Detroit's Bankruptcy: the Pension Issue

Detroit's Bankruptcy: the Pension Issue

 Judge Rhodes ruled yesterday that the city's bankruptcy can proceed. He also ruled that the state constitutional provision that protects state employees' pensions from being diminished or impaired is preempted by federal law. Appeals will be filed, but the bankruptcy will move forward.

 Judge Rhodes said that he will review proposed cuts in pension benefits so the city has to justify what it proposes. There are two options available to the unions. The first is to appeal and to try to maintain the current benefit levels. While this is politically popular with the union members, it is unrealistic. The second and better choice is to negotiate with the city recognizing that there will be cuts, as unfortunate and unfair as this may be. Political posturing needs to give way to the realization that yes, Detroit is indeed bankrupt and unable to fulfill its future obligations, including pensions. It is time to begin to act responsibly with respect to what can be paid. The hope that the state constitution would insulate poor or unrealistic decisions made in contract negotiations is gone.

Related: Bankruptcy Judge: Detroit Is Eligible for Chapter 9; Unions Appeal Immediately

 For additional Labor and Employment law insights from John Holmquist, visit the Michigan Employment Law Connection.

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