WASHINGTON (AP) — Despite an improving U.S. economy, retirement plans covering roughly 1.5 million workers are severely underfunded, threatening benefit cuts for current and future retirees, a federal watchdog agency warned Monday.

The Pension Benefit Guaranty Corporation (PBGC) said multi-employer plans, which are collectively bargained retirement plans maintained by more than one employer, are most at risk. “Plan insolvencies … are now both more likely and more imminent than in our last report,” the report said.   

At the same time, the agency said single-employer pension plans — covering just over 30 million participants — are on firmer financial footing and are likely to remain so at least over the next 10 years. 

The report concluded that, as shaky as the situation is for the underfunded multi-employer plans, the outlook is slightly better than it was just a year ago as the nation’s economy gradually improves from the severe 2007-2009 recession.

“In the past year, economic conditions have improved significantly and most plans are projected to remain solvent,” said the agency, which was created under the Employee Retirement Income Security Act of 1974 (ERISA). 

But, it added, that research over the past year had made clear that, for some multi-employer plans, “even the improving economy will not be sufficient to maintain their solvency.”

If a company goes bankrupt and is forced to terminate its pension plan, the PBGC will generally take over making sure that retirees continue to draw pension benefits, at least up to certain limits.  It’s a form of insurance. The maximum guaranteed amount paid by PBGC in 2013 was $4,789.77 per month, or $57, 477.24 per year. The agency does not pay the benefits directly to people covered by failed plans, but provides financial assistance to the plans themselves to enable them to continue providing benefits. 

Employers pay a fee to the PBGC for each employee.

As more and more baby-boomers retire and begin drawing pension benefits, the PBGC comes under increasing financial strain. 

The agency noted that for many years, the single-employer program was more likely to be seriously underfunded than the multi-employer plans: “That situation is now reversing.” 

“Some multi-employer plans are deteriorating and PBGC’s multi-employer program is more likely than not to run out of money within the next eight years,” the agency said.

The agency said many participants in the troubled multi-employer plans are employed by small companies in the building and construction industries. Also many workers in retail food, garment manufacturing, entertainment, mining and truck and maritime industries could feel the consequences.  

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