF received input from DOL on the  employer’s request to use real estate as collateral in place of cash  contributions to the plan.

DOL Conducted Investigations of CSPF in Accordance with Its Role under ERISA

DOL Has Primary Responsibility for Enforcing ERISA’s Fiduciary Provisions

Separate from its role under the consent decree, DOL has a primary  oversight role over plans under ERISA, which it carries out through  investigations and other activities. DOL is responsible for enforcing the  reporting, disclosure, and fiduciary responsibility provisions of ERISA.  Additionally, ERISA grants DOL investigative authority. Title I of ERISA  establishes responsibilities for fiduciaries, such as persons who are  responsible for the administration and management of employee benefit  plans, to ensure that they act solely in the interest of plan participants and  beneficiaries, and gives DOL authority to examine and investigate plans  to ensure they comply with the provisions.

ERISA sets forth a “prudent man” standard of care that requires fiduciary  duties to be executed “…with the care, skill, prudence, and  diligence…that a prudent man acting in a like capacity and familiar with  such matters would use…”. According to a DOL compliance guide,  prudence focuses on the process for making fiduciary decisions, and the  guide states that a fiduciary lacking needed expertise is encouraged to  hire others with professional knowledge to carry out fiduciary function,  including investing fund assets. The guide further notes that, if a plan  appoints an investment manager that is a bank, insurance company, or  registered investment advisor, the plan is responsible for selecting and  monitoring the manager, but is not liable for the individual investments of  that manager. Further, in testimony, the former Assistant Secretary for  EBSA stated that plan fiduciaries are not liable for plan losses merely  because an investment lost money, but rather would be in instances  where they acted imprudently in selecting and monitoring investments.  Beyond the requirements of ERISA, the consent decree requires that  CSPF hire a named fiduciary with exclusive responsibility and authority to  manage and control the assets allocated to them. The consent decree  also requires the independent special counsel to provide quarterly reports  to the court and DOL. The quarterly reports include topics of discussion at  the meetings of the board of trustees, a quarterly financial report, and  other recent events of significance to the plan.

Although stakeholders identified major factors contributing to the plan’s  critical financial condition those factors are not the focus of DOL’s role  under ERISA. DOL has provided assistance to the plan in identifying and  assessing solutions to its financial condition. For example, in 2010,  CSPF’s executive director worked directly with the assistant secretary of  Labor as the plan prepared a partition application for PBGC  consideration. According to CSPF officials, the plan chose not to submit  the application because it did not believe the application would be  approved. In 2015, CSPF had discussion with the assistant secretary  about MPRA before CSPF ultimately submitted its application to Treasury  to reduce pension benefits under MPRA.

CSPF-provided documents show it also collaborated with DOL in  developing strategies to improve the broader multiemployer plan system.  For example, DOL contacted CSPF’s executive director to participate in a  meeting as a “thought leader” on PBGC investment policy. The plan also  worked with the assistant secretary and DOL and other government  officials on legislative proposals, including modifications to statutes  concerning partitioning and how partitions are funded through PBGC. In  2010, the assistant secretary testified regarding changes to the partition  process proposed by CSPF and others, stating DOL would continue to  work with CSPF on the proposal.

IRS and PBGC also have roles under ERISA related to key factors that  stakeholders identified as contributing to CSPF’s critical financial  condition. IRS is responsible for enforcing certain ERISA requirements,  including minimum participation, vesting and benefit accrual which are  generally requirements to qualify for favorable tax treatment and minimum  funding standards. Plans certify their PPA funding (or zone) status to IRS  annually. PBGC, in addition to collecting premiums and providing financial  assistance to insolvent multiemployer plans to pay participants a  statutorily guaranteed benefit for the rest of their retirement lifetimes,  provides technical assistance to multiemployer plan professionals,  monitors plans, and administers certain tools to help preserve plans, such  as assisting with plan mergers, reviewing methods for alternative  withdrawal liabilities, and providing possible relief through plan partitions.

Two Completed DOL Investigations Resulted in No Action Against CSPF

DOL has completed at least two investigations of the plan since the  consent decree was established; neither of which resulted in adverse  findings or action against CSPF. DOL carries out its ERISA enforcement  through a wide range of activities, including civil and criminal  investigations and the agency’s enforcement priorities are set annually at  the national level. DOL officials stated that to meet those priorities, the  national and regional offices of DOL develop enforcement projects to  focus enforcement activities on specific plan activities. Investigations  based on enforcement projects or triggered by participant complaints are  conducted by regional offices—DOL officials also stated that the Chicago  Regional Office is primarily responsible for oversight of CSPF at the  regional level. National and regional projects may be broadly applicable  or may focus on specific types of plans. Since 2012, there have been  seven national projects and five regional projects (two of the regional  projects are currently underway). Currently, there is a Chicago Regional  Office project focused on multiemployer plans.

DOL officials noted that field offices generally exercise broad discretion in  determining when investigations will be opened and what entities or  people will be investigated. During investigations, the field offices gather  information and evaluate compliance with ERISA’s civil and criminal  provisions. Potential issues for investigation are identified through  participant complaints, targeting based on computer-generated results of  Form 5500 review and analysis, media, and referrals from federal, state,  and local government, advocacy groups and service providers. For the  period between 2007 and 2016, DOL opened an average of nearly 2,600  civil and criminal pension cases annually; about 5 percent of the cases  were investigations of multiemployer plans. ERISA’s fiduciary  responsibility provisions are intended to ensure that plan fiduciaries act  solely in the interest of plan participants. Accordingly, if investigators  review the selection of investments, they generally focus on the  fiduciaries’ duty of prudence in the selection and monitoring of  investments, rather than the ultimate performance of the asset.

Investigation 1 from DOL’s Case Management System: Opened June 1996, Closed November 1998

The investigation was opened based on a referral from DOL’s Office  of the Solicitor, the entity that coordinates DOL oversight of CSPF  under the consent decree.

The investigation centered on alleged breaches of fiduciary  responsibility by the plan trustees in private litigation. The parties  settled for a withdrawal liability of one-fifth of the alleged amount owed  and did not pursue a malpractice claim against attorneys who  represented CSPF in the litigation.

DOL’s Chicago Regional Office concluded that CSPF trustees were  not in violation of ERISA. DOL’s Office of Enforcement concurred.

The investigation was closed without action.

Investigation 2 from DOL’s Case Management System: Opened June 2001, Closed September 2004

The investigation was opened based on a complaint from a former  employee of the named fiduciary who alleged he was fired when he  brought possible misconduct to the attention of the named fiduciary.

DOL’s investigation was centered on alleged securities violations by  the named fiduciary.

DOL’s Chicago Regional Office concluded that no violations occurred.

Because of incomplete documentation from DOL and because agency  officials could not provide further information, we were unable to  determine why the investigation was closed.

CSPF provided documents that indicated it had also been subject to  earlier DOL investigations. For example, CSPF provided a June 1989  letter from DOL indicating the agency had investigated whether CSPF  met its fiduciary duties through adequate procedures for monitoring legal  services provided to the plan. In the letter, the DOL investigator noted that  CSPF had written procedures for monitoring services and addressing  disputes and that the plan provided reports showing activities surrounding  the monitoring of legal fees. DOL concluded, based on available  information, that CSPF had implemented monitoring procedures and DOL  would take no further action. DOL did not provide further information  about the letter or investigation.

We provided a draft of the report to the U.S. Department of Labor, U.S.  Department of the Treasury, and the Pension Benefit Guaranty  Corporation for review and comment. We received technical comments  from the U.S. Department of Labor and the Pension Benefit Guaranty  Corporation, which we incorporated as appropriate. The U.S. Department  of the Treasury provided no comments.

We will send copies to the appropriate congressional committees, the  Secretary of Labor, the Secretary of the Treasury, Director of the Pension  Benefit Guaranty Corporation, and other interested parties. This report  will be available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix III.

Appendix I: Selected Events Affecting the Central States, Southeast and Southwest Areas Pension Fund

Below is a list of selected events that have affected the Central States,  Southeast and Southwest Areas Pension Fund (CSPF) as identified  through a review of relevant documentation and interviews with  stakeholders and agency officials. It is not intended to be an exhaustive  list of the events that have impacted CSPF, nor is it intended to include  comprehensive descriptions of each event.

Appendix II: Key Provisions of the Central States, Southeast and Southwest Areas Pension Fund’s Consent Decree

Brief History and Current Status of Consent Decree

On September 22, 1982, the Department of Labor (DOL) entered into a  court-enforceable consent decree with the Central States Southeast and  Southwest Areas Pension Fund (CSPF) to help ensure the plan’s assets  were managed for the sole benefit of the plan’s participants and  beneficiaries as required by the Employee Retirement Income Security  Act of 1974 (ERISA). The consent decree has been amended several  times and currently remains in effect, as amended, under the jurisdiction  of the Federal Court for the Northern District of Illinois, Eastern Division.  Below is a description of the key parties to and their primary  responsibilities under the consent decree.

Key Parties and Their Primary Roles under Consent Decree

The consent decree defines roles and responsibilities for its parties,  including the court, the court-appointed independent special counsel,  DOL, the plan and its Board of Trustees, and the independent asset  manager, which is called the named fiduciary.

The primary role of the court is to oversee and enforce the consent  decree. Specifically, the court: appointed an independent special counsel to assist it in administering has approval over the appointment of named fiduciaries and trustees; has approval over the appointment of investment managers of the may, for good cause shown, remove a named fiduciary after 60 days’  notice provided to the named fiduciary and DOL; and may, upon request by the plan, dissolve the consent decree absent  good cause shown by DOL why the consent decree should continue  in effect.

The court-appointed independent special counsel is intended to serve the  court by assisting in identifying and resolving issues that arise in  connection with the plan’s compliance with the consent decree and Part 4  of Title I of ERISA, and to report on the plan to the court. 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.

Under the consent decree, DOL has an oversight role and may object to  certain proposed plan changes. Specifically, DOL: may request and review certain reports provided by the plan and any  documents prepared by the independent special counsel in the  exercise of his authority; may object to the appointment of proposed trustees, named  fiduciaries, investment managers of the passively-managed accounts,  and asset custodians;  receives notice of proposed changes to the plan’s investment policy  statements from the plan; and may object to the dissolution of the consent decree.

CSPF (including Board of Trustees and Internal Audit Staff)

The plan must operate in full compliance with the consent decree, with  ERISA, and with any conditions contained in determination letters it  receives from the Internal Revenue Service. Specifically, CSPF, its  board of trustees, and its internal audit staff must meet certain  requirements.  is required to use an independent asset manager known as the  named fiduciary; must rebid the named fiduciary role at least once within every 6 years,  with the option to extend the appointment for one calendar year; may remove a named fiduciary without cause shown on 6 months’  written notice to the named fiduciary and DOL; must cooperate with the independent special counsel in the  performance of his duties and responsibilities and with DOL in its  continuing investigation and enforcement responsibilities under  ERISA;  is required to recommend to the court three replacement candidates,  agreeable to DOL, to replace an outgoing independent special  counsel; and  is required to maintain a qualified internal audit staff to monitor its  affairs.  is required to appoint, subject to court approval, the investment  managers of the passively-managed accounts;  is prohibited from authorizing any future acquisitions, investments, or  dispositions of plan assets on a direct or indirect basis unless  specifically allowed by the consent decree; and  is required to comply with ERISA fiduciary duties, such as monitoring  the performance of the assets of the plan, under Part 4 of Title I of  ERISA.  is required to review benefit administration, administrative  expenditures, and the allocation of plan receipts to investments and  administration; and  is required to prepare monthly reports setting forth any findings and  recommendations, in cooperation with the executive director of the  plan, and make copies available to the independent special counsel  and, upon request, to DOL and the court.

The independent asset managers, known as named fiduciaries, are  appointed by the plan’s trustees, subject to court approval, and have  exclusive responsibility and authority to manage and control all assets of  the plan allocated to them. Specifically, the named fiduciaries: may allocate plan assets among different types of investments and have exclusive authority to appoint, replace, and remove those have responsibility and authority to monitor the performance of their are required to develop, in consultation with the Board of Trustees,  and implement investment policy statements for the assets they  manage, giving appropriate regards to CSPF’s actuarial  requirements.

Appendix III: GAO Contacts and Staff Acknowledgments

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov.

In addition to the individual named above David Lehrer (Assistant  Director), Margaret J. Weber, (Analyst-in-Charge), Laurel Beedon,  Charles J. Ford, Jessica Moscovitch, Layla Moughari, Joseph Silvestri,  Anjali Tekchandani, Frank Todisco, and Adam Wendel made key  contributions to this report. Also contributing to this report were Susan  Aschoff, Deborah K. Bland, David M. Chrisinger, Helen Desaulniers, Ted  Leslie, Sheila McCoy, Mimi Nguyen, and Walter Vance.

Central States Pension Fund: Investment Policy Decisions and  Challenges Facing the Plan. GAO-18-106. Washington, D.C.: June 4,  2018.

High-Risk Series: Progress on Many High-Risk Areas, While Substantial  Efforts Needed on Others. GAO-17-317. Washington, D.C.: February 15,  2017.

Pension Plan Valuation: Views on Using Multiple Measures to Offer a  More Complete Financial Picture. GAO-14-264. Washington, D.C.:  September 30, 2014.

Private Pensions: Clarity of Required Reports and Disclosures Could Be  Improved. GAO-14-92. Washington, D.C.: November 21, 2013.

Private Pensions: Timely Action Needed to Address Impending  Multiemployer Plan Insolvencies. GAO-13-240. Washington, D.C.: March  28, 2013.

Private Pensions: Multiemployer Plans and PBGC Face Urgent  Challenges. GAO-13-428T. Washington, D.C.: March 5, 2013.

Pension Benefit Guaranty Corporation: Redesigned Premium Structure  Could Better Align Rates with Risk from Plan Sponsors. GAO-13-58.  Washington, D.C.: November 7, 2012.

Private Pensions: Changes Needed to Better Protect Multiemployer  Pension Benefits. GAO-11-79. Washington, D.C.: October 18, 2010.

Private Pensions: Long-standing Challenges Remain for Multiemployer  Pension Plans. GAO-10-708T. Washington, D.C.: May 27, 2010.

The Department of Labor’s Oversight of The Management of the  Teamsters’ Central States Pension and Health and Welfare Funds.  GAO/HRD-85-73. Washington, D.C.: July 18, 1985.

Investigation to Reform Teamsters’ Central States Pension Fund Found  Inadequate. GAO/HRD-82-13. Washington, D.C.: April 28, 1982.