Motor City as a Motivator

Pensions & Investments

Nossaman Partner John Kennedy was quoted in the Pensions & Investments article "Motor City as a motivator" regarding the impact that Detroit's bankruptcy will have on other U.S. cities who are struggling with pension underfunding.  The federal judge who is handling Detroit's bankruptcy could decide to cut vested pension benefits to reduce the city's debt.

Some are wondering if the decision will result in a rush of bankruptcy filings by other municipalities seeking relief from pension obligations and other debt.  Mr. Kennedy stated, "I think that because Detroit is so big and the process has been so public that it will encourage many other municipalities to seek Chapter 9 protection as one way to lower their pension obligations."

Mr. Kennedy added that many other municipalities are suffering similar financial woes, especially the loss of state pension support.  "Just like in California, where bankruptcy filings started with one city but were followed by other cities, if Detroit is allowed to reduce accrued pension benefits, the floodgates will open and many other municipalities will follow," he said.

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