Pension Settlement Coming Soon?

[Wesley Mouch]

And I agree with you on that. The state is responsible for making the pensioners whole inspite of the Detroit bankruptcy, but they seem to be dragging their feet to me. The 300 million that they proposed isn't nearly enough, but it's a start I guess. I disagreed with Mouch suggesting to tax people more especially seniors when they are already being taxed up the gazoo.

How are seniors 'taxed up the gazoo'? Senior citizens are the wealthiest cohort of US citizens.

There are poor seniors. Let's not make the assumption they are all poor. There are a lot who are doing fine. There's no reason to favor them with tax breaks. Treat them fairly. Target your tax breaks [[as we already do).

[3WC]

The State has NEVER guaranteed Detroit pensions and they are NOT Constitutionally protected.

In 1963 The MEA and other unions were successful in causing the Constitution to be amended, as follows:

"The accrued financial benefits of each pension and retirement system of the State of Michigan and its political subdivisions shall be a contractual obligations thereof which shall not be diminished or impaired thereby." [[Emphasis supplied)

All that said was that pensions are contracts between the pension Boards and the municipality and neither of those entities may diminish or impair their contractual obligations. That elevated pensions to a status not previously enjoyed.

But, it was the kiss of death. Contracts may be modified, rejected in total or otherwise diminished under the Federal Bankruptcy Code, That's what bankruptcy is all about.

Now, the pension Boards have for years violated those contracts by paying out annual "13th checks", corruption resulting in imprudent loans, "social loans" such as to the Book Cadillac deals, and many others, and plain corruption. The Board members should be sued, not the City.

Seven states have almost identical language in their constitutions. Only one, Louisiana, had people who saw the peril of bankruptcy in that language and added a sentence stating that in the event of impairment, the State would step in and pay up. The drafters of the Michigan language were not that smart if that was the intent of the voters.

Judge Rhodes rightfully opined that there is no Constitutional protection for pensions in Michigan which would impose any liability on the State. That won't be overturned on appeal.

[Wesley Mouch]

The State has NEVER guaranteed Detroit pensions and they are NOT Constitutionally protected.

In 1963 The MEA and other unions were successful in causing the Constitution to be amended, as follows:

"The accrued financial benefits of each pension and retirement system of the State of Michigan and its political subdivisions shall be a contractual obligations thereof which shall not be diminished or impaired thereby." [[Emphasis supplied)

All that said was that pensions are contracts between the pension Boards and the municipality and neither of those entities may diminish or impair their contractual obligations. That elevated pensions to a status not previously enjoyed.

But, it was the kiss of death. Contracts may be modified, rejected in total or otherwise diminished under the Federal Bankruptcy Code, That's what bankruptcy is all about.

Now, the pension Boards have for years violated those contracts by paying out annual "13th checks", corruption resulting in imprudent loans, "social loans" such as to the Book Cadillac deals, and many others, and plain corruption. The Board members should be sued, not the City.

Seven states have almost identical language in their constitutions. Only one, Louisiana, had people who saw the peril of bankruptcy in that language and added a sentence stating that in the event of impairment, the State would step in and pay up. The drafters of the Michigan language were not that smart if that was the intent of the voters.

Judge Rhodes rightfully opined that there is no Constitutional protection for pensions in Michigan which would impose any liability on the State. That won't be overturned on appeal.

How simple. Pensions are contractual obligations. And bankruptcy can adjust contractual obligations. Simple.

[BankruptcyGuy]

Judge Rhodes rightfully opined that there is no Constitutional protection for pensions in Michigan which would impose any liability on the State. That won't be overturned on appeal.

It won't be overturned on appeal, mostly because the appeal won't be heard and an order issued until after the bankruptcy, and I don't think the appellants will want to go back to their members and inform them that they gave up an extra 4% recovery by appealing the ruling [[and not agreeing to the plan or a revised version).

Without that standing in the way, the issue would likely go to the Supreme Court. It is in no way clear which way the SCOTUS would rule.

[corktownyuppie]

It won't be overturned on appeal, mostly because the appeal won't be heard and an order issued until after the bankruptcy, and I don't think the appellants will want to go back to their members and inform them that they gave up an extra 4% recovery by appealing the ruling [[and not agreeing to the plan or a revised version).

Without that standing in the way, the issue would likely go to the Supreme Court. It is in no way clear which way the SCOTUS would rule.

BG, is there a way that the pension recovery could be structured to fatten it up a little for the most elderly or those beneath a certain income? Of course, this would also mean young or the wealthy taking an even bigger haircut.

[BankruptcyGuy]

BG, is there a way that the pension recovery could be structured to fatten it up a little for the most elderly or those beneath a certain income? Of course, this would also mean young or the wealthy taking an even bigger haircut.

You know, that is a great question and one for which I don't have an answer. Private pensions are covered by ERISA, and I don't think there is anything in there that prohibits an unequal distribution of cuts. Public pension plans are not governed by ERISA, but most state courts draw guidance from there.

Other guiding factors are:
1. Is the change reasonable and necessary to an important public purpose?
2. Is this a Constitutionally-prohibited taking?
3. Was substantive and procedure due process afforded the impacted parties?

This is where the dynamics of the retiree committee would play in. I'm not sure [[neither are some creditors) that the retiree committee can bind all retirees. What if the change was age- or time-of-service-scaled? What if a big group of pensioners want the plan, and others don't?

Great question, CY, and I don't think we'll know unless Orr tries that approach.

[3WC]

BankruptcyGuy: I believe that Judge Rhodes' ruling is unassailable; the language of the Constitution is just so clear and unambiguous.

I believe that SCOTUS wouldn't grant cert, but if it did it would affirm Rhodes.

I'd be interested in hearing how you would argue the merits seeking to overturn his ruling, arguments you seem to think SCOTUS may want to consider.

[Cincinnati_Kid]

How are seniors 'taxed up the gazoo'? Senior citizens are the wealthiest cohort of US citizens.

There are poor seniors. Let's not make the assumption they are all poor. There are a lot who are doing fine. There's no reason to favor them with tax breaks. Treat them fairly. Target your tax breaks [[as we already do).

Of course there are exceptions to the rule. Regardless, most seniors are barely making it. Most seniors don't have a vacation home in Florida. Maybe in your world most are doing great, not the world I see. I equate the seniors you speak of to the 1% percenters.

[Wesley Mouch]

Of course there are exceptions to the rule. Regardless, most seniors are barely making it. Most seniors don't have a vacation home in Florida. Maybe in your world most are doing great, not the world I see. I equate the seniors you speak of to the 1% percenters.

from always accurate USA Today [[search usa wealth by age):

The typical U.S. household headed by a person age 65 or older has a net worth 46 times greater than a household headed by someone under 35, according to an analysis of census data released Monday. While people typically accumulate assets as they age, this wealth gap is now more than double what it was in 2005 and nearly five times the 10-to-1 disparity a quarter-century ago, after adjusting for inflation.

Seems there are exceptions to the rule. Should we protect their pension money as much as we protect younger workers?

[corktownyuppie]

Of course there are exceptions to the rule. Regardless, most seniors are barely making it. Most seniors don't have a vacation home in Florida. Maybe in your world most are doing great, not the world I see. I equate the seniors you speak of to the 1% percenters.

Cinci Kid, I don't want to invalidate what you are saying. I think, especially in the light of an Detroit News article earlier this week on poverty in Detroit, that many of Detroit's Seniors are probably some of the most economically marginalized and impoverished people in the area. Or as you say in "the world I see"...that's probably true.

But when it comes to "exceptions to the rule" statewide, it's not even close. Rich seniors aren't the exception they are the norm. It's the poor seniors are much smaller number. Seniors far and away are wealthiest demographic...and by an extremely large margin.

The financial firm I work for concentrates on "middle America"...families who had household income between $50,000 and $100,000. I would say that out of 350 clients I have...maybe 2 of them would be considered "the 1 percent-ers". But there's no question...if I lined up all the 40-and-under clients, you would need 8-10 of them to add up their retirement savings and equal just one 60-and-older client.

Now you might be thinking, "In what world is $100,000 considered middle class"? And you'd be correct...but not statewide, just in Detroit. According to the Detroit News, a family earning $100,000 in Detroit would be in the Top 5%.

But if you believe that the State has a responsibility to make pensioners whole, you're not talking just about tax hikes in Detroit...you're talking about State taxes.

I'm not necessarily advocating a tax rate increase or anything like that. And I also believe that however we resolve this pension issue, the poorest [[whether young or old) should have their cuts minimized as much as possible...if they take any cuts at all.

But if you don't want taxes to be raised on poor people, then I would focus on making sure the poor are protected...rather than trying to protect the elderly. You may unintentionally be representing the needs of the people who are against the interests of the people you are trying to help.

[BankruptcyGuy]

BankruptcyGuy: I believe that Judge Rhodes' ruling is unassailable; the language of the Constitution is just so clear and unambiguous.

I believe that SCOTUS wouldn't grant cert, but if it did it would affirm Rhodes.

I'd be interested in hearing how you would argue the merits seeking to overturn his ruling, arguments you seem to think SCOTUS may want to consider.

I think the ruling is well-written, but unassailable? No.

SCOTUS would grant cert if the 6th Circuit finds one way and the 9th finds another way [[CA cases).

The arguments would be pretty far reaching, but I'd start with a state-sovereignty issue: What in the Constitution gives a non-Title III court the right to decide a contract issue within a state? Pierce v. Marshall

If you want a summary, you can check the Appellant's filings in the 6th Circuit.

On balance, I think the City is deemed eligible for bankruptcy and the 6th Circuit upholds that ruling. I think it will be best for all parties if there is a settlement on the pension issue before that issue is properly before the court. [[I don't believe it is yet, but that's another matter.)

[Cincinnati_Kid]

Cinci Kid, I don't want to invalidate what you are saying. I think, especially in the light of an Detroit News article earlier this week on poverty in Detroit, that many of Detroit's Seniors are probably some of the most economically marginalized and impoverished people in the area. Or as you say in "the world I see"...that's probably true.

But when it comes to "exceptions to the rule" statewide, it's not even close. Rich seniors aren't the exception they are the norm. It's the poor seniors are much smaller number. Seniors far and away are wealthiest demographic...and by an extremely large margin.

The financial firm I work for concentrates on "middle America"...families who had household income between $50,000 and $100,000. I would say that out of 350 clients I have...maybe 2 of them would be considered "the 1 percent-ers". But there's no question...if I lined up all the 40-and-under clients, you would need 8-10 of them to add up their retirement savings and equal just one 60-and-older client.

Now you might be thinking, "In what world is $100,000 considered middle class"? And you'd be correct...but not statewide, just in Detroit. According to the Detroit News, a family earning $100,000 in Detroit would be in the Top 5%.

But if you believe that the State has a responsibility to make pensioners whole, you're not talking just about tax hikes in Detroit...you're talking about State taxes.

I'm not necessarily advocating a tax rate increase or anything like that. And I also believe that however we resolve this pension issue, the poorest [[whether young or old) should have their cuts minimized as much as possible...if they take any cuts at all.

But if you don't want taxes to be raised on poor people, then I would focus on making sure the poor are protected...rather than trying to protect the elderly. You may unintentionally be representing the needs of the people who are against the interests of the people you are trying to help.

Now this is what I call a intelligent post. Thank you CTY for conveying your message. I should have clarified I was talking about Detroit seniors as a whole, not every senior in the state. I know there are seniors who are doing very well, I'm not blind. Especially those who might be retired auto executives, CEO's etc.. They haven't missed a beat and are doing just as well if not better than when they were working. But I still have a problem of more taxation of citizens regardless if you're young or old.

[Hermod]

But I still have a problem of more taxation of citizens regardless if you're young or old.

If there is a shortfall in pension funding, you either have to trim the pensions or raise taxes. Unlike Uncle Sugar, the state of Michigan, the county of Wayne, and the city of Detroit are not allowed to print money.

[3WC]

BankruptcyGuy: You are of course correct. I guess every Opinion is assailable but the bigger issue is, as you point out, whether successfully.

I don't think it will happen but I'd be interested in seeing what SCOTUS would do with the case.

[corktownyuppie]

BankruptcyGuy: You are of course correct. I guess every Opinion is assailable but the bigger issue is, as you point out, whether successfully.

I don't think it will happen but I'd be interested in seeing what SCOTUS would do with the case.

I'm also as interested in what dynamics will be necessary to motivate a settlement over litigation. The pressure coming from the pensioners that is being put on the retiree negotiating committee must be huge. At the risk of sounding overdramatic, I don't think words can describe the pressures being put on them by the retirees.

I, would like to see this settled rather than get dragged on for years and years, but the only way that will happen is if there is a perceived risk of litigation.

The settlement offer for GRS employees is essentially 80-ish percent of their benefit, minus COLAs, and without healthcare. That's going to be hard to swallow...just because it's fundamentally hard to swallow.

The question, though, is what do the pensioners risk by litigating? If the worst case scenario is that they only get 75%, and the best case scenario is that they get 100%, then let's fight this all the way to the Supreme Court. What do we have to lose? 5%...hell, we're already losing 20%, I'd risk 5% more for a chance at getting it all back.

But if the risk of litigation is that they only get what's in the pension fund, no more no less...with no liability on the city...then the question remains: How much is that? How well-funded is that plan?

If it's 55-60% funded, then the retirees are taking a big chance by going to the Supreme Court. You had 80% in hand, you could get 100%..but you could also get 55-60%.

I wish the public were better informed on this.

[Wesley Mouch]

I'm also as interested in what dynamics will be necessary to motivate a settlement over litigation. The pressure coming from the pensioners that is being put on the retiree negotiating committee must be huge. At the risk of sounding overdramatic, I don't think words can describe the pressures being put on them by the retirees.

I, would like to see this settled rather than get dragged on for years and years, but the only way that will happen is if there is a perceived risk of litigation.

The settlement offer for GRS employees is essentially 80-ish percent of their benefit, minus COLAs, and without healthcare. That's going to be hard to swallow...just because it's fundamentally hard to swallow.

The question, though, is what do the pensioners risk by litigating? If the worst case scenario is that they only get 75%, and the best case scenario is that they get 100%, then let's fight this all the way to the Supreme Court. What do we have to lose? 5%...hell, we're already losing 20%, I'd risk 5% more for a chance at getting it all back.

But if the risk of litigation is that they only get what's in the pension fund, no more no less...with no liability on the city...then the question remains: How much is that? How well-funded is that plan?

If it's 55-60% funded, then the retirees are taking a big chance by going to the Supreme Court. You had 80% in hand, you could get 100%..but you could also get 55-60%.

I wish the public were better informed on this.

Great comments, CTY.

There is much simplification going on that hides the real issues. I sure don't get it all, but I understand that this isn't just a search of a single pot of gold. Getting a big bag-o-money from the State or Feds would be great -- but doesn't solve the problem. It just funds the current problem. The big question is how we can continue to fund the pension. Much if not most of the money needed to pay future pensions even at 80% needs to come from future city revenues. So killing the golden goose and gorging ourselves today doesn't feed our pensioners tomorrow.

Do I have this right?

[Smirnoff]

Great comments, CTY.

There is much simplification going on that hides the real issues. I sure don't get it all, but I understand that this isn't just a search of a single pot of gold. Getting a big bag-o-money from the State or Feds would be great -- but doesn't solve the problem. It just funds the current problem. The big question is how we can continue to fund the pension. Much if not most of the money needed to pay future pensions even at 80% needs to come from future city revenues. So killing the golden goose and gorging ourselves today doesn't feed our pensioners tomorrow.

Do I have this right?

Every city owned asset [[zoo, airport, cobo, JL, etc) needs to be taken into consideration, for example, only a small sample percentage of the DIA was appraised. As previously mentioned, the city needs to get real creative to generate revenue to fund it's commitments; 3, 4, 5 digit daily lottery, additional casinos, indoor dog racing, etc......