The headline might have been Detroit is the largest U.S. city to ever file for bankruptcy protection, yet the domino effect from such an action is staggering.

And while it’s true there has been a glimmer of hope in the resurgence of the auto sector and a slight renaissance within the downtown core, massive problems still exist.

Consider employees of the city who might be asked to take a cut in their pensions to help bail out the city’s reported $20 billion dollar debt crisis. A fight will inevitably occur between those workers, bondholders and creditors over how to squeeze funds from the already beleaguered city.

Currently, the Michigan Constitution protects municipal pension benefits from impairment. However, if the Bankruptcy Court overrides this provision it could have dramatic consequences for all Michigan municipalities.

Meanwhile, the city’s emergency manager, Kevyn D. Orr has called for “significant cuts” to the pensions of retirees. He has said that a large part of the city’s debt is made up of $3.5 billion worth of pension liabilities and $6.4 billion of other benefits such as retiree healthcare. While no one has gone as far as to say they are eliminating pensions, any cuts could be devastating to the 21,000 retirees of Detroit.

In the interim, two Detroit pension funds are suing the city’s emergency manager and the governor of Michigan, noting that a bankruptcy filing would conflict with the state’s constitutional protection of public retirees’ rights.

The General Retirement System and the Police and Fire Retirement System of the City of Detroit filed the lawsuit last week in state court.

Investment firms, managers, financial planners, and retirement consultants and advisers for both the city and its retirees should take actions to help those in need.

Do not consider this charity. Rather, helping people ensure their investments can sustain them, even while pensions are being cut, should be considered a down payment on future goodwill. Future retirees and pensioners in the area will not forget the free advice or help once offered in a time of crisis. And frankly, it’s the right thing to do. It certainly didn’t hurt the auto sector to get a second chance.

Consider the millions of dollars made by managers investing city and retiree pension funds over the years. Even if pro-bono work is not possible, any plan to help the city’s citizens should be looked at by those that manage the funds. Wouldn’t now be the right time to give some of that profit back?

Joel Kranc is Director of Kranc Communications, focusing on business communications, content delivery and marketing strategies. He has written and worked in the retirement and institutional investment space for 17 years covering North American markets, large institutional pensions and the adviser community. joel@kranccomm.com.

 

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