Detroit’s Future Pension Payment Rising Faster Than Projected

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Detroit’s future pension contributions could be significantly larger than projected under the city’s bankruptcy plan, according to a report from the Detroit Free Press.

Under the bankruptcy plan, Detroit pays nothing into its pension system for most of the next decade. But in 2024, the city will make one big payment.

The problem for the city is that the 2024 payment could be far larger than projected.

From the Detroit Free Press:

According to new actuarial estimates in documents reviewed by the Detroit Free Press, the city’s balloon payment due in 2024 for its two pension funds has risen to $195 million, or about 71% above the original $114 million projected under the city’s bankruptcy exit plan approved by a federal judge last year. No one has a recently updated forecast yet of what the city’s pension bills look like in the decades after that.

[…]

The actuaries for the city’s two pensions funds say the lower estimate used in the bankruptcy plan was based on outdated information, including projections that didn’t allow for the longer life expectancy of retirees or that the city would be hiring new employees after filing for bankruptcy who would need to become part of the pension system.

The old calculation also was based on pension cuts taking effect in June 2014, instead of nine months later in March, which underestimated the liability for the pension system, officials from the Gabriel Roeder Smith & Co. actuarial firm told its Detroit pension fund clients in recent weeks.

How much of this increase should have been anticipated? Experts warned early on that the ability of Detroit to know its true pension obligations was always unsteady even as the city was set to emerge from bankruptcy.

Martha Kopacz, who analyzed the plan for U.S. Bankruptcy Judge Steven Rhodes and found the city’s plan feasible, cautioned in her report last year that the city must be “continually mindful that a root cause of the financial troubles it now experiences is the failure to properly address future pension obligations.”

Before its bankruptcy, Detroit’s pension obligations totaled $3.5 billion.

 

Photo credit: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

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