U.S. public pensions need more than investment windfall
It’s no secret that pension funding is a concern in municipalities and states around the country, but this Reuters piece, published in the Chicago Tribune, presents a bit of a balanced view about how dire (or not) the situation may be.
Indeed, there is evidence that the overall health of pension systems is brightening. A report released by the Federal Reserve last week said liquidity of pension funds has improved.
…many are still struggling with shortfalls. In some cases, they have worsened as state contributions fail to keep pace with what is needed to pay beneficiaries. … Roughly half of U.S. state pension plans have worrying gaps between what they have promised retirees and the funds on hand to pay benefits, according to most analyses.
However the pension funding situations play out across the country during the next few years, it’s clear that Detroit is setting precedent. Emergency Manager Kevyn Orr’s Plan of Adjustment calls for changes in the governance and administration of city employee plans. It remains to be seen to what extent those will be negotiated or whether they will be part of a forced settlement in the bankruptcy case.
The Windy City is among the other U.S. municipalities struggling with pension debt and other financial challenges. Here the Motley Fool asks “Is Chicago the Next Detroit?” in this article and video. The Motley Fool, based in Virginia, is a multimedia financial-services company focused on individual investors.
After hearing from attorneys objecting to the first scheduled Detroit bankruptcy case timeline as too compressed, Judge Steven Rhodes extended the deadlines for filings and objections in the case. The hearing for the city’s Plan of Adjustment is to start July 16 with additional dates available into August.
Here’s the Amended Scheduling Plan Judge Rhodes issued.
The deadline for voting on the plan is June 30. About 173,000 parties are eligible to vote on the plan in dozens of creditor categories including pensioners and bondholders.
The city filed its proposed Plan of Adjustment and Disclosure Statement Feb. 21. Attorneys have said they will amend it. Meanwhile, negotiations and mediation sessions continue between the city and various creditors.
“Keeping your audience abreast of a complex financial deal is hard work,” The Detroit News writes today, continuing,
Detroit Institute of Arts director Graham Beal puts his shoulder to this in his latest letter in the museum’s online newsletter. It meticulously reviews the terms of the proposed “grand bargain” in Detroit’s bankruptcy, and then rebuts some critics even as it airs some of the museum’s own complaints about its predicament.
The city’s Plan of Adjustment assumes not only that the DIA will raise and contribute $100 million toward Detroit’s pension funds but that the state will chip in $350 million over 20 years to go along with a $365 million commitment from a group of foundations.
See what DIA Director Graham Beal is telling members…and the world about the deal.
$85 million to be paid of $288 million currently owed. That’s the latest agreement (posted below) reached between attorneys for the city of Detroit and two investment banks over the interest rate swaps debt related to the city’s pensions funds.
Bankruptcy Judge Steven Rhodes in the last few months has twice rejected agreements of $230 million and $165 million, sending attorneys back to the mediation room. They emerged on Monday, proverbially, and the city filed a motion asking that Rhodes approve the latest arrangement with UBS AG and Bank of America Merrill Lynch. The deal also includes the banks forgoing casino tax revenues that the city had pledged as collateral in 2009 to avoid defaulting on pension debt payments.
The $85 million is not quite 30 cents on the dollar of the current $288 million obligation.
With Detroit’s debt reportedly totaling $18 billion, the city has millions of dollars in debt restructuring remaining to resolve. But the UBS-Bank of America deal is significant. First, it frees up for the city about $15 million in monthly casino taxes that had been tied to the pension interest swap deal. Second, it sets a benchmark for other negotiations — and eventual settlements — with the city’s other 100,000-plus creditors.
Here’s a roundup of news stories about the deal:
Detroit Free Press: Detroit reaches deal…millions saved by taxpayers
Detroit News: New debt deal could save Detroit $201 million