Pensions Not Safe Under Detroit Bankruptcy Protection

The New York Times reports that Detroit – once the fourth largest city in the nation, and now mired in debt – was granted bankruptcy protection on Tuesday.

“In perhaps the most contested portion of the case, the [federal] judge made it clear that federal [Chapter 9] bankruptcy law trumps the state law when it comes to protections for public employees’ pensions, making the pensions of 23,000 retirees fair game for the city to include in its plan of adjustment. But while the judge said pensions could not be treated differently from other unsecured debt, he said the court would be careful before approving any cuts in monthly payments to retirees.”

“Appeals were expected to be filed quickly. At least one union filed a notice of appeal on Tuesday, and other unions and pension fund representatives said they were considering contesting the outcome as well.”

A spokesman for the Detroit Police and Fire Retirement System commented: “This is one of the strongest protected pension obligations in the country here in Michigan … If this ruling is upheld, this is the canary in a coal mine for protected pension benefits across the country.”

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