Detroit’s promising new pension model

It’s in the New York Times:

“On June 30, Detroit’s Emergency Manager will freeze the city’s pension, “meaning that the city’s current workers will not accrue any further benefits on those terms.

“Starting the next day, in the new hybrid plan, they will still earn so-called defined-benefit pensions, something their unions consider critical. But at the same time, they will start to bear most of the new plan’s investment risk. That means Detroit’s taxpayers — who pay a city income tax in addition to property and sales taxes — will no longer face cash calls every time the plan’s investments drop in value. Officials hope that making the workers backstop the investments will discourage the overreliance on high-risk strategies that has characterized the current plan.

“This unusual combination of features gives both the city and the unions an opportunity to declare victory and provides Mr. Orr with ammunition for the coming feasibility trial.”

This is a great idea. Not only would it get the public largely off the hook for paying out when public pension funds face shortfalls, it would curtail the recklessly risky investment strategies by the likes of CalPERS as the state pension giant would assume the risk, not taxpayers.

CalPERS is fighting the plan, of course. Yep. The California giant is reaching all the way to Detroit to fight reasonable reforms agreed to by the unions there in negotiations after a federal judge ruled pensions are not sacred and can be cut. Reasonable reforms drain the gravy boat. Can’t let that happen.

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    Michael Fitzgerald

    Mike Fitzgerald is The Record’s award-winning metro columnist. His column runs in the paper three times a week. Born in San Francisco, he was raised in Stockton. His column covers diverse beats including, sometimes, the offbeat. Read Full
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