Rights and Responsibilities

Are public pensions a contract or a right?

That’s what we’re soon going to find out. Detroit’s bankruptcy filing puts the city’s retirement obligations front-and-center. Among the $20 billion in debt cited in their petition was $9 billion in retiree obligations–$3 billion in pensions and $6 billion in health care coverage.

Leave aside for the moment how these numbers were calculated; they were likely inflated to make the bankruptcy filing more tenable. What can be done with these liabilities?

In most states and with private companies, pensions are contractual obligations that can be adjusted in bankruptcy. But other states—including Michigan–cite public pensions in their constitutions, and the 10th Amendment of the Federal Constitution constrains Federal priority over the States. So are they more like personal savings accounts?

All this will be adjudicated over the next several years. It will be messy and vicious. But it’s necessary if Motown is ever to get its mojo back.

Douglas R. Tengdin, CFA

Chief Investment Officer

By | 2017-07-17T12:34:38+00:00 July 24th, 2013|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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