Detroit retirees and workers must be having sleepless nights. Kevyn Orr, Detroit’s emergency manager will soon release his plans to bring the city out of bankruptcy and back into the green. In a few days, it will be clear whether the city’s bankruptcy will affect its retirees’ and workers’ retirement benefits (pensions).
The restructuring plan will also determine the fate of the city’s expensive art collection as well as how much the bond holders who invested in the city’s debt will receive. However, the most important question on everyone’s lips is how will the city’s retirees and worker’s pension benefits be affected? Of the $11.5 billion unsecured debt that, the city owes; $3.5 billion belongs to pension funds and city unions.
Cuts unavoidable says Kevyn Orr
Kevyn Orr has said that retirees and current workers cannot avoid taking cuts in their pensions. On the other hand, workers and retirees are contending that why should they pay for the city’s mismanagement. Former firefighter, Larry Newberry, spend 30 years protecting the city from fires. He used to answer up to three fire calls everyday, and he suffered many injuries in the process, including many that required surgery. He says that he put his money into the pension fund, after he was assured that it was protected under Michigan law. He says that he has put his life on the line for the city many times and the least it could do to repay him, is to protect his pension.
Ironically, the city’s retirees and workers have little control over the bankruptcy process even when the question is of their livelihood. It is the first time that a pension benefits are being cut after a municipal bankruptcy. Until now, pension benefits were considered hallowed ground because the city retirees had paid for it through their sweat and toil over many years. If those benefits themselves have come under threat, then what else is protected?
Michigan constitution cannot help city retirees and workers
Some people are arguing that Michigan’s constitution guarantees the safety of pension benefits. But Judge Rhodes ruling that the state’s law could not take precedence over federal bankruptcy law, has raised a question mark on what is going to happen.
There are rumors that pension benefits would not be as badly hit as bondholders since the latter knew the risks when they invested in the city’s debt. But others are saying that everyone is to blame because even when the writing was on the wall that the city could default, no one took any action. They went about their own business, believing that they were safe, and the other party would foot the bill if anything went wrong.