Detroit Paving Way for Bankruptcy Route to Public Benefit Cuts

A few minutes ago a judge approved Detroit’s bankruptcy plan which included these benefit cuts that Detroit retirees approved back in July:

Civilian pensioners accepted 4.5% cuts to their monthly checks, an elimination in annual cost-of-living-adjustment (COLA) increases and a claw back of excessive annuity payments. Police and fire pensioners accepted no cuts to their monthly checks and a reduction in COLA from 2.25% to 1%.

In a separate ballot, retirees also voted to approve a 90% reduction in their health care benefits in what some experts viewed as an unexpected win for the city because there was little legal incentive for retirees to approve those cuts. They backed those cuts by a margin of 88-12.

The takeaway is that benefits can be cut if you:

  1. go bankrupt
  2. get the pensioners’ approval

Both routes blocked for state plans like those in New Jersey which are in much worse condition than Detroit’s plans ever were but not allowed by law to go bankrupt or by predisposition to negotiate.

Breaking contracts and playing with numbers are roads that may seem open if you rush headlong into them without much thought but where you inevitably end up………

33 responses to this post.

  1. Posted by Anonymous on November 7, 2014 at 5:04 pm

    States can’t declare bankruptcy. CC purposely underestimates the actual revenues needed to run the State of NJ, thus creating a budget “crisis”.


    • States do not have to declare bankruptcy, and provided the reductions or eliminations of benefits meet the “rational basis” test of judicial review, they would pass muster at both the NJ state and federal Supreme Court.

      All alternatives but the correct one will be tried before the legislature has no choice due to an empty treasury, and at that point analysis will be very easy…..


  2. Posted by truthnolie on November 7, 2014 at 5:52 pm

    And just as I predicted… comes Sweeney whoring himself out to try to win back support from the unions/public workers he screwed over:


  3. Posted by George on November 7, 2014 at 8:10 pm

    The takeaway is that benefits can be cut if you:
    0) Allow services to collapse, crime to run rampant, and housing to be abandoned
    1) go bankrupt
    2) get the pensioners’ approval

    Btw, The City of Detriot is one small part of Metropolitan Detroit.

    Other places in Michigan under receivership:

    Benton harbor might even be crazier than the D (or maybe it’s Flint)

    Rev. Edward Pinkney, the 66-year-old community activist who has battled for decades on behalf of the mostly Black population of Benton Harbor, Michigan, was this week convicted on five counts of forging the dates of some signatures on a petition to recall the town’s mayor.


    • Posted by Anonymous on November 7, 2014 at 8:23 pm

      It’s still municipal government not the State, the Rev. will have time to reflect on his past indiscretions. There is a huge civics void in the US education system, it needs to be corrected.


      • Posted by Anonymous on November 7, 2014 at 10:14 pm

        TL must be in rehab again, nowhere in sight


        • Posted by truthnolie on November 8, 2014 at 1:56 am

          Who cares…..probably off getting shock treatment or a tune up on that lobotomy….just enjoy it while it lasts but beware – don’t say the name three times straight or like Beetlejuice she will reappear to spout nonsense and regurgitate the same old delusional rants.


  4. Posted by Titon7 on November 8, 2014 at 12:42 pm

    Rational. Your anger is showing. Time for another zap.


    • Posted by Tough Love on November 8, 2014 at 5:08 pm

      Emotionally pumped up after receiving your last Public Sector penson check ?

      Enjoy them while they last …..the countdown timer has begun ..Tick, Tock, Tick Tock …….


      • Posted by Anonymous on November 8, 2014 at 5:42 pm

        Not happening, the U.S.Senate Finance Committee is working to boost the ability of public sector plans to use group deferred annuities for payouts. There will be an answer……


        • Posted by Tough Love on November 8, 2014 at 6:26 pm

          Senator Orin Hatch’s proposal “might” work for FUTURE Service accruals if and only if the workers would be willing to accept just about HALF of what is promised today, because unlike Public Sector reptirement sytems (that have the Taxpayers as the SUCKER-backstp for investment losses) Private Sector annuty writers price their products very conservatively.

          For the SAME reasons, PAST Service accruals will never be transferred to Private Sector annuities, and it is those grossly excessive PAST service accruals that WILL (not MAY) result in the failure if NJ’s Public pension Plans.


          • Posted by Anonymous on November 8, 2014 at 10:46 pm

            Transfer from public to private has been an option for NJ public employees for decades. The NJABP providers offer target date funds as an accumulation option, payout through deferred income annuities has been an option for years. The payout from these group insurance policies mirror and exceed present state plans, it’s the big secret. Public employees should ignore TL’ s jealous rants, NJ is closer to solutions than others. The overstuffed union executive should be held accountable, they need to bring viable solutions to avert a collapse. There are fixed and guaranteed accumulation options. The key is a group policy that pools risks. Stop with the scare tactics, you will get back what you put out.


          • Posted by Tough Love on November 9, 2014 at 4:40 am

            Anon, What you are describibg is NOT a transfer of the obligation to pay the $ amount of your promised DB pension to a Private Sector annuity.

            THAT will never happen, as the “cost” (i.e. what the insurer will charge to take on that financial obligation) is roughy double what NJ now says your pensions cost Taxpayers.


          • Posted by Anonymous on November 9, 2014 at 9:26 am

            TL you do not know what you are talking about, within the present NJ pension structure is the bones for the reform. The NJABP has been in place and working for decades, the question is how will present retiree payouts be addressed. GM brought an annuity from Prudential to provide continued retiree payouts. The stakeholders simply need to read the NJ statutes governing pensions, the unions need to meet with NJABP providers to discuss potential group options for retirees and participants, when a workable plan is agreed upon the rollout should be developed that serves the best interest of those involved. The State of NJ needs to exit pension programming, it’s not a good fit.


          • Posted by Tough Love on November 9, 2014 at 10:44 am

            Anon, When it comes to pension plan design & funding, I sure DO know what I’m talking about….. peripherally in the business for many years, with both formal & experience training.

            If you do not understand why (as I explained in my above comment), when I say that …. a transfer of the obligation to pay the $ amount of promised Public Sector DB pensions (for PAST service accruals) to a Private Sector annuity-writer will never happen (due to a PREMIUM-COST roughly 2x greater that what the State says that these pensions cost)…… then it is YOU who knows little to nothing about such pension matters, or is simply a charlatan and working against the VERY MUCH needed Public Sector pension reform.


          • Posted by Anonymous on November 9, 2014 at 4:32 pm

            TL the use of the word peripherally stooped me, sounded like sideways view of subject area. So you admit to having a minor, irrelevant understanding of superficial aspects of public pensions, therefore your responses are away from the center. I totally agree. Never say never.


          • Posted by Tough Love on November 9, 2014 at 4:41 pm

            Anon, Ok, if blunt and the truth is what you need to hear, I’m an “EXPERT” on pension from A thru Z ……… I just prefer to comment anonymously.


          • Posted by Anonymous on November 9, 2014 at 5:50 pm

            I don’t understand your doom and gloom rhetoric, experts can usually develop alternatives to avert a crisis, I wouldn’t hire you and your free rants absolutely suck.


  5. Posted by Titon7 on November 8, 2014 at 6:58 pm



  6. Posted by Anonymous on November 9, 2014 at 10:48 am

    “The secure annuities for employees Act of 2013” Google and learn. I blame the unions for not fully educating the membership about all matters related to pensions.


    • Posted by Tough Love on November 9, 2014 at 12:13 pm

      Just did some “Googling”…

      A good article on the Senator Hatch Plan proposal can be found HERE …

      And the following is pasted from that article:
      “Here’s how Hatch expects the pension proposal to work:

      Every year, state governments would hold competitive bidding wars for worker contracts. The winning insurer would offer each employee a contract guaranteeing a retirement-to-death annuity amount for one year of work. Negotiations from public employee unions would shift from the size of worker pensions to the amount the local government would pay the insurer up front. Ostensibly, at the end of a 40-year career, a worker could hold 40 different annuity contracts. Hatch proposes a government entity that would aggregate those contracts and deliver a single, monthly check to the retiree.”
      I’ll summarize that in Plain English. Workers are essentially getting a DEFINED CONTRIBUTION Plan (a State contribution of a $ amount). How much that will buy as an annuity is built into the (annual) winning bidders offer price. But no matter how it shakes out, because Private Sector annuity-writers are Private sector companies in business to cover all risks & expenses, and make a profit, and because THEY must absorb the negative financial consequences of lower-than-expected investment returns or longer-than-expected life expectancy (not the Taxpayers, currently the beleaguered sucker in that roll), the premium that they demand for each (say) $1000 of monthly annuity income will be about 2 times greater than what Public Sector retirement Plans now tell Taxpayers that the Plans in place today cost.

      The upshot is that EITHER:

      (a) If the Taxpayer contributions stay at the current level, future service annuity benefits will only be HALF as great, or
      (b) Taxpayer will have to contribute roughly TWICE as much to get the SAME dollar amount of benefit current granted.

      In short, there is no “free lunch” …….. VERY GENEROUS pension promises CANNOT be bought on the cheap.


      • Posted by Anonymous on November 9, 2014 at 1:05 pm

        Presently, under NJABP, the 401a monies from the employer only are in guaranteed lifetime income annuities. The 403b employee contributions can be in variable investments that includes fixed investments. At retirement the 401a mirrors a defined benefit payout, it is a deferred income annuity. The 403b monies if annuities within 120 days after retirement can provide lifetime income, after which 2-40 years period certain. The participant and employer plan determine how much of the accumulation is used in the payout scheme at retirement. All of the accumulation does not have to be used at retirement it can remain to increase for additional income in the future. TL you don’t know nothin bout this retirement move, do you?


        • Posted by Tough Love on November 9, 2014 at 1:26 pm

          So tell me ……. what did I state above that is not accurate ?

          And if you bothered to read my linked article (a description of that Senate proposal), you will see that (as I stated) there is NOTHING in that proposal that involves transferring the obligation that exists TODAY as PAST service accruals under current DB Plans to Private Sector annuities ….. because (as I’ve stated repeatedly) the “cost” of doing so is roughly 2 times greater than what the State has been saying (for decades) that these absurdly generous pension promises TRULY cost.

          You’re either “clueless” or a charlatan.


      • Posted by Anonymous on November 9, 2014 at 4:37 pm

        Under the present NJABP the employees are in a hybrid 401a and 401b, the devil is in the chosen payout scheme. You do not know what you are talking about regarding reform options for NJ public employees.


        • Posted by Tough Love on November 9, 2014 at 4:52 pm

          So tell me … do you REALLY (not BS, not fluff, etc.) “reform” a pension system that (under proper accounting/actuarial valuation … (i.e., that is REQUIRED of Private Sector Plans) is 35% funded at the State level and 50% funded at the Local level without either:

          (a) MASSIVE Tax increases of about $7-$8 Billion, or
          (c) 50% cuts in promised pensions (or reducing retiree heathcare subsidies by the equivalent dollar amount in order to continue paying these obscene pensions)?

          NOTHING within under the NJABP offers up ANY “solutions”.


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