Friday, December 6, 2013
In case you missed it, a bankruptcy judge in Detroit has held that pensions could be considered for cuts as part of the city's bankruptcy case. According to an article in Governing by Liz Farmer on December 3, "[t]he decision on pensions is a precedent-setting one as Rhodes is the first bankruptcy judge to rule on retirees’ status as creditors." The article quotes the judge: “[n]othing distinguishes pension debts from other municipal debts, notwithstanding the state constitution ... it has long been understood that bankruptcy law entails the impairment of contracts … [and] pension rights are contract rights under the Michigan constitution.” The article notes that there is no guarantee that the court will ok cuts to the pensions, referencing a quote from the judge: "[t]his court will not lightly or casually exercise power … to impair pensions..."
According to a New York Times December 3, 2013 story on the judge's ruling,
the judge made it clear that federal bankruptcy law trumps the state law when it comes to protections for public employees’ pensions, making the pensions of 23,000 retirees fair game for the city to include in its plan of adjustment. But while the judge said pensions could not be treated differently from other unsecured debt, he said the court would be careful before approving any cuts in monthly payments to retirees.
The New York Times story provides some quotes those who would be affected by the ruling as well as those representing unions. The Times also ran a companion story about how the judge's ruling might impact the bankruptcy proceedings in Stockton California. The story notes that the Stockton bankruptcy is further in the process than Detroit's and under the plan filed with the court "which is subject to court approval, would leave city workers’ pensions unchanged: They would continue to accrue benefits at the same rate as they did before the bankruptcy."
Appeals are expected. This is an issue that bears watching and something we should include in our class discussions.