$552,110,000 of that asset amount [$3,675,459,604] is the remaining principal on a 2005 bond issue that brought $630,829,189 into the plan to make it appear fully funded then. That is a pension obligation though the money is supposed to be going to bondholders. I say ‘supposed’ because Detroit defaulted on that bond issue last week. […]Liabilities are grossly understated. Based on the terms of the plan, with 8,451 retirees getting an average of $30,607 annually (with a 2.25% COLA for most), another 975 participants entitled to future benefits, and a DROP component, the real liability for pensions alone would be close to double what’s reported.
Add in overvaluation of the fund’s assets on the market, among other things, and you actually have $2 billion in assets to cover $6 billion in liabilities, the blog concludes.Detroit’s Emergency Manager Kevyn Orr agrees. Earlier this month, Orr conducted his own analysis of the pension plans and found something similar: The general pension fund and the police and fire funds were estimated to be 65 and 78 percent funded, rather than 83 and 100 percent, as was previously reported.Rather than spending nearly $300 million per year to keep the plans funded, Orr is instead looking to make significant cuts to benefits, increase employee contributions, and switch some city workers from defined-benefit plans to defined-contribution plans. His proposals also include substantial haircuts for bondholders. Needless to say, no one is particularly thrilled by this news.[Detroit image courtesy of Shutterstock]