Public sector unions have been handed a stinging defeat this morning in Detroit. After nearly a month of waiting, a U.S. Bankruptcy Court ruled that the city is eligible for Chapter 9 bankruptcy, declaring that it may cut pension benefits as part of the procedure—despite the unions’ argument that the state constitution forbids such cuts. The Detroit Free Press has more:
[Judge] Rhodes emphasized that he won’t necessarily agree to pension cuts in the city’s final reorganization plan unless the entire plan is fair and equitable. […]“The court finds that Detroit was and is insolvent,” he said. “The court finds that the city was generally not paying its debts as they became due.”Still, Rhodes also scolded the city for rushing through negotiations with its creditors, noting they only had 30 days to offer a counter. Saying that amount of time is “simply far too short,” Rhodes ruled the city did not satisfy good faith requirements to try to negotiate with creditors outside of bankruptcy court.
Much legal fighting remains, but we reiterate our warning to public sector employees: the politicians and unions are lying to you about how safe your pensions are. Not in every case, of course, but in general you need to be your own first line of defense. Don’t passively count on promises: look into the soundness of your pension plan and the state and local budget picture before making retirement plans.[Remnants of Detroit’s historic Eastown Theatre are seen on September 4, 2013 in Detroit, Michigan. Photo courtesy of Getty Images.]