The bankruptcy of the City of Detroit has focused attention on a problem facing many other US cities, counties and states…the cost of the pension and retiree medical benefits promised to (largely union) employees.
- How should the Detroit obligations be treated in the bankruptcy? Similarly to such obligations in a company bankruptcy context? Some otherway?
- Should the Federal government intervene to protect these benefits?
- Why did this issue arise in the first place, and what changes should be made to avoid it in the future?
- Was it the ease of trading off current compensation against future benefits for cities, etc. on a budget?
- Should municipal entities follow corporate employers by converting, over time, from defined benefit (pension and retiree medical) to defined contribution (agree on employer’s contribution; employee takes the risk (upside and downside) on investment returns)?