
A Hard Lesson from Motown: They Will Steal Your Pension - cratermoon
http://www.newsweek.com/hard-lesson-motown-they-will-steal-your-pension-210401
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yummyfajitas
The fun question - where did the money go? We actually know part of the answer
- _to the pensioners_.

The pension plans were funded based on a certain average rate of return.
Whenever the yearly rate of return exceeded this amount, pensioners and
workers received a "13th paycheck". Whenever the rate of return was below the
average, they didn't.

[http://www.mlive.com/news/detroit/index.ssf/2013/10/10_thing...](http://www.mlive.com/news/detroit/index.ssf/2013/10/10_things_to_know_about_detroi.html)

Either the politicians involved were utterly innumerate, or else they were
rewarding their cronies (i.e. pensioners) in the hopes of receiving votes.
They made their bed, let them lie in it.

~~~
waps
But you can't change that. That will actively destroy lives :

    
    
      "Of all the nonpension payments, she said, 54 percent went
      to active workers, 14 percent went to retirees and 32
      percent went to the city, which used its share to lower
      its annual contributions to the fund. The excess payments
      were often made near the end of the year, when recipients
      needed money for the holidays, or to heat their homes."
    
      “It would be a human catastrophe of the first order if 
      pensions of vulnerable older workers can be cut whenever a 
      local government goes to bankruptcy court,” Stein said. 
      “We will be consigning firemen and policemen, who did 
      nothing wrong other than protecting the city and depending 
      on the city's promise, into old-age poverty.”
    

Firstly, the government agreed (in law) to cover this. It is not acceptable
for the government to go back on that promise - whatever it takes. Sucks if
you're a US taxpayer I guess.

If you're a US taxpayer, either you or your parents (indirectly) agreed to
these conditions. It's dishonest going back on them. I'm not a socialist at
all, but this is repayment of debt incurred : it's NOT optional.

Having read in history how unions react when their members essentially have
the choice between death or getting what they want ... you don't want to go
there. They will completely disable the entire country, and frankly, they'd be
right to do so.

~~~
yummyfajitas
It was not acceptable for the Detroit Government to do what they already did.
Now it's done and the money ran out. All that remains to do is divide what
little money remains between the various debtholders.

(Normally bankruptcy also wipes out shareholders and turns debtholders into
shareholders, but it's not clear what that would mean in this case.)

I've never been to Detroit, I've never voted there and I'm not sure I could
find it on a map. I'm a complete stranger. It's unacceptable to force complete
strangers like myself to pay insane debts that they didn't even have the
opportunity to vote against, particularly when the debtholders _were already
paid_.

No one will die in the US simply by having their pensions cut. They'll simply
have to accept the same standard of living as most non-workers which is
roughly the _average_ standard of living in Poland and Mexico and the 95'th
percentile of India. Last I checked the Polish, Mexicans and Indians weren't
dying off.

------
dnautics
_pensions are simply deferred wages, that is, money that workers could have
taken as cash in their regular paychecks had they not opted to set it aside._

That is not always the case. Often times in the public sector, pensions have
undefined amounts (e.g. set to increase based on an annualized basis), and
undefined terms (lifetime of the employee).

So here is another question. Knowing that the city was under dire financial
straits, what business did the city have making new hires and promising them
impossible compensation, that would result in passing the buck to the next
generation?

~~~
jmartinpetersen
I don't know how your private sector works, but it is perfectly natural for
private pension funds in other parts of the world to offer those kinds of
plans. You can exchange cash now for an insurance against living longer than
you can otherwise afford. Normally, there's then governmental oversight that
tries to ensure, that you can be sure, that the pension fund can actually
deliver on their promise.

~~~
yummyfajitas
We have this in the US as well. ERISA and similar laws are the specific
regulation. After ERISA and the like were passed, companies generally
transitioned from defined benefit to defined contribution pensions since
defined benefit pensions were too expensive when honestly accounted for.

Government agencies (except for the USPS) are exempt from these regulations.

------
jstalin
This article is pretty much devoid of facts. Nothing's being taken away.
Pensions were promised that couldn't be delivered. Reality is simply being
enforced. Corruption was (and is) endemic in Detroit.

[http://money.cnn.com/2013/08/28/news/economy/detroit-
pension...](http://money.cnn.com/2013/08/28/news/economy/detroit-
pensions/index.html)

~~~
greenyoda
Yes, "steal" is definitely the wrong word here. Being unable to pay a debt due
to bankruptcy is not theft. If it were, there would be lots of people in
prison for not being able to pay their credit card bills.

~~~
waps
That's absolutely true, it's called fraud. Agreeing to terms you know you
can't live up to.

I wonder if one could do that, sue the old politicians for the difference,
given that they did not honestly account for the pensions. This has the
advantage of falling under criminal law, so firstly, doing that as part of an
organization is not going to protect the individual that did it. Secondly if
they get convicted and don't (or can't) pay, they will go to prison.

------
erbo
Karl Denninger has pointed out [1] that these pension benefits that were cut
as a result of the bankruptcy were effectively negotiated "at gunpoint and by
fraud," and there was no true adversarial process in the negotiations, since
the people negotiating for the wages and benefits _could and did_ elect the
people on the other side of the table. _That alone_ should render the pensions
unenforceable.

However, the judge _had_ to rule that the pensions were not enforceable,
Michigan's constitution notwithstanding, because bankruptcy is black-letter
Federal law. [2] The pensions are debts like any other, and pensioners have to
get in line with all the other creditors.

Anyone with a government pension had better pay attention, and, as the saying
goes, "conduct yourselves accordingly."

[1] - [http://www.market-ticker.org/akcs-www?post=226468](http://www.market-
ticker.org/akcs-www?post=226468)

[2] - U.S. Constitution, Article I, Section 8, clause 4 -
[http://www.usconstitution.net/xconst_A1Sec8.html](http://www.usconstitution.net/xconst_A1Sec8.html)

------
craigyk
Classic case of the short-sightedness that is endemic in our economy.
Management argues for larger pension benefits at the expense of salary
increases. Who cares if they aren't realistic long-term? The bottom-line is
that they look awesome at the end of the year and get fat bonuses. Of course
they leave before the sh*t hits the fan, and the workers who traded those
raises for later get shafted when these giant pools of money fail to
materialize or were poorly managed.

------
rmason
I think the fate of the pensions is the saddest part of the Detroit
bankruptcy. Here are the five options that are possible:

[http://www.freep.com/article/20131203/NEWS01/312030138/](http://www.freep.com/article/20131203/NEWS01/312030138/)

The most telling comments were those of the bankruptcy judge who implored why
wasn't this done ten years ago? Sure would have been much easier on the
retirees if it had been.

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VladRussian2
to anybody who knows terms like "3@55" and "spiking" and various other details
of union contracts like unlimited accumulation of vacation and unused sick
days, it isn't a surprise. While i don't know about Detroit, yet if they had
anything similar as mentioned below without CA's economy to carry it [not that
CA economy will be able to carry it in the long run as well :)], well...

[http://www.sacbee.com/2013/09/09/5718823/california-
public-p...](http://www.sacbee.com/2013/09/09/5718823/california-public-
pension-payouts.html)

" The average retirement payout for new retirees in California's biggest
public pension system doubled between 1999 and 2012, according to CalPERS
data, and initial monthly payments for one group nearly tripled in that
period.

State and local cops and firefighters benefited the most.

In the 14 years covered by the data analyzed by The Sacramento Bee, average
first-month pensions to state police and firefighters went from $1,770 to
$4,978. California Highway Patrol officers' first-month retirement payments
doubled from $3,633 to $7,418, and local government safety employees' pensions
went from $3,296 to $6,867. "

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coldcode
I was smart and invested in Social Security. Oh yeah... crap.

~~~
HNaTTY
You can squeeze a few thousand retired civil servants, but you can't squeeze
all of America. The only solution to an impending Social Security crisis is
"monetary easing".

~~~
dnautics
which, of course will screw the rich by draining the stock markets and making
institutional lenders poorer.

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grecy
As a younger professional, I see more and more cases where the system is
stacked against me and dysfunctional.

I wonder everyday; why would anyone in their right mind become invested in
this system?

