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I'm a day late posting this, so many of you will have seen/heard it. As expected, the federal bankruptcy judge approved the Detroit settlement, which means that Detroit has now emerged from bankruptcy and that the 4.5% cut to civilian retiree pensions is official. Public safety retirees fared better, but they had their COLA's reduced.
Just a reminder that states cannot declare bankruptcy whereas cities and counties can. Therefore it seems to me that public pensions are more vulnerable if they are city or county pensions.
I have followed this story since its inception, and it seems to me that the judge tried hard to go easy on Detroit's retirees. Other creditors of the city will be taking bigger cuts than 4.5%.
I'm a day late posting this, so many of you will have seen/heard it. As expected, the federal bankruptcy judge approved the Detroit settlement, which means that Detroit has now emerged from bankruptcy and that the 4.5% cut to civilian retiree pensions is official. Public safety retirees fared better, but they had their COLA's reduced.
Just a reminder that states cannot declare bankruptcy whereas cities and counties can. Therefore it seems to me that public pensions are more vulnerable if they are city or county pensions.
I have followed this story since its inception, and it seems to me that the judge tried hard to go easy on Detroit's retirees. Other creditors of the city will be taking bigger cuts than 4.5%.
Perhaps it just means that cities and counties can apply and use the orderly and supervised bankruptcy process when not being able to pay their bills. That could mean states will be subjected to a disorderly and more litigious process with multiple competing courts and decisions and politicians trying to curry favor with special interest groups in the process. Hopefully none of us will ever find out and a state will never be unable to pay their bills.
Here is the opinion. The cuts can be restored depending on the roi of the funds over time. It also appears that some court action will continue to see if pensions can be cut.
I took a quick look at the Detroit pension plan the previous benefit was 2% per year if you worked over 20 years. Under 10 years the # is 1.6% 10-20 was 1.8% It looks like it was non-contributory but I might be wrong on that. The new plan is 1.5% per year and the employee contributes 4% of their pay. This is the general retirement not police and fire.
So depending on how many years you worked the settlement cuts between 2 and 3 years off of your service time.
The loss of COLA is where the real cut is.
Also I find it intersting in that police and fire are where the examples of early retirement and large pensions cut everyone so outraged and those plans took minor cuts.
I took a quick look at the Detroit pension plan the previous benefit was 2% per year if you worked over 20 years. Under 10 years the # is 1.6% 10-20 was 1.8% It looks like it was non-contributory but I might be wrong on that. The new plan is 1.5% per year and the employee contributes 4% of their pay. This is the general retirement not police and fire.
So depending on how many years you worked the settlement cuts between 2 and 3 years off of your service time.
The loss of COLA is where the real cut is.
Also I find it intersting in that police and fire are where the examples of early retirement and large pensions cut everyone so outraged and those plans took minor cuts.
The success of the settlement is dependent on a return to fiscal normalcy and that won't happen without strong police and fire services which have already reached a crisis point breakdown. The COLA cuts will blow up,in their faces down the road as Detroit pensioners are probably Ill equipped with investment resources to adjust and a housing equity market that is still depressed in many areas. Depending on where retirees live much of the pain will be felt there.
The bond holders are the ones who really took it on the chin. Now, lots of folks will have no sympathy, since they assume bond holders are rich people, but that is far from the truth. The bond holders are a wide variety of folks, other retirees, people who invested in municipal bond funds, other pension funds, possibly universities that have large endowments, all kinds of folks. I always find it sad that the people who have less to blame for the situation than anyone, the bond holders, are the ones who take it on the chin the worst. Its a warning to be careful about where you invest.
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