City of Detroit Files for Bankruptcy Protection

[jiminnm]

Section 24, Constitution of the State of Michigan: "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractural obligation thereof which shall not be diminished or impaired thereby."

Strikes me that if Detroit can't fund the pension systems, it becomes a state obligation. But I'm sure that will be in the courts, too.

Ray, I would say that it all depends on how the bankruptcy court defines "accrued financial benefits."

In a corporate pension fund, the total dollars held by the fund are allocated to the present and future [[vested) pension recipients. An individual's allocation, however, likely does not actuarially equate to the actual benefit that recipient has been promised. Most pensions calculate pension amounts on other factors, such as age and years of service, not amounts allocated to them in a plan.

For example, if a corporation goes into bankruptcy or otherwise becomes unable to fund a pension plan, the Pension Benefit Guaranty Board [[PBGC) then takes over the plan. The first thing the PBGC does is to actuarially recalculate each person's pension. Most plans have built in early retirement and other incentives that are not calculated based solely on one's age. So, anyone who retired prior to how the plan defines full retirement age [[usually 65) will have their pension reduced to an actuarially calculated amount [[which could easily halve the pension). Also, future COLA will be eliminated and previously granted COLA removed.

So, if the court defines "accrued financial benefits" as an amount allocated to a recipient, or follows the PBGC process, I would expect the pension amount for most City retirees to be at risk for reduction.

[Lowell]

Ray, I would say that it all depends on how the bankruptcy court defines "accrued financial benefits."

In a corporate pension fund, the total dollars held by the fund are allocated to the present and future [[vested) pension recipients. An individual's allocation, however, likely does not actuarially equate to the actual benefit that recipient has been promised. Most pensions calculate pension amounts on other factors, such as age and years of service, not amounts allocated to them in a plan.

For example, if a corporation goes into bankruptcy or otherwise becomes unable to fund a pension plan, the Pension Benefit Guaranty Board [[PBGC) then takes over the plan. The first thing the PBGC does is to actuarially recalculate each person's pension. Most plans have built in early retirement and other incentives that are not calculated based solely on one's age. So, anyone who retired prior to how the plan defines full retirement age [[usually 65) will have their pension reduced to an actuarially calculated amount [[which could easily halve the pension). Also, future COLA will be eliminated and previously granted COLA removed.

So, if the court defines "accrued financial benefits" as an amount allocated to a recipient, or follows the PBGC process, I would expect the pension amount for most City retirees to be at risk for reduction.

I was digging around on the web wondering if the PBGC [The federal government Pension Benefit Guaranty Corporation that protects pensioners of collapsed pension funds] comes into play here. I searched this thread and discovered your post. I wanted to know if the city pension plans are protected by the PBBG. Do you know?

BTW, I discovered that the PBGC has its own ponzi bubble with a $23 billion deficit on $103 billion in obligations. Corporations reap 'free' labor on the alleged ability to make future payment and pockets those as profits. If the company fails those obligations get dumped on the government [us] who has to hand out the haircuts to the pensioners.