Detroit pensioners learn nothing is guaranteed
For 33 years, Clyde Tome served the city of Detroit as a firefighter. Every day he was on duty he knew his life was on the line; in one encounter with riot fires, Tome watched a colleague die. Another time, he saw a nearby fireman killed in a random shooting. For his commitment, Tome counted...
For 33 years, Clyde Tome served the city of Detroit as a firefighter. Every day he was on duty he knew his life was on the line; in one encounter with riot fires, Tome watched a colleague die. Another time, he saw a nearby fireman killed in a random shooting.
For his commitment, Tome counted on a city pension to take care of him and his wife in their retirement years.
But today’s ruling on Detroit’s bankruptcy held that pensions are not protected from potential cuts.
According to U.S. Bankruptcy Judge Steven Rhodes, “Nothing distinguishes pension debt from any other debt.”
Now, thousands of hardworking people will likely see their pensions slashed as a result of the fiscal mismanagement that led to Detroit’s bankruptcy.
“He thought I would be well provided for,” said Rose, Tome’s 74-year-old widow. “What do you do?”
Rose Tome’s situation reveals a broader calamity playing out across the country: the moral bankruptcy of government-run pension systems.
City workers and retirees in Detroit aren’t the first pensioners to see the government renege on its promise of retirement security. Workers in Central Falls, R.I., and Pritchard, Ala., also saw their retirement funds cut as part of bankruptcy proceedings, some by as much as 55 percent.
This is the unintended consequence of most state and local governments not allowing workers to manage their own retirement savings. Instead, these workers are forced to participate in pension systems run by politicians and government bureaucrats. Under these retirement systems, the supposed beneficiary has no control, no voice and no exit.
The timing of Judge Rhodes’ ruling could not be more fitting; as Detroit takes the first step toward climbing out of bankruptcy — a bankruptcy driven by insurmountable pension debt and decades of financial negligence — lawmakers here in Illinois will be voting on whether they want to follow the exact same path.
The proposed “deal” hatched by House Speaker Mike Madigan and his allies sounds like tough pension reform, but it isn’t. The words “retirement age” and “cost-of-living adjustments” cause panic. Politicians say “$160 billion in savings” because they know large numbers are hard to comprehend, and most have no idea what that number really means.
While no hard details are yet available, legislative leaders are telling their caucus members that Illinois’ $100 billion unfunded pension liability would be reduced to roughly $80 billion. That’s not reform; that’s exactly where Illinois was in 2011 when the same voices said Illinois had a crisis.
Like Illinois, Michigan has a provision in its state constitution that makes pensions enforceable contracts. Judge Rhodes ruled, however, that pension contracts, like most other contracts, can be modified in bankruptcy if doing so is needed to put the city on a sound financial footing.
Detroit government workers unions had argued that pensions could not be amended. The judge rejected that argument, setting a precedent that is likely to apply in Illinois.
The decision also undermines the value of any “guarantee” of pension funding, as a bankruptcy court could conceivably set aside automatic funding arrangements in the event of a state or local government bankruptcy.
A “guarantee” and continued overly generous benefits are part of the pension proposal Illinois lawmakers are set to vote on today.
Adopting this legislation would serve as a death sentence for government worker pensions. With the ruling in Detroit, lawmakers no longer have an excuse for turning a blind eye to the truth: pensions and a lack of reform are doomed to failure.