“Michigan AG challenges judge’s ruling that Detroit bankruptcy is unconstitutional”

Last updated on: July 19, 2013 at 5:50 pm by Jane the Actuary

“Michigan AG challenges judge’s ruling that Detroit bankruptcy is unconstitutional” 2013-07-19T17:50:00-06:00 Jane the Actuary

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What a mess!

In the private sector, employers cannot cut back accrued pension benefits (though they can freeze and eliminate future accruals), but, the same time, should an employer go bankrupt, the PBGC — Pension Benefit Guarantee Corporation — pays out the benefits based on “insurance premiums” paid into the PBGC over the life of the plan.

In the public sector, there is no similar entity — there is no “insurance”-type arrangement. But to say that the city of Detroit is obliged to pay these benefits, regardless of the fact that the city government should have never promised to pay them in the first place — it defies common sense. There is no money. Maybe the bankruptcy proceeding has to go even further, and dissolve the corporate entity called “City of Detroit”? Then the land area “formerly known as Detroit” becomes unincorporated, as, say, Detroit Township, wiped clean of all of the “City of Detroit”s obligations?

A bit Swiftian of a solution, to sure — but maybe not?

(Of course, Illinois, my current home, has the same pension mess on a statewide scale, but without the absolute lack of money to go along with it. If I were czar, or even moderately influential, I’d advocate for a constitutional amendment that neither the state nor any governmental body in the state, can promise employee benefits payable in future years. Not retiree health care, not pension benefits — the unions can run collect contributions and run Taft-Hartley Multi-Employer if they like instead.)

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