Detroit’s Pension ‘Nightmare’: Salon’s Take

August 12, 2013
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Detroit plays a featured role in a newly posted Salon article appearing under the headline: “Don’t take my pension!: The looming public worker nightmare.”

As that headline indicates, the piece by Georgetown University law professor Adam Levitin strikes an ominous tone.

Here’s how Levitin sums things up:

“What happens to a municipal worker’s pension when a city goes bankrupt? Unlike banks, they won’t get bailed out.com Municipal finance problems are not due only to pensions. The collapse of the housing bubble seriously damaged many cities’ finances. Property tax and income tax revenue suffered, while municipalities were saddled with increased costs of tending to abandoned properties. While the banks that fueled the housing bubble got bailed out, local governments had to bear the costs of the crisis on their own. Now, with cities in their weakened state, the fair-weather pension promises that cities made to their employees are coming home to roost. It seems that unlike banks, cities will not get bailed out. The banks came first in the bailouts, and again they will come first in the bankruptcies. Yet that doesn’t mean that public employees should not be without the social safety net enjoyed by private sector employees.”

What can be done?

As Levitin explains, “Since 1974, federal law has required private employers with defined-benefit plans to maintain certain funding levels for their pension plans and to pay insurance premiums to a federally run insurance fund called the Pension Benefit Guaranty Corp. (PBGC). In exchange, the PBGC provides partial insurance of the private sector defined-benefit pension obligations — up to nearly $57,500 annually for a 65-year old retiree. The PBGC provides a critical safety net for pension obligations (although not for other retiree benefits, such as healthcare). The lack of PBGC insurance for municipal employees is particularly acute because many do not participate in Social Security; their retirement security rests solely on their uninsured pensions.”

The answer, he says, is to give municipal employees the same sort of pension protections covered by the PBGC.

To read the entire article, go here.

— Curt Guyette

  • John S.

    The way Detroit has screamed about any oversight I would love to see what would happen if it was made to comply with pension law both as regards funding levels and accounting rules.