Watching Detroit municipal workers fight to keep their pensions intact after the city filed for bankruptcy last week is making many people around the country wonder about the safety of their own pensions.
According to Karen Friedman of the Pension Rights Center, it depends on whether you pension is corporate or government, and how it is funded.
“If you’re in a company pension and, let’s say, your company goes bankrupt, your pension plan would be backed by the federal insurance program called the Pension Benefit Guaranty Corp.,” she told “Nightly Business Report.”
(Read More: Detroit Bankruptcy Could Hit Millions of Retirees)
Government plans differ from corporate ones. In some cases, state legislators have not adequately funded pension plans, but Freidman said most state plans are actually well-funded. Also, most state and municipal laws prohibit pensions from being cut.
“From that perspective, people have less worry,” she said. “But because of Detroit, there are some dangerous things going on.”
For decades, officials in that city have failed to fund its pensions, which now hang in the balance as both sides fight over whether the city needs to meet its obligation.
A county judge in Michigan ruled that the bankruptcy violates the state constitution provision protecting pensions, but the federal judge overseeing the bankruptcy said Monday that the federal court has jurisdiction. A hearing in the case is set for Wednesday, but the legal battle will rage on for quite a while, Friedman said.
“We hope that this issue in Detroit is going to be resolved favorably for workers and retirees,” she said. “We think it sets an extremely dangerous precedent and we hope this does not spread to any other cities.”
So, if you have a pension, what should you do to make sure it’s safe?
Corporate plans are required to give you a statement every year telling you how well-funded it is.
“Look at it. If you have questions, go to an independent actuary, one of the math wizards who helps people in this situation, or go to your plan administrator,” Friedman said.
If it is a state plan, start with the state legislature.
“Go to your state legislators and tell them, ‘This pension is important to me. … I want to know that you are funding it,’” she said.
-Scott Cohn contributed to this report.