Detroit Will Slash Retiree Pensions, Law Nothwithstanding and Unions Standing Around

Scott Walker’s book comes out tomorrow in which, it is reported, he recounts how he secretly crafted a plan “that gets rid of the unions and eliminates collective bargaining.”

As I recall there was a bit of an uproar over what apparently was a secret plan in Wisconsin yet in Detroit we have a plan out there to cut retiree (yes those people already collecting) benefits to (yes to; not by) 16 cents on the dollar and there are arguments in the courts but the streets are comparatively quiet.

The Michigan State University Extension published an article yesterday that laid out nicely why Detroit pensioners would be at the mercy of the courts:

Why is there so much disagreement about cutting the pension plans? The reason for the disagreement lies in the Michigan Constitution. The Michigan Constitution in Article 9, Section 24 states that “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby”. The bottom line is that pensioners who work and earn a pension benefit cannot have that benefit taken away under Michigan law.

But the story does not end there. Federal law lays out the process for a municipal bankruptcy. In a bankruptcy trial, a federal judge has the power to approve the termination of ongoing contracts. The language in U.S. law is that “the trustee, subject to the court’s approval, may assume or reject any executory contract or unexpired lease of the debtor” (11 USC §365). Above, the Michigan Constitution defined a pension as a “contractual obligation” and therefore it may be subject to the trustee (Detroit Emergency Manager) and the federal judge’s approval to terminate or alter this contract.

But why can a federal court overrule the Michigan Constitution? In the U.S. Constitution in Article 6, Clause 2, there is a principle known as the supremacy clause. The Supremacy Clause reads “This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding”. This clause can be interpreted as saying that a federal court has the power to supersede a state law or even a state constitutional provision.

‘Notwithstanding’ was always a word that confused me and it continues to in this instance when it is applied to a state Constitution that some swore to uphold.

Where are the effigies, the Hitler mustaches, the MSNBC specials?  Eliminating collective bargaining for public employees might not have spurred a spate of deunionizations but if Detroit plays out calmly will it be a prelude to a spate of depensionizations?

5 responses to this post.

  1. Posted by Tough Love on November 18, 2013 at 5:32 pm

    With EQUAL Public and Private Sector “Total Compensation” (cash pay + pensions + benefits) a reasonable “goal”, and considering that cash pay in the Public Sector is rarely less than that of comparable Private Sector jobs, Public Sector “depensionization”, to the extent it reduces (the Taxpayer paid-for share of) Public Sector pensions down to the average of such pensions typically granted reasonably comparably Private Sector Taxpayers ….. is appropriate, just, fair (to Taxpayers) and necessary.

    Reply

  2. Posted by skip3house on November 18, 2013 at 5:35 pm

    ‘in spite of’…….Wow, hoped low pensions would get more on their fewer dollars.

    Reply

  3. Posted by Anonymous on November 18, 2013 at 7:27 pm

    x amount has accrued and not must he divided among the pensioners current and future. Detroit is not taking away the benefit they are reducing it. Is the current calculation part of the constitution? Are these the same publics who voted in the incompetent crooks year after year? Sounds like its game over and every pensioner for himself.

    Reply

  4. Posted by Tough Love on November 18, 2013 at 7:52 pm

    Detroit’s workers and retirees received unauthorized “13-th check” payments from Plan assets for decades….totaling just under $1Billion.

    See here … http://www.freep.com/article/20131002/NEWS01/310020022/

    Had that money rightfully STAYED in the Plan to grow, it likely would have been $2-$3 Billion today….not a lot less than the $3.5 Billion Plan shortfall we keep hearing about.

    Sounds like (as a group) they have+will get most of what was initially promised (a promise that was likely too generous to begin with … and MUCH greater than what their Private Sector counterparts get in retirement pensions). It’s just that they were greedy and wanted much of it TWICE.

    Greed HAS consequences … and the grim reaper has come for his due.

    Reply

  5. […] Detroit Will Slash Retiree Pensions, Law Nothwithstanding and Unions Standing Around […]

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