A race to the bottom?

New Census Bureau data released earlier this week shows that more Americans are living in poverty now than at any time since 1993. While an increase might be understandable, given the uncertain economy, the numbers are still staggering. An estimated one in six Americans, or 15.1 percent of the population, is living in poverty. That translates to 46.2 million people – the highest number in 52 years.

As defined by the Census Bureau, the poverty threshold for a family of four in 2010 is $22,114 a year. However, as we’ve noted before, these numbers probably understate the true level of poverty in this country. In any event, if such a high percentage of the population is living in poverty, prospects for a secure retirement look pretty bleak for far too many Americans.

The new poverty figures come on the heels of news reports describing the ways that companies are cutting back on the salaries and benefits they provide to their employees. 

A recent New York Times article highlights a two-tier pay scale that has been implemented by Detroit’s Big Three automakers, in which new hires receive lower pay and benefits than long-time employees. Embraced by the automakers, these new wage scales have been lauded for helping the automakers return to profitability. But, for the workers on the lower end of the wage scale, the road to profitability isn’t as clear. According to the article:

Some benefits for the lower-tier workers are scaled back as well. They get the union’s traditional medical benefits, but a maximum of four weeks paid time off a year, versus five for the longtime workers. And instead of the guaranteed $3,100-a-month pension a full-paid worker receives after age 60, the new hires have to build their own “personal retirement plan” based on contributions from the company of less than $2,000 a year.

This “new personal retirement plan” places the burden of preparing for retirement on the backs of the very workers who are helping the automakers emerge from the brink of financial ruin.  Cutting pensions doesn’t make sense at a time in which the poverty rate for a family of four is at the highest it has been in 28 years.

The retirement security provided by a lifetime, guaranteed pension does more than just supplement income in retirement. Pensions lift people out of poverty.  People without pensions are more likely to live in poverty than those who have them.

 A report released earlier this year by the National Institute on Retirement Security states that “more than one-third of households that rely only on individual accounts plans will have income either below or near the poverty line. 

In a hearing on Tuesday, Senator Bernie Sanders (I-VT) noted that the United States has the highest overall poverty rate of any major industrialized country on earth, according to the Organization for Economic Cooperation and Development. With fewer companies offering traditional pensions and 401(k) plans proving to be inadequate, we are going to have to do something to address the retirement income crisis in this country.  Otherwise, the poverty rate is only going to get worse.

This blog entry was written by the Pension Rights Center's Joellen Leavelle and is cross-posted on the Pension Rights Center's PRC Perspectives blog.

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