A Pension Is Only A Promise
The big financial news recently is the bankruptcy of the City of Detroit. You may initially think, so what? How does the city of Detroit going bankrupt affect a working gay man?
So what? That may be a valid initial reaction if you don’t own city bonds, if you are not a vendor to the city or if you aren’t employed by the city. If you are dependant on the city for employment, retirement benefits, welfare benefits, rent subsidizes, medial care particularly in the form of emergency room visits at city hospitals or a myriad of other benefits you could be very much affected by a municipal bankruptcy.
Jobs lost in a bankruptcy are often difficult to replace, particularly if you are older, less educated or have been in a trade position for many years. And, never forget that it’s still legal in many states to fire you, or simply not hire you, because you are gay. Unemployment is particularly pernicious to workers over fifty, a group that spends the longest amount of time looking for a new job.
Welfare and other social benefits are often back stopped by non-governmental organizations, county, state or even federal agencies, or you can move to a different city and reapply.
The big losers in a municipal bankruptcy will be retirees. Those who worked a career or even a lifetime for the city under the express promise of a monthly retirement check and maybe even the promise of medical care or insurance are those most hurt by a municipal bankruptcy. Generally, those who know a pension awaits them at the end of a career save less on average than those who have no such benefit. Once retired and receiving retirement income it is particularly difficult to either find employment to make up for the lost benefit, or to trim expenses to cover the new shortfall.
These biggest losers are often past the age, and many even past the physical condition, to begin again and the loss of retirement benefits can be catastrophic. In reality, the federal Pension Benefit Guarantee Corporation will size the assets of the bankrupt city’s retirement plan; and then may pay out only a portion of the original benefit amount to retirees, sometimes a cut of up to 35%.
Though there has been increasing pressure for companies and for governments to fully fund their pension promises over the past several years, the reality is that most governments have found it impossible to fully fund their commitments which themselves are funded by shrinking tax bases. Cities such as Detroit have become a veritable shadow of their former selves. One need look no further than the United States Postal Service to see how a congressional requirement to fully fund its pension commitments in an era of declining revenues has forced the USPS to the verge of bankruptcy on more than one occasion.
The lesson is all this is that a government pension is no more secure than a private pension. Governments can go broke just as companies can go broke. And when organizations do go broke retirees can be, and often are, the ones hurt most in that financial collapse.
It is incumbent upon each and every person to financially plan for the chance that when you need it most the organization will be unable, or unwilling, to fulfill their promises.
No matter where you work, including the United States Postal Service. No matter how strong your employer is financially, especially big rich companies like Enron. No matter how long your employer has lived up to its financial obligations, as General Motors did for most of a century. A pension is not money in the bank, it is only a promise.