Posted on 11/20/2014 12:19:41 PM PST by MichCapCon
Detroit bankruptcy Judge Steven Rhodes called on the state to address the underfunding of local government pension benefits in his oral opinion. He stated that the state has a “constitutional, legal and moral obligation to assure that the municipalities in this state adequately fund their pension obligation.”
A government’s own employees should not be its largest creditors, nor should retirement benefits they have earned be placed at risk, as happened in Detroit.
There are a number of current bills that would help local governments avoid underfunding, and the Legislature should consider passing them.
When an employee earns pension benefits, the government creates a long-term liability. If the employer puts aside enough money to cover that liability, pension benefits will not be a problem. But if governments underestimate the costs, then there is a problem. This effect is more pronounced if the community has become less prosperous since the employee earned his or her pension.
Unfortunately, most Michigan cities find themselves in this situation. There are $3.1 billion in underfunded pension benefits in Michigan’s largest cities. The worst offenders have less than 50 cents saved for every dollar of pension benefits earned.
The easiest way for governments to ensure they can pay employees what was promised is to get out of the defined benefit pension business by closing the systems to newly hired employees. They can instead provide defined-contribution plans that offer generous retirement savings without generating long-term liabilities on taxpayers.
This can also help governments to catch up on the underfunding of promises made to employees in the closed system, while offering benefits to new employees that will be there when they retire.
Local governments, however, have been hindered in offering these plans because retirement benefits are a mandatory subject of collective bargaining when employees are unionized. Unions have been ideologically inclined toward defined-benefit pension systems. For example, Detroit unions fought to keep a defined benefit system around for new employees even as benefits were being cut for current retirees.
Judge Rhodes also made an appeal to unions to be pension system hawks, ensuring that these plans do not get underfunded. This would certainly help, but too often unions have argued for pension sweeteners and early retirement incentives that blow further holes in pension finances.
Legislation currently pending in the House Local Government committee would allow local governments to close their pension systems without having to negotiate this benefit with their unions. Under House Bill 4804, locals could simply choose to close these pension systems on their own.
Detroit’s bankruptcy judge does not want to see other governments go through what that city faced. He implored stakeholders to ensure that governments set aside the necessary money to pay for pension benefits. As legislators consider laws in this lame duck and beyond, they should be responsive to Judge Rhodes’ plea.
Best way to avoid underfunding is to cut them.
He stated that the state has a “constitutional, legal and moral obligation to assure that the municipalities in this state adequately fund their pension obligation.”
No problem. The Michigan legislature can attach criminal penalties for a municipal governing body that fails to fully fund it’s pension obligations. Make it 5 years in the State penitentiary and a $100,000.00 fine.
That will solve a number of problems.
L
Layoff more government employees to fund the pensions. My town is on a path to have no services at all.
Its not a problem of underfunding, its a problem of over-promising. Cut pensions back to something sane and then stop promising government workers the moon and the stars funded by the poor serf taxpayers.
Yet the US supreme court has ruled the exact opposite when it comes to social security. What's the difference?
Yup
“My town is on a path to have no services at all.”
How fortunate. My city and county are getting more and more self-funded departments. The housing inspector’s office staffed for the 2004-6 building boom. They haven’t laid anybody off. The manager told them to go out and write fines. A developer told me he pays $3,000 per $50,000 cost. He just built the fines into his estimate. The county budget lists $500k code enforcement fines in the revenue column. What if nobody violates the law? That simply isn’t possible. As a former trooper told me, “I can take a new car off the show room and find 10 things to write a citation for.” The rules and regulations are literally countless. We are all in violation of something.
Unfortunately, most Michigan cities find themselves in this situation. There are $3.1 billion in underfunded pension benefits in Michigan’s largest cities. The worst offenders have less than 50 cents saved for every dollar of pension benefits earned.
Which means they promised something that WASN”T THEIRS TO GIVE. They belong in PRISON, all assets siezed. Whatever funds are in the system is ALL YOU GET, NO Increased Contributions either. The top 50% should take the Largest Hit, but I would prefer that NO PUBLIC PENSION Shall exceed the “Median” Salary within the State.
What would you do if your neighbor from two blocks over came to you and told you that you had to buy a new stove for his next door neighbor because he’d promised him a new stove? You’d tell him to pack sand. Yet, our judges do this to us every day.
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