Deal In Detroit Could Signal Cuts To Pensions Elsewhere
It used to be that if you were a public employee, you knew your pension benefits could not be touched.
That's no longer the case.
Pensions have been under political attack in recent years, with some politicians arguing they can't afford to fund generous retirements at the same time they're cutting services. Numerous states and cities have trimmed the type of pension plans they're offering employees — mostly new employees.
But pension benefits already earned have always been sacrosanct, protected by federal law and, often, state constitutions. Retirees could rest easy, knowing their money couldn't be touched.
The vote Monday in Detroit by retired city workers to cut their own benefits by 4.5 percent calls all that into question.
"Detroit has raised it as a possibility," says Daniel DiSalvo, a political scientist at City College of New York who studies public sector labor issues. "I don't think that most people, maybe with the exception of some unions, think pensions are inviolable."
With several other cases pending, it's not at all clear whether federal bankruptcy law trumps traditional pension protections. Pensions continue to have strong legal protection, and there's not going to be any great rush among states and cities to test whether cutting benefits for current retirees is something that will necessarily fly with the courts.
But the vote in Detroit does suggest that at least some pensioners might have to give up more than they ever expected.
"I think the deal in Detroit is going to mean that other troubled Michigan cities are more likely to reach deals," says Kim Rueben, a government finance expert at the Urban Institute.
Judges Growing Skeptical
The reason a big majority of retirees in Detroit were willing to accept cuts is that they worried they might be hurt worse if they didn't.
U.S. Bankruptcy Judge Steven Rhodes said late last year that federal bankruptcy law could override pension protections — including provisions in the Michigan Constitution.
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