Summary: Are public pensions a contract or a right? That’s what we’re soon going to find out. Detroit’s bankruptcy filing puts the city’s retirement obligations front-and-center. Among the $20 billion in debt cited in their petition was $9 billion in retiree obligations--$3 billion in pensions and $6 billion in health care coverage. Leave aside for the moment how these numbers were calculated; they were likely inflated to make the bankruptcy filing more tenable. What can be done with these liabilities? In most states and with private companies, pensions are contractual obligations that can be adjusted in bankruptcy. But other states—including Michigan--cite public pensions in their constitutions, and the 10th Amendment of the Federal Constitution constrains Federal priority over the States. So are they more like personal savings accounts? All this will be adjudicated over the next several years. It will be messy and vicious. But it’s necessary if Motown is ever to get its mojo back. Douglas R. Tengdin, CFA Chief Investment Officer Hit reply if you have any questions—I read them all! Follow me on Twitter @GlobalMarketUpd direct: 603-252-6509 reception: 603-224-1350 www.chartertrust.com www.moneybasicsradio.com www.globalmarketupdate.net
