Tax Advice Santa Rosa – PENSION QUESTIONS AFTER THE DETROIT BANKRUPTCY

August 7th, 2013 → 5:34 pm @ // No Comments

How many retirees face the possibility of less recurring income?

On July 18, Detroit became the largest American city to file for Chapter 9 bankruptcy. What will happen to the pensions of its 20,000+ retired public employees? There is a possibility they could be reduced – perhaps greatly. In the wake of Detroit’s fiscal problems, current and future pension recipients across the country are wondering about the stability and amount of their promised incomes.

In Michigan, the fate of the pension checks for these employees may be determined in the courts. While a federal judge is overseeing Detroit’s bankruptcy proceedings, Michigan’s state constitution states that pension benefits can’t be altered. On July 24, the aforementioned federal judge froze assorted state-court lawsuits brought against the city arguing that the bankruptcy filing was unconstitutional (at the state level). As much as Detroit might want to scale back pensions for fiscal relief, it may be prohibited from doing so.

When pensions shrink after municipal bankruptcies, how bad is it? For a sobering example, look at Central Falls, RI, which filed for bankruptcy in 2011. Following that declaration, the city whittled away more than 50% of the pension checks issued to a third of …Read More


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