Detroit Pensions:
A Devil’s Bargain

May 12, 2014

Detroit city workers and retirees are being asked to vote on whether to accept new cuts to their pensions. But don’t mistake this vote for democracy. They are being told that if they vote “yes” on the new attack, their pensions will be cut. And if they vote “no” on the new attack, their pensions will be cut even more.

If they vote “yes,” general city workers will take a 4.5 percent reduction to their pension payouts, and even worse, they face total elimination of cost-of-living increases. This means that as prices increase, their pensions will pay for less and less. The average pension for these retirees is already only $19,123 a year, meaning a yes vote would guarantee a retirement of poverty.

Police and firefighters face smaller cuts if they vote yes: their cost of living increases would be reduced from 2.25 percent a year to a little over one percent. Their average pension is $30,607, but police and firefighters don’t get Social Security unless they held another job for ten years, so that is their entire retirement income.

But if workers and retirees vote no, the city is threatening to cut pensions for general workers by 27 percent and still eliminate the cost of living increases, and to completely eliminate cost of living for police and firefighters. Legally, they say, the bankruptcy judge can simply impose these cuts. So what kind of “choice” is this?

On top of that, workers who paid into an annuity savings account are having the interest they earned over the years “clawed back.” For current retirees who paid into the annuity fund, the average cuts amount to a loss of 8.8 percent per month.

And all this comes after the city unilaterally dropped retiree health benefits on March 1, replacing them with a stipend of less than $175 a month–a drop in the bucket compared to the cost of buying health insurance. Retired police lieutenant David Mallory estimated that this cost him an extra $500 a month–just for his wife’s insurance, since she’s not old enough to qualify for Medicare.

Michigan’s state legislature just introduced a bill that would allow it to oversee Detroit’s finances for 20 years, and even worse, would make the city stop offering any pensions to new hires.

The legal bankruptcy process is just a cover-up for this reality: city workers are being destroyed. This fake vote makes that clear. No matter that Detroit city workers paid into their retirement funds their whole working lives, no matter that these benefits were promised in return for a lifetime of work. The bosses want workers to pay for the crisis.

And unless the working class finds a way to break out of this legal trap and mobilize our forces on a massive scale, the fate of the Detroit retirees is waiting for all of us.