By Ted Dabrowski -
For 33 years, Clyde Tome served the city of Detroit as a firefighter. Every day he was on duty he knew his life was on the line; in one encounter with riot fires, Tome watched a colleague die. Another time, he saw a nearby fireman killed in a random shooting.
For his commitment, Tome counted on a city pension to take care of him and his wife in their retirement years. But as the city of Detroit’s navigates the waters of federal bankruptcy, it's becoming increasingly more likely that Tome's pension will be cut.
Clyde Tome’s widow, 74-year-old Rose, says she feels “helpless.” To make ends meet, she’s thinking about renting a room in her house so she can afford to stay there. She may even end up selling the home where she and her husband spent their last years together.
“He thought I would be well provided for,” she said. “What do you do?”
Rose Tome’s situation reveals a broader calamity playing out across the country: the moral bankruptcy of government-run pension systems.
On Tuesday, U.S. Bankruptcy Court Judge Steven Rhodes ruled that “nothing distinguishes pension debt from any other debt” – and that Detroit’s pension debt can therefore be partially discharged in bankruptcy.
City workers and retirees in Detroit aren’t the first pensioners to see the government renege on its promise of retirement security. Workers in Central Falls, R.I., and Pritchard, Ala., also saw their retirement funds cut as part of bankruptcy proceedings, some by as much as 55%.
This is the unintended consequence of most state and local governments not allowing their workers to manage their own retirement savings. Instead, these workers are forced to participate in pension systems run by politicians and government bureaucrats. These are retirement systems in which the supposed beneficiary has no control, no voice and no exit.
The scene that has played out in Central Falls, Pritchard and now in Detroit can happen all across America as state and local governments crumble under the weight of retirement costs.
Fortunately, not every state and local government worker and retiree in this country is in the same predicament. Many will be spared the chaos and pains of potential bankruptcy and political infighting because they’ve been given full control and ownership over their retirement accounts.
Michigan put all new state workers in 401(k)-style accounts in 1997 (ironically, a similar plan for Detroit was blocked). Alaska did the same in 2006.
More than 15 states now offer some form of mandatory or optional defined contribution plans for some of their employees, including states such as Minnesota, Utah and Florida. Even Illinois gives state university employees the option to fully control and manage their own retirements. Nearly 18,000 employees have opted in.
While union bosses and politicians may prefer their workers to be covered by pensions instead of self-managed plans, workers shouldn’t be forced to participate in a plan they don’t want.
Detroit’s unraveling has made the immorality of government-run pension plans painfully obvious. Workers have found that after decades of entrusting their retirements to the government, politicians have squandered their savings.
They’ve learned that no amount of constitutional protections and funding guarantees can protect workers from politicians and federal bankruptcy laws.
Would Clyde Tome have wanted to manage his own retirement future? His wife, Rose, says yes.
“We would definitely have been interested in a 401(k) if they had offered one, especially if they had offered any kind of match. I would have done a lot better the way things turned out,” Rose Tome said.
“If other people have their hands on your money, anything can happen."
Ted Dabrowski is Vice President of Policy at the Illinois Policy Institute