Detroit Ruling May Have Pension Ramifications

In a court ruling that could affect cities beyond Detroit, a federal judge ruled Dec. 3, 2013, that the City of Detroit could formally enter bankruptcy and refuse to honor its obligation to pay pensions in full.  Justice Steven W. Rhodes dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in other American cities.  The judge ruled that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan State Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.  Appeals were expected to be filed quickly. At least one union filed a notice of appeal, and other unions and pension fund representatives are considering contesting the outcome.