Fair that Detroit bankrupcy will cut retiree pensions?

[boomerang]

The Feds Want Your Retirement Accounts

 

[Darwin333]

If Detroit wants confidence restored quickly to its lenders then it will have to attempt to make bondholders partially or completely whole. Otherwise they are going to prolong their misery even further into the future.

I disagree. Trying to pay off what is impossible to pay off is what prolongs the missery while any dimwit with two braincells to rub together knows that your ability to pay off new debt is basically nill.

Getting rid of said debt and eventually getting yourself in a vastly superior position otoh drastically increases your ability to pay off new debt (versus decreases in your scenario). Anyone with the kind of cake to lend on the level we are talking about would much prefer to lend to a Detroit that is on stable footing versus one that is "trying, yet failing miserably, to make bondholders whole". If they could even remotely do that they wouldn't be filing bankruptcy in the first place.

We are talking .gov debt, the people lending are far more interested in your future ability to pay than your "credit history". Trying to make current bondholders whole is about the worst financial move they can make. The simple fact is that if they could make the bondholders whole, even partially whole, they would not be trying to enter bankruptcy.

 

[Darwin333]

is it fair that creditors and other involved parties get nothing when an individual or corporation files for bankruptcy?

Absolutely.

 

[Jhhnn]

If the govt employees contributed to the DBP then that money is in there. I.e., that portion of the pension plan IS funded, so it seems to me that they will get it.

It would be the city of Detroit's share of funding that was not actually made. That's the money that is not in the plan. Since that money is not in the plan the employees will (likely) not receive it.

I.e., no reason for any bailout to repay the employees for their pension contributions. They should be getting it all back, plus any investment income. (Assuming it wasn't lost by poor investment. Would be ironic if the pension plan invested in city bonds. Sorry to be 'mean', but if that happened I'd LOL.)

Fern

I really don't know the truth, but it seems unlikely that Detroit didn't put money into the pension plan as promised. It's much more likely that such contributions were inadequate in the first place, and that drastically decreased participation in the plan (cuts in city workers) combined with bankruptcy will starve the plan of the future funding required to sustain pensions as promised.

All pensions depend on ongoing contributions from plan participants.

 

[Zebo]

This case will set the stage for other city/state pension plan problems. If you bail the first one out all the others will want in on it and some of them are pretty bad (Illinois with its 40% funded pension and a $100bn shortfall). I hate to say it but an easy bailout would just continue the cycle of poor accounting/investing (assuming 8% every year and no shortfall cushion) and poor funding of plans. The State constitutional law ruling will likewise have wide ranging implications as many states have the same provision

IMO the best case is everyone loses some and Detroit gets a small bailout. Pensioners and bond holders feel some pain and get angry holding the politicians accountable in the future for funding what they promise (hopefully) and the retirees/bond holders aren't completely screwed.

According to stories I've seen we have a 1-2 trillion dollar pension shortfall nationwide. Thats less than FED did for to big to fail banks and international banks even. I dont really agree with any of it - all those banks are set to fail again because they invested in pumping stock market instead of building factories and jobs plus you should not reward failure especially multi hundred millionaires failure. But if you are - old ladies and cops living on $2000 a month who earned it deserve it first IMO.

 

[Fern]

According to stories I've seen we have a 1-2 trillion dollar pension shortfall nationwide.
-snip-

That strikes as a bit low. But IDK. And I think unfunded HI benefits should be included with unfunded pension obligations.

What I've seen says that number is based upon a RoR of 8% for pension investments. If the actual RoR is lower the shortfall is larger.

In any case, I consider the correct amount 'unknowable' since we cannot accurately forecast future returns etc; we can only guess.

Fern

 

[Jhhnn]

But if you are - old ladies and cops living on $2000 a month who earned it deserve it first IMO.

Well, according to Gov Snyder & his legal team, what they're first in line for is... Cornholio! As hard & deep as it can possibly be administered.

Republican politicians serve the interests of big money principals, always.

 

[Patranus]

According to stories I've seen we have a 1-2 trillion dollar pension shortfall nationwide.

Here in CA the pension shortfall for only the top 3 pension plans is $500 billion.
Might need to review your numbers.

 

[Patranus]

All pensions depend on ongoing contributions from plan participants.

AKA a pyramid scheme.

 

[Zorkorist]

According to stories I've seen we have a 1-2 trillion dollar pension shortfall nationwide. Thats less than FED did for to big to fail banks and international banks even. I dont really agree with any of it - all those banks are set to fail again because they invested in pumping stock market instead of building factories and jobs plus you should not reward failure especially multi hundred millionaires failure. But if you are - old ladies and cops living on $2000 a month who earned it deserve it first IMO.

Current payout for Social Security, someone that paid in their entire life, is approx. $960/month.

-John

 

[Zorkorist]

Cops, and other Government employees, get a great pension.

As far as I understand, they get to retire after twenty years.

I'm working on 40 years working, and I have no guaranteed income.

-John

 

[Mursilis]

Cops, and other Government employees, get a great pension.

As far as I understand, they get to retire after twenty years.

When you say "Government" employees, are you talking about local, state, or federal? Federal employees, if they retire based on years of service, have to put in 30 years, not 20 years. They can retire with less than 30 years based on age, but their pension will also be reduced accordingly.

 

[boomerang]

Pew Resources Examine Municipal Bankruptcies and Detroit's Financial Instability

There's trouble throughout the land. Unsustainable programs are wreaking the kind of havoc that common sense told many of us would happen. It's real, it's not going away and it's going to be dealt with in one form or another.

One snippet.

Overall, the 30 cities, which are the focus of Pew’s American cities project, had 74 percent of the money needed to fully fund their pension plans over the long run but only 7.4 percent of what was necessary to cover their retiree health care liabilities as of fiscal 2009, the latest year with data available for all pension plans of all 30 cities.

 

[bshole]

Assuming it wasn't lost by poor investment. Would be ironic if the pension plan invested in city bonds. Sorry to be 'mean', but if that happened I'd LOL.)

Thats pretty damn cold. I would never laugh at the destruction of the lives of middle class workers in retirement. It is a tragedy. They spent decades working for those benefits, they are not handouts. I see no humor whatsoever in people being thrown into poverty because of the broken promises and morals of others.

 

[bononos]

Cops, and other Government employees, get a great pension.

As far as I understand, they get to retire after twenty years.

I'm working on 40 years working, and I have no guaranteed income.

-John

I doubt all govt employees get equally great pensions.
The fat cat positions are political appointees and their hirelings. Cops are another special case since they are there to protect the existing political order so the cops themselves have that bargaining position.

 

[Mursilis]

Thats pretty damn cold. I would never laugh at the destruction of the lives of middle class workers in retirement. It is a tragedy. They spent decades working for those benefits, they are not handouts. I see no humor whatsoever in people being thrown into poverty because of the broken promises and morals of others.

True, mostly, but those workers (or at least some of them) voted for both the union officials and the politicians who bargained for those broken promises.

 

[Exterous]

I really don't know the truth, but it seems unlikely that Detroit didn't put money into the pension plan as promised.

Its a mix. Detroit chose to make up investment shortfalls by upping the estimated investment returns not by additional funding. (Hey we didn't get 8% this year so we'll just get 14% next). A lot is now coming out about just how bad the funds were managed as it was covered up for years. Hell, they were still lying about how underfunded the plan was in June!

The real crime is the staggering amount of corruption the pension plan had:
-The plans reported a shortfall of only $644million as opposed to the correct amount of $3.5 billion
-Huge losses in real estate deals done in 2006-2008 that involved bribes and kickbacks
-$3.1million stolen to buy two strip malls in CA
-47% drop in value of real estate investments between 2008-12 when the average index rose 3.6%
-All these investments were chosen by Trustees who were allowed to travel the world with " virtually no restrictions and were allowed to accept gifts, trips, tickets and expensive dinners from the money managers, law firms and investment advisers who sought to do business with the boards"

Numerous trustees and businessmen have been indited or already found guilty
http://www.freep.com/article/20130620/NEWS01/306200120/Detroit-pension-fund-corruption

(Assuming it wasn't lost by poor investment. Would be ironic if the pension plan invested in city bonds. Sorry to be 'mean', but if that happened I'd LOL.)

I don't know the fine details of the investments but the big losers the press is reporting on in the pension plan doesn't include city bonds but does include some Detroit real estate - although its not as much as I would have expected given how much they liked to kickback to their local buddies. Far more was spent and lost in Florida - likely so they could fly down there to 'investigate' their investments

 

[Garet Jax]

Should it be that way?

If it isn't that way, then bonds wouldn't be bonds and people would buy them much more sparingly.

Bonds are backed by the government agency that offered them - they are also at the top of the creditors list which is what makes them so attractive. If you take either of these pieces away then they cease being bonds.

If they cease being bonds, then government has much much difficultly raising money and must offer some other incentive to convince people to invest.

 

[1prophet]

Funny math and robbing peter to pay paul when it came to pensions was warned against over 20 years ago.

http://money.cnn.com/magazines/fortune/fortune_archive/1992/01/13/75954/

THE GREAT PENSION ROBBERY States and cities are plundering employee pension funds to ease their budget crises. Taxpayers may be stuck if the plans can't meet their future obligations.


By Alan Deutschman REPORTER ASSOCIATE Mark D. Fefer
January 13, 1992

WHILE BANKS, S&Ls, insurance companies, and nearly everyone else in the financial services industry has a case of the shorts, America's public employee pension funds have an embarrassment of riches. And like a lot of wealthy folks, they are becoming the victims of holdup artists. With ever more states and cities facing nasty budget deficits, the politicians who run them are trying to grab some of the $878 billion set aside to pay for the retirement of teachers, firefighters, police, sanitation workers, and other public employees.

The pilfering of the golden nest eggs is alarmingly widespread. In the past two years more than a third of the states have cut or delayed contributions to their pension funds, seized money outright from pension accounts, or begun to debate similar measures. This is no time to be confiscating pension assets. While contributions have fallen slightly over the past three years, payouts to pensioners have been rising sharply

rest of article at link

 

[s0me0nesmind1]

Its a mix. Detroit chose to make up investment shortfalls by upping the estimated investment returns not by additional funding. (Hey we didn't get 8% this year so we'll just get 14% next). A lot is now coming out about just how bad the funds were managed as it was covered up for years. Hell, they were still lying about how underfunded the plan was in June!

The real crime is the staggering amount of corruption the pension plan had:
-The plans reported a shortfall of only $644million as opposed to the correct amount of $3.5 billion
-Huge losses in real estate deals done in 2006-2008 that involved bribes and kickbacks
-$3.1million stolen to buy two strip malls in CA
-47% drop in value of real estate investments between 2008-12 when the average index rose 3.6%
-All these investments were chosen by Trustees who were allowed to travel the world with " virtually no restrictions and were allowed to accept gifts, trips, tickets and expensive dinners from the money managers, law firms and investment advisers who sought to do business with the boards"

Numerous trustees and businessmen have been indited or already found guilty
http://www.freep.com/article/20130620/NEWS01/306200120/Detroit-pension-fund-corruption



I don't know the fine details of the investments but the big losers the press is reporting on in the pension plan doesn't include city bonds but does include some Detroit real estate - although its not as much as I would have expected given how much they liked to kickback to their local buddies. Far more was spent and lost in Florida - likely so they could fly down there to 'investigate' their investments

Yet another case of why having some ridiculous law degree is the last thing I give a shit about anymore when it comes to political spots. We really need to understand this type of shit and elect someone that knows how to manage finance... considering they are IN CHARGE OF THE FINANCE :awe:

Instead we get shit like this. Promises made, yet can't be kept - these types of pension promises shouldn't have been made, and I hate to say it but screw them. Everyone else is saving paycheck to paycheck in investment 401k's - all the while they just get a message saying "Don't worry, you will get this when you retire! We will magically pull this amount out of a fairy's ass"

Pyramid Scheme - that was a DAMN accurate good definition of it.

 

[werepossum]

Its a mix. Detroit chose to make up investment shortfalls by upping the estimated investment returns not by additional funding. (Hey we didn't get 8% this year so we'll just get 14% next). A lot is now coming out about just how bad the funds were managed as it was covered up for years. Hell, they were still lying about how underfunded the plan was in June!

The real crime is the staggering amount of corruption the pension plan had:
-The plans reported a shortfall of only $644million as opposed to the correct amount of $3.5 billion
-Huge losses in real estate deals done in 2006-2008 that involved bribes and kickbacks
-$3.1million stolen to buy two strip malls in CA
-47% drop in value of real estate investments between 2008-12 when the average index rose 3.6%
-All these investments were chosen by Trustees who were allowed to travel the world with " virtually no restrictions and were allowed to accept gifts, trips, tickets and expensive dinners from the money managers, law firms and investment advisers who sought to do business with the boards"

Numerous trustees and businessmen have been indited or already found guilty
http://www.freep.com/article/20130620/NEWS01/306200120/Detroit-pension-fund-corruption

I don't know the fine details of the investments but the big losers the press is reporting on in the pension plan doesn't include city bonds but does include some Detroit real estate - although its not as much as I would have expected given how much they liked to kickback to their local buddies. Far more was spent and lost in Florida - likely so they could fly down there to 'investigate' their investments

Good info, thanks.

If it isn't that way, then bonds wouldn't be bonds and people would buy them much more sparingly.

Bonds are backed by the government agency that offered them - they are also at the top of the creditors list which is what makes them so attractive. If you take either of these pieces away then they cease being bonds.

If they cease being bonds, then government has much much difficultly raising money and must offer some other incentive to convince people to invest.

I suspect we'll see what happened with GM, where bond holders were at the top of the creditors list when purchasing, but at the bottom of the creditors list when bankruptcy strikes. It's a brave new world.

 

[BlahBlahYouToo]

Absolutely.

ok, then by the same logic, it's ok for pension payouts to be lost or reduced.

 

[BlahBlahYouToo]

The great leaders of Detroit.
"We voted for obama, we ought to get some some bacon from washington."

http://www.youtube.com/watch?v=YG8YWpnugJE

 

[Mursilis]

The great leaders of Detroit.
"We voted for obama, we ought to get some some bacon from washington."

http://www.youtube.com/watch?v=YG8YWpnugJE

And this is why Republicans can still get elected. As crazy as the GOP can act at times, the Democrats can still make them look reasonable by comparison. I'm just shocked(!!) that the Democratic response to a problem is to throw more (of other people's) money at it.

 

[DucatiMonster696]

And this is why Republicans can still get elected. As crazy as the GOP can act at times, the Democrats can still make them look reasonable by comparison. I'm just shocked(!!) that the Democratic response to a problem is to throw more (of other people's) money at it.

I read many articles about Detroit's local government in the past which dealt with the woes faced by the city before they went belly up. Many of these articles had one very common theme and that is the total and utter sense of denial of their funding situation at the time and the reality of their (at that time) future financial outlook. Much of this behavior was breed and tied to the racial overtones of pro-Black militancy and defensiveness of the city's BoS and political scene. Anyone who dared question the local government's actions ( a government dominated by far left Black democrats), especially in regards to the city's finances, handing out of benefits and city services was instantly branded a racist (if you were unfortunate to be black you'd be laughed at and branded a uncle Tom) whose concerns they would deride and ignore under an umbrella of arrogant militant victimhood. In the end anyone who was not as blind as these so called local "leaders" were at the time saw the inevitability of this day as it was way too easy to spot.