This Detroit situation is going to spread and it is not doing to be pretty…
In a ruling that could reverberate far beyond Detroit, a federal judge held on Tuesday that this battered city could formally enter bankruptcy and asserted that Detroit’s obligation to pay pensions in full was not untouchable.
The judge, Steven W. Rhodes, dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in Chicago, Los Angeles, Philadelphia and many other American cities where the rising cost of pensions has been crowding out spending for public schools, police departments and other services.
The judge made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.
This is an amazing predicament…
Elected officials have made promises that they can not possibly deliver on… ever… and now good people who thought they earned these benefits are completely screwed.
Again… this is not just about Detroit.
Since 2003, the State of Alabama’s has paid almost $2 billion just to offset RSA’s unfunded liabilities. That amount is in addition to the billions the state pays through regular payroll contributions. In only eight years, shoring up RSA’s pension accounts has cost the state almost twice as much as Dr. Deravi’s estimated tax benefit over the last twenty two years. Investing in equities and bonds rather than projects to increase state tax revenue, would have resulted in income to reduce the unfunded liability Alabama’s citizens are required to offset.
RSA’s website states, “We are the safekeepers of the pensions for thousands of Alabamians and we take our job seriously.” While investments in Alabama are certainly appreciated, they have little to do with “safekeeping” Alabama’s pensions by creating financial solvency for a broken retirement system, which is no longer sustainable in its current form.
And this is how it’s covered…
Alabama state pension funds are among those with a problem. Alabama’s pension funds are now funded at 70 percent, compared with 100 percent funding in 2001. That alarming number is being addressed in a painful way for current and future state employees.
The Legislature will require employees in the state pension plans to contribute more to their retirement accounts, starting Oct. 1. Employees now contribute 5 percent of their pay to their retirement account. That will increase to 7.5 percent.
Yes, Alabama is looking down this same loaded gun…
So is Illinois..
With one of the nation’s worst-financed state employee pension systems — some $100 billion in arrears — Illinois has been the focus of intense attention across the country as states and municipalities struggle to come to grips with their own public pension problems. The compromise reached in Illinois, a staunchly blue state with a strong labor movement that had successfully resisted previous efforts to trim pensions, could provide a template for agreements elsewhere.
The top leaders of both legislative houses, Democrats and Republicans, had cobbled together the bill and pushed strenuously for its passage, supported by the state Chamber of Commerce and the Illinois Farm Bureau. Union leaders and some Democratic lawmakers opposed it, just as strenuously, arguing that the bill fell too harshly on state workers who had paid into their pension plans over the years with the understanding that the benefits would be there when they retired. Some Republicans also opposed the bill, saying it did not trim enough to solve the state’s pension troubles.
“Today, we have won,” Gov. Pat Quinn, who made overhauling the pension system a focus of his administration, said in a statement after the vote. “This landmark legislation is a bipartisan solution that squarely addresses the most difficult fiscal issue Illinois has ever confronted.” He is expected to sign the legislation on Wednesday.
We Are One Illinois, a coalition of labor unions that opposed the bill, issued a very different assessment. “This is no victory for Illinois,” it said in a statement, “but a dark day for its citizens and public servants.”
The battle now turns to the courts, where union leaders have promised to take the legislation. Some opponents have asserted that it violates the State Constitution by illegally lowering pension benefits.
The plan’s architects said it will generate $90 billion to $100 billion in savings by curtailing cost-of-living increases for retirees, offering an optional 401(k) plan for those willing to leave the pension system, capping the salary level used to calculate pension benefits and raising the retirement age for younger workers, in some cases by five years. In exchange, workers were to see their pension contributions drop by 1 percent. The measure also calls for the state to increase state payments into the system by $60 billion to $70 billion.
Many states have already voted to trim pension payments and make other adjustments to address skyrocketing retirement costs, but Illinois had thus far avoided doing so, with unions arguing that members should not be punished for mismanagement of the fund. Meanwhile, its pension mess got steadily worse, helping give Illinois the lowest credit rating of any state.
This stuff is going to have to change.
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