On July 18, Detroit became the largest American city to file for Chapter 9 bankruptcy. What will happen to the pensions of its 20,000+ retired public employees? There is a possibility they could be reduced \u2013 perhaps greatly. In the wake of Detroit\u2019s fiscal problems, current and future pension recipients across the country are wondering about the stability and amount of their promised incomes.<\/p>\n
In Michigan, the fate of the pension checks for these employees may be determined in the courts. While a federal judge is overseeing Detroit\u2019s bankruptcy proceedings, Michigan\u2019s state constitution states that pension benefits can\u2019t be altered. On July 24, the aforementioned federal judge froze assorted state-court lawsuits brought against the city arguing that the bankruptcy filing was unconstitutional (at the state level). As much as Detroit might want to scale back pensions for fiscal relief, it may be prohibited from doing so.<\/p>\n
When pensions shrink after municipal bankruptcies, how bad is it?<\/strong> For a sobering example, look at Central Falls, RI, which filed for bankruptcy in 2011. Following that declaration, the city whittled away more than 50% of the pension checks issued to a third of its retirees. For example, the average retired firefighter\u2019s annual pension income went from $68,414 to $30,786.<\/p>\n That\u2019s certainly drastic, and it may not be replicated in Detroit or in Stockton, CA (the second largest American city to go bankrupt). Stockton is reducing bond payments, but so far has refrained from slashing pensions. (As it happens, the city\u2019s biggest creditor is CalPERS, the California Public Employees\u2019 Retirement System.) California\u2019s state constitution also bars reductions in pension benefits, so Stockton\u2019s retired public employees may be waiting on the courts as well.<\/p>\n Municipal pensions aren\u2019t the only ones at risk. Polaroid went bankrupt, and as a consequence, its retirees are receiving pension checks courtesy of the federal Pension Benefit Guaranty Corp. (PBGC) \u2013 checks that, as MarketWatch columnist Robert Powell recently noted, represent \u201ca fraction of what they were supposed to receive.\u201d The biggest multiemployer pension fund in America is that of the Teamsters (the Teamsters\u2019 Central States, Southeast & Southwest Pension Plan). When 2012 ended, it held $17.8 billion in assets. Its liabilities were at $34.9 billion.<\/p>\n The worst-case scenario is worth considering \u2013 just in case.<\/strong> If you receive a pension or are in line for one, developments like these may give you pause. It might be time to ask \u201cwhat if\u201d \u2013 what options you might have if your pension shrinks. <\/p>\n Suppose your pension income was cut 20-30%. What choices would you make? Would you try to live on less, and maybe move to a region where living expenses might be lower? Would you explore becoming a consultant or a solopreneur, or look into part-time work? Could you find methods to generate passive income, or make financial moves to replace any recurring income that would be lost?<\/p>\n With too many pensions on shaky ground these days, a conversation with a financial professional about these what-ifs is a very good idea.<\/p>\n","protected":false},"excerpt":{"rendered":" On July 18, Detroit became the largest American city to file for Chapter 9 bankruptcy. What will happen to the pensions of its 20,000+ retired public employees? There is a possibility they could be reduced \u2013 perhaps greatly. In the […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[],"class_list":["post-2579","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/2579","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/comments?post=2579"}],"version-history":[{"count":0,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/posts\/2579\/revisions"}],"wp:attachment":[{"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/media?parent=2579"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/categories?post=2579"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billlosey.com\/knowledge-center\/wp-json\/wp\/v2\/tags?post=2579"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}