Detroit’s pension shortfall accounts for about $3.5 billion of the $18 billion in debts that led the city to file for bankruptcy. How it handles this problem — of not enough money set aside to pay the pensions it has promised its workers — is being closely watched by other cities with fiscal troubles.
The city’s emergency manager, has called for “significant cuts” to the pensions of current retirees. His plan is being fought vigorously by unions that point out that pensions are protected by Michigan’s Constitution, which calls them a contractual obligation that “shall not be diminished or impaired.”
The average pension benefit in Detroit is not especially high. The average annual payment is about $19,000, said a spokesman for the pension funds. And it is about $30,000 for retired police officers and firefighters, who do not get Social Security benefits, he said. Some retired workers get larger pensions, though: about 82 retirees who either worked many years or had high-salaried jobs are paid pensions of more than $90,000 a year, he said.
The $3.5bn in pension fund liabilities that Detroit included in its bankruptcy filing last week may be significantly understated because of a combination of overly optimistic assumptions and questionable investments, according to Kevyn Orr, the city’s emergency manager, and those who work with him.
