US Bankruptcy Judge Rules Local Pensions Can Be Modified (pension plan, federal, 2013)
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I'm sure this will be appealed, and the decision can be revoked, but for now this is of major concern to anyone with a pension from local government:
In a single ruling, U.S. Bankruptcy Judge Steven Rhodes overturned a 50-year belief that vested public-sector pensions are protected by the state constitution under Chapter 9 and allowed the largest municipal bankruptcy in American history to proceed... With cities, even states, grappling with ballooning unfunded pension liabilities, there are growing concerns that the obligations promised to public-sector retirees associated with municipalities could be discharged in Chapter 9 bankruptcy.
I read the whole article and found it very interesting. There is a lot of logic in the judge's opinion that while Detroit's city pensions constitute contracts under state law, the whole idea behind bankruptcy is that contracts have to be breached because of the impossibility of fulfilling them. It would not be consistent to hold that some contracts are inviolate while other contract holders have to get the shaft. EVERYBODY will have to get in line for some sort of pro-rata type sharing.
Naturally this is bad news for all retirees who are drawing city or county administered pensions. However I do not see the applicability to state administered pensions because it is my understanding that states cannot declare bankruptcy.
I'm sure this will be appealed, and the decision can be revoked, but for now this is of major concern to anyone with a pension from local government:
In a single ruling, U.S. Bankruptcy Judge Steven Rhodes overturned a 50-year belief that vested public-sector pensions are protected by the state constitution under Chapter 9 and allowed the largest municipal bankruptcy in American history to proceed... With cities, even states, grappling with ballooning unfunded pension liabilities, there are growing concerns that the obligations promised to public-sector retirees associated with municipalities could be discharged in Chapter 9 bankruptcy.
He just said that federal law overrules state laws which isn't anything new really. He also rules that all bondholders are subject to it;investors and other pension plans that invested in the cities bonds. This isn't something new it has happened to numerous pension plans thru the year under federal bankrupsy laws.Once he ruled they are bankrupt under chapter 9 then all creditors are effected by it;not just local pensions.
On the other hand the LA police dept is running short on satisfactory recruits. Just wait until Detroit starts running short of qualified applicants for key services. It is a vicious cycle that will compound the rebirth efforts. No need for anyone to get their panties bunched up if you disagree fine and have a good day.
I certainly don't consider this "playing games" with the pension. Perhaps if you actually read the article in your link, you'd understand the problem.
"But those bond certificates are why Detroit’s plan is so well-funded today – in effect, the deal shifted the liability risk from the retirees to the taxpayers. And that debt is contributing to the city’s inability to provide services to its residents".
And,
"By 2011, its pension payments accounted for nearly one-quarter of payroll. Meanwhile, since 2001, the number of active employees contributing to the system has fallen by nearly half while the number of retirees (now about 11,500) has stayed roughly the same."
This makes sense. What is the other alternative? City govts. cannot make pension promises that they can't keep and then expect others from outside the city to cover their lies/foolishness/deceit/greed. Lots of others in the private sector have lost their pensions. Why should govt. employees be exempt.
It is a very difficult topic to analyze, and I don't want to delve into it where I end up converting this into a P&OC type of discussion.
There are two sides to this story, and to me both have some legitimacy. On one hand, it is possible that some pensions have benefits that are excessive relative to their core funding structure, but on the other hand the long term severe reduction in bond interest rates causes some need to seek higher returns via alternative investments.
Also, in Detroit's case, some additional factors appeared to have contributed to the problems of today. One of the most significant might be the transfer of funds from the defined benefit plan to the defined contribution plans, providing a high guaranteed rate of return on worker investments:
I'm sure this will be appealed, and the decision can be revoked, but for now this is of major concern to anyone with a pension from local government:
In a single ruling, U.S. Bankruptcy Judge Steven Rhodes overturned a 50-year belief that vested public-sector pensions are protected by the state constitution under Chapter 9 and allowed the largest municipal bankruptcy in American history to proceed... With cities, even states, grappling with ballooning unfunded pension liabilities, there are growing concerns that the obligations promised to public-sector retirees associated with municipalities could be discharged in Chapter 9 bankruptcy.
I hope people take note of the fact that his ruling applies to municipal, public-sector pensions only. It does not apply to state or federal plans as neither can file bankruptcy. Counties may be a whole other can of worms.
Too many in various threads are predicting the demise of public sector pensions altogether and jumping up and down with glee at the prospect. Pension envy is really ugly and getting worse. They're clearly oblivious to or simply ignore the fact that there are limits to what various courts can change.
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