Individual retirees and two major unions representing city workers in Detroit are among those who have challenged the city’s declaration of bankruptcy and its attempt to cut workers’ pensions.

The American Federation of State, County and Municipal Employees alleged in its court filing that the city is “seeking the haven of bankruptcy to illegally attempt to slash pension and other post-employment benefit obligations and cram such reductions down the throats of current and former city employees.”

Retiree Stephon Johnson was among many who made personal pleas to the judge. Johnson said he was 73 and had worked as a city boiler inspector for 22 years.

“A reduction in my pension will place me and my spouse in hardship that may result in us filing for bankruptcy,” he said. “We are not in the position as the city of Detroit, our debtor. Our debtor is able to generate revenue through levying taxes, collecting fines, selling assets, issuing bonds, receiving grants, and a host of other revenue-producing means.”

Detroit has two pension funds representing about 30,000 current workers and retirees, including police and firefighters.

The average size of pensions is modest — $19,000 a year for nonuniformed employees and $30,000 a year for police and firefighters. That compares with an average police pension of $42,000 in Kansas City, $55,000 in Chicago and $58,000 in Los Angeles.

Even before the bankruptcy filing, many city workers expected to receive lower pensions than current retirees. Two years ago, Detroit police and firefighters agreed to a roughly 15 percent cut in pension benefits from future years of service.

“There’s this myth that everyone in Detroit is getting a fat pension,” said Leon LaBrecque, the founder of a wealth management firm that has worked with many Detroit city retirees. “But that’s clearly not true.”

Bloomberg Businessweek, Aug. 20
Bloomberg.com, Aug. 20