Inside the bankruptcy plan resides the issue of the chronically underfunded pensions. The city’ government made promises o its workers that it now cannot keep. The gap right now stands at $3.5 billion. Additionally, the gap of other unfunded post-employment benefits such as life insurance and health care stands at $5.7 billion.
Totalling the two out, the Detroit pension system faces a $9.2 billion shortfall. Under the bankruptcy restructuring plan, the $35 billion will be wiped out, while the $5.7 billion will undergo a 90% haircut. Essentially wiping it out in the process.
Pensioners would stand to lose $8,6 billion of future benefits or 41% of the value of ll their benefits of the proceedings go forward as planned. Obviously, the pensioners and unions will fight this in court, but Sprott out how predictable this issue was and how shocking it was the leaders did very little to mitigate the damage until it was too late.
- Source, Trade the News Room, read the full article here: