Why Detroit’s pensions are underfunded

By James M. Hohman | Michigan Capitol Confidential

Detroit’s bankruptcy has meant that the city’s pensioners may receive less than what they expected. This has angered a lot of people and blame has been pointed in many directions. There are a lot of reasons why Detroit’s pension systems are in poor shape and there is plenty of blame to go around.

The most basic reason that pensions are underfunded in Detroit is simple: the city did not properly fund the system. During good times, the city oversold benefits and its assumptions have proven ineffective at keeping pensions funded during bad times.

A retirement system can offer generous pensions and weather bad markets if it uses accurate assumptions and good practices. Detroit did not.

at Michigan Capitol Confidential.

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