Imagine dedicating yourself to a lifelong career with the understanding that the old adage, “hard work pays off” will apply upon your retirement. In light of the effect the Detroit bankruptcy case may have on city retiree pensions, that adage falls far short of the truth. These lifelong employees also took less pay in return for the promise of decent benefits, which included pensions.
Despite the fact that pensions of public employees are protected under the Michigan Constitution as a “contractual obligation,” U.S. Bankruptcy Judge Steven Rhodes recently ruled that pensions of city retirees can legally be cut in Detroit’s bankruptcy reorganization plan. Rhodes ruled that federal bankruptcy code allows cities that are bankrupt to cancel contracts, and that federal law preempts the state Constitution. This leaves the 33,000 retired city workers, more than a third of whom are retired police officers and firefighters, with much to worry about. Some that receive the average annual income of $19,000 could see their income slashed to $9,000 as a result of this ruling; an inarguably life-changing amount of money.
Why should retirees who fulfilled their obligations to the city be forced to absorb the brunt of faulty financial decisions they had no part in? A recent internal investigation revealed that the city’s pension systems were mismanaged and heavily invested in real estate, exceeding a required 10% cap of total investments. Losses connected to the funds’ real-estate holdings likely exceeded $73 million and contributed greatly to the current circumstances.
Judge Rhodes said that although he finds pension cuts are a legal option, he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable. Let’s hope when it comes time for this decision to be made, it will be based on what is “fair and equitable” to the tens of thousands of retired workers who dedicated their careers to serving the public, and are now potential victims in a series of poor decisions that were out of their control.