The decision by U.S. Bankruptcy Judge Steven Rhodes to authorize pension cuts was morally and legally wrong, and will undermine Detroit’s economic recovery. Detroit’s bankruptcy was caused by predatory financial deals, a revenue crisis, massive job losses and Michigan Gov. Rick Snyder’s decision to slash state aid.
In the bankruptcy, the modest pensions of Detroit’s firefighters, police officers and city employees could be all but wiped out, even as Wall Street banks continue to extract hundreds of millions of dollars from the city’s economy. It’s unfair that public workers take the lion’s share of the hit, while Wall Street did the lion’s share of damage.
The city’s position can be boiled down to this: Contracts are sacred, except when they’re entered into with public workers and retirees. The sanctity of Detroit’s public pension plans—one for police and firefighters, another for other city workers—is guaranteed by Michigan state law.
Indeed, the state’s Republican Attorney General Bill Schuette has said he’ll support the Michigan Constitution’s protections for pensions and appeal the decision. It’s up to Gov. Snyder now to honor his oath and uphold the state constitution. That means both appealing this decision in state court and protecting Detroit retirees if their deferred wages are cut in Bankruptcy Court.
Both pension plans are well-funded and can sustain most if not all of promised benefits with a relatively modest employer contribution. The police and fire system is 96 percent funded, and the general retirement system is about 78 percent funded. These are healthy numbers, especially given the losses pension funds have sustained from the Wall Street and tech bubble collapse.
We’re talking about a modest benefit here. The average Detroit retiree collects a pension of $19,000 a year. Tens of thousands of these retirees live and spend money in the city. Why would the city cut back their purchasing power and risk further undermining Detroit’s recovery? These pensions are an economic engine. For every dollar paid out in benefits, $2.37 in total economic output was generated.
We face a looming and very serious retirement crisis in this country. The average working household has virtually no retirement savings. The median retirement account balance is $3,000 for all working-age households, and $12,000 for near-retirement households, according to the Federal Reserve.
Our vision of retirement security as a labor movement must extend beyond maintaining the modest, hard-won retirement benefits that too few workers currently have. We are now engaged in a broad-based effort with state treasurers, large Wall Street firms and unions to expand retirement security through pooled professional asset management.
I am very excited about this effort to reclaim the promise of retirement security. [Dan Pedrotty]
December 20, 2013