Public Pension – Detroit crisis

After the economy financial crisis, most public pensions were already on crisis. The pension crisis is a difficulty in paying for corporate, state and federal pensions in the U.S. due to a difference between pension obligations and the resources set aside to fund them in the future. That is because many of public pension plans discount their pension liabilities at high interest rates assuming the plan will achieve high returns on their investments. However discounting is supposed to reflect the idea that a liability is being paid. If someone knows for sure that a payment will come at a certain time in the future, he will put away the full amount needed in order to pay that obligation; however, if there is reason to believe the payment may not come thru, he may put away a smaller amount in the hopes that he can cover the rest when it comes due. However, in the case of pensions the payments are guaranteed by law, the government having the money or not, thus it is inappropriate to discount them at a high rate. People depend on this money for their future. The high discounts rates let politicians off the hook by lowering today’s payment on behalf of tomorrow’s retirees which is easy to do when you are not suffering currently, and the expectations of the future can be mislead and perceived highly than it should.

America’s public pension crisis has arrived. A large number of municipalities, counties and states are experiencing severe fiscal stress. Some, like Detroit, have had to declare bankruptcy. At the end of 2013, Judge Steven Rhode’s ruled that Detroit may reduce pensions under Chapter 9 bankruptcy because they can no longer afford to pay benefits as it’s promised. Detroit’s unfunded pension liabilities are immense at $9 billion on a guaranteed to paid basis. The proposal plan of adjustment seems to be an insult for