Alabama Town's Failed Pension Is a Warning. Detroit Isn't Listening

from theblogprof by The blogprof


Alabama Town's Failed Pension Is a Warning. Detroit Isn't Listening: "From the New York Times a couple of days ago: Alabama Town's Failed Pension Is a Warning

This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry.

Then Prichard did something that pension experts say they have never seen before: it stopped sending monthly pension checks to its 150 retired workers, breaking a state law requiring it to pay its promised retirement benefits in full.

Since then, Nettie Banks, 68, a retired Prichard police and fire dispatcher, has filed for bankruptcy. Alfred Arnold, a 66-year-old retired fire captain, has gone back to work as a shopping mall security guard to try to keep his house. Eddie Ragland, 59, a retired police captain, accepted help from colleagues, bake sales and collection jars after he was shot by a robber, leaving him badly wounded and unable to get to his new job as a police officer at the regional airport.

Far worse was the retired fire marshal who died in June. Like many of the others, he was too young to collect Social Security. 'When they found him, he had no electricity and no running water in his house,' said David Anders, 58, a retired district fire chief. 'He was a proud enough man that he wouldn't accept help.'

The situation in Prichard is extremely unusual -- the city has sought bankruptcy protection twice -- but it proves that the unthinkable can, in fact, sometimes happen. And it stands as a warning to cities like Philadelphia and states like Illinois, whose pension funds are under great strain: if nothing changes, the money eventually does run out, and when that happens, misery and turmoil follow.

The city wants to cap pension benefits at $200 per month. Benefits used to be at $3,000 per month. Small haircut, no? The NYT apparently missed Detroit which is building up its resume as th most incompetent public entity to ever manage a pension: Risky bets cost Detroit pension funds $480 million since 2008. And by risky, the freep means that no business is done in the D sans corruption or graft or both.

Many of the investments involved secretive middlemen, who pocketed hundreds of thousands of dollars, or were vetted by controversial investment adviser Adrian Anderson and his firm, North Point Advisors, the subjects of earlier Free Press investigations.

A federal grand jury and the Securities and Exchange Commission are investigating some of the deals that soured and Anderson's role in them, the Free Press has learned.

In the meantime, the pensions are paying the legal bills of Anderson and a second adviser who scrutinized failed real estate deals. That adviser received a grand jury subpoena in March.

...The combined losses are staggering for public pensions already battered by the financial crisis of 2008. The most recent annual report shows the funds had combined assets of $5.44 billion in June 2009, down from nearly $7.4 billion in June 2008.

If cash-strapped Detroit has to make up the shortfall, it could mean higher taxes or reduced services, such as fewer police on the street. But the chairs of the two pensions say the funds are not at risk of being unable to pay benefits.

As usual Detroit is - as I have mentioned many times on this blog - a pension and healthcare management entity that performs shoddy services on the side. The taxpayers now work for the public sector unions, not the other way around. No taxpayer should be on the hook for a public employee that no longer works for them. Yet pensions do just that. It's high time to bury the pension fossil and do what the private sector does - give out defined contributions. Of course, that would eliminate the graft and the corruptocrats that run the D won't have any of it. On a bigger scale, MI could save $5.7 billion a year by simply bringing public sector employment benefits in line with the private sector. Close to here in southeastern Michigan, a story similar to the one in Alabama: MI state denies Hamtramck permission to declare bankruptcy. The problem? Union bennies, as usual. Just what happens in case of bankruptcy? This:

More on the Alabama situation at Wall Street Journal, The Other McCain, National Review and Viking Pundit. HT: memeorandum

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