Detroit's Pension Ponzi Scheme

Rosslyn Smith
Since the taxpayers could be compelled to make up the eventual shortfall the trustees of Detroit's pensions ignored their fiduciary duties. They did not follow the actual terms of the plans; instead, according to a report in the NY Times:

Detroit's municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, according to people who have reviewed the payments.

The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter.

Let's look closer at the numbers.

Detroit has nearly 12,000 retired general workers, who last year received pensions of $19,213 a year on average - hardly enough to drive a great American city into bankruptcy. But the total excess payments in some years ran to more than $100 million,

By extension the total required payments are approximately $230 million per year.  Thus in some years the excess payments totaled close to 45% of the required payments. So who benefited from this abuse of the trustees' powers?  According to their spokeswoman:  

Of all the nonpension payments, she said, 54 percent went to active workers, 14 percent went to retirees and 32 percent went to the city, which used its share to lower its annual contributions to the fund. The excess payments were often made near the end of the year, when recipients needed money for the holidays, or to heat their homes.

So in addition to playing Santa Claus to retirees each December and using the pension fund as a slush fund, the trustees paid out money already in the plan to help the city fund payments into the plan?  That is a fraud on both the taxpayers and the retirees who depend upon the solvency of the plan.  Why aren't these people in jail? 

Since the taxpayers could be compelled to make up the eventual shortfall the trustees of Detroit's pensions ignored their fiduciary duties. They did not follow the actual terms of the plans; instead, according to a report in the NY Times:

Detroit's municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, according to people who have reviewed the payments.

The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter.

Let's look closer at the numbers.

Detroit has nearly 12,000 retired general workers, who last year received pensions of $19,213 a year on average - hardly enough to drive a great American city into bankruptcy. But the total excess payments in some years ran to more than $100 million,

By extension the total required payments are approximately $230 million per year.  Thus in some years the excess payments totaled close to 45% of the required payments. So who benefited from this abuse of the trustees' powers?  According to their spokeswoman:  

Of all the nonpension payments, she said, 54 percent went to active workers, 14 percent went to retirees and 32 percent went to the city, which used its share to lower its annual contributions to the fund. The excess payments were often made near the end of the year, when recipients needed money for the holidays, or to heat their homes.

So in addition to playing Santa Claus to retirees each December and using the pension fund as a slush fund, the trustees paid out money already in the plan to help the city fund payments into the plan?  That is a fraud on both the taxpayers and the retirees who depend upon the solvency of the plan.  Why aren't these people in jail?