Across the country, American corporations are freezing pension benefits or cutting them altogether, using union negotiation processes to change the way workers save for retirement. General Motors and Ford Motor Company have recently downsized their pension plans, and Caterpillar, a company that pays its chief executive more than $17 million a year and raked it $4.9 billion in profits last year, pushed a pension freeze on its workers last month.
The decline in dependence on pension benefits will likely lead to a rise in poverty for America’s future retirees, according to a new study by the National Institute on Retirement Security. The study found that seniors — a demographic that typically has lower poverty rates than younger Americans — who live in a home without pension income are far more likely to fall into poverty, Reuters reports:
As recently as 1998, 52 percent of Americans over age 60 received income from a defined benefit pension, according to a new study by the National Institute on Retirement Security (NIRS). By 2010, that figure had fallen to 43 percent. In the private sector, the decline has been more dramatic – down from 38 percent in 1979 to 15 percent in 2010. [...]
How important are defined benefit pensions in keeping seniors out of poverty? The study – which is based on U.S. Census Bureau data – found poverty rates were nine times greater in 2010 in households without defined benefit pension income. Pensions resulted in 4.7 million fewer poor or “near poor” families and 1.2 million fewer families on various forms of public assistance.
Estimates show that more than half of middle class workers are likely to outlive their retirement savings, and half of all American workers don’t even have a retirement plan at work. As profitable corporations continue cutting back their pension requirements, those numbers are likely to grow.
Iowa Sen. Tom Harkin (D) recently proposed legislation to create a new retirement program in the United States that would combine the “best elements of defined-contribution plans and defined-benefit plans to deliver a portable, cost-effective, and stable level of benefits for retirees at a constant cost to employers,” as the Center for American Progress’ David Madland noted when the plan was released. And as the Great Recession proved, America needs a more stable retirement system to ensure that our seniors stay out of poverty even after they leave the workforce.