Detroit’s pension crisis may be at the beginning of a resolution now that unions have approved a reduced plan. If all goes well, this plan could serve as a model for cash strapped states that can no long afford pensions.
“The city and its labor partners have come up with what we think is the best option to strengthen employee pensions so we can continue to meet future obligations in a financially responsible and sustainable manner,” emergency manager Kevyn Orr said in a statement, according to the Detroit Free Press. “This new pension plan is the result of months of intense negotiation between the city, its unions and its retirees.”
The plan requires Detroit workers to contribute anywhere from four to eight percent of their base pay toward pensions, an amount that will be matched by the city.
While both retired and active workers now participate in the same city pension system, the new plan is intended only for Detroit’s active workers, who will shift to it on July 1. Retirees will keep 73 percent to 100 percent of their current base pensions under the city’s proposal to exit bankruptcy.
Detroit’s tax base can no longer support the cost of pensions.
Still, Wall Street has not been held accountable for its role in eviscerating pension funds across the country. Worse yet, The Rolling Stone‘s Matt Taibbi discussed in 2013 how Rhode Island’s “looming” pension crisis was used as an excuse to hand over control to Wall Street:
….Raimondo’s strategy for saving money involved handing more than $1 billion – 14 percent of the state fund – to hedge funds, including a trio of well-known New York-based funds: Dan Loeb’s Third Point Capital was given $66 million, Ken Garschina’s Mason Capital got $64 million and $70 million went to Paul Singer’s Elliott Management. The funds now stood collectively to be paid tens of millions in fees every single year by the already overburdened taxpayers of her ostensibly flat-broke state. Felicitously, Loeb, Garschina and Singer serve on the board of the Manhattan Institute, a prominent conservative think tank with a history of supporting benefit-slashing reforms. The institute named Raimondo its 2011 “Urban Innovator” of the year.