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Live from Detroit: Detroit, Rocked City: How the Bankruptcy Led to Retirement Attacks that Could Spread Nationwide

This panel is moderated by David Sirota. Panelists include Gwendolyn Beasley, Reesa Kossoff, and Diane Oakley.

Public pension attacks are happening nationally and are being driven by the Koch Brothers.

401k plans have not proven to save tax payer money over a Defined Benefit plan, in fact there are cases where state liability has increased. Pension plans also encourage employees with experience, which is good for public sector jobs such as teachers, police, and firefighters.

There are interest groups that are interested in Defined Benefit plans to push the investments into more aggressive plans. 401k plans have other interest groups that want to push investments into certain mutual funds, etc. All of this is a move to benefit Wall Street.

In Detroit, 1 year ago today, bankruptcy was officially filed. Bankruptcy was eventually approved. It was ruled that bankruptcy law trumped the Michigan Constitution meaning that pensions were not protected from the bankruptcy. The average pension in Detroit is $19K per year.

In the “Grand Bargain”, not only would pensions would be cut, it meant that healthcare benefits would be cut as well.  $125 stipend was offered for retirees to pay for their healthcare, which was not enough. The new plans also had a high deductible which hurt retirees. Detroit also claimed that they didn’t have enough money for dental and eye care. Detroit promised that by 2028 they will try to restore the retirees’ benefits.

Pensions have become underfunded because state and local governments haven’t been paying the contributions to the plans. The Sanctity of pension contracts is not being respected which ironically, big banks claimed that executive pay could not be cut during the bailout because of the sanctity of the contracts that these executives had.

Even though state governments such as New Jersey say that they don’t have the money for pensions, the government spends billions on corporate subsidies. It is a wealth transfer from retirees to the corporations and the rich.

One of the problems with Detroit is that it entered an extremely complex interest rate swap. Wall Street won in the deal and Wall Street was first in line in the bankruptcy to get paid.

More information can be found at the National Institute on Retirement Security and the National Public Pension Coalition.