The city of Detroit pays out almost $ 200 $ 200 million per year in pension benefits

The city of Detroit pays out almost $\$200$ million per year in pension benefits to its retired workers. The city's annual contributions to its pension plan are less than half of that sum. ${}^{36}$ As payments out have increased, payments in have decreased. How is it possible to have a fully funded pension plan with these numbers? Professionals, including auditors, fiduciaries, and actuaries, have certified that the aggressive investment policies for the fund should make up the difference. ${}^{37}$ Still, the firefighters - who one day expect to be beneficiaries and in turn receive their payouts-now recognize the harsh reality that is playing out with pension funds throughout the United States. ${}^{38}$ Despite all the imprimaturs from professionals, benefits elsewhere have been cut, plans changed, and, in some cases, payments to retirees stopped altogether. ${}^{39}$ With Detroit in bankruptcy, they appear to have few rights to collection of their pensions. The issue of pension obligations is not only one for businesses, it has been front and center at all levels of government.

Because of the extensive benefits employees at these companies have, the average cost of keeping an employee is about $\$67$ per hour, with $\$27$ being wages and the remainder made up of pensions and health care benefits. One employee who works in the paint-repair shop at GM's Pontiac plant said that he would give up his $\$100,000$ per year salary to retire, spend more time with grandchildren, and get away from the paint fumes. However, one worker noted, "Where is anybody going to find a job paying $\$28$ per hour with [only] a high-school diploma?"44 One worker, who will receive a $\$140,000$ payment, has a small dealership in Doraville, Georgia, where the GM plant is located, at which he sells used pickup trucks. He is not married and has no children, rents out six homes that he owns, and co-owns a beauty parlor. He will retire comfortably.
Following these pension buy-outs, GM was still in dire financial condition. In 2008, the U.S. government provided General Motors with $\$5.8$ billion in funds in order to allow the company to emerge from bankruptcy. As security for the loan and for the advancement of additional billions in bailout funds to the company, the U.S. government held a 10\% ownership stake in the auto company. As part of the deal with the government, GM had to agree to certain management changes and promise to repay the funds. GM also had to agree to provide $39\%$ share ownership of the company to employees of the company. GM promised to cut $40\%$ of its car dealers and eliminate 7,000 jobs. Following its emergence from bankruptcy, GM did cut its car dealers by $40\%$, but following public outcry on the termination of longstanding dealers, it reinstated many of those who had been terminated. GM consolidated plants and closed its Saturn division to push toward the 7,000-job cutback. A government official said that the loss of jobs if the automaker failed was too great to risk and thus required government intervention. The pensions were saved through government payments and RIFs. However, the problems with pensions in business were but a foreshadowing of the crisis that has been ongoing in public pension plans for cities, towns, and states.................

 Discussion Questions 

1. Describe the regulatory cycles on pension fund accounting and pension funding.
2. Explain the conflicts issue in the management of pension plans.
3. Give a list of the economic and ethical issues in pension funding, employee wages, and RIFs.
4. Did noble goals on all sides result in unintended consequences at United, GM, and for the public employees at bankrupt government entities?
5. What ethical issues do you see in the management of pension funds?
6. Explain the ethical obligations of elected officials with regard to underfunding of pension plans.