Can Pensions be Restructured in (Detroit’s) Municipal Bankruptcy?
Federalist Society White Paper
October 30, 2013David Skeel
This White Paper describes and assesses the question whether public employee pensions can be restructured in bankruptcy, with a particular focus on Detroit. Part I gives a brief overview of both the treatment of pensions under state law, and of the Michigan law governing the Detroit pensions. Part II explains the legal argument for restructuring an underfunded pension in bankruptcy. Part III considers the major federal constitutional objections to restructuring, Part IV discusses arguments based on the Michigan Constitution, and Part V assesses several Chapter 9 arguments against restructuring. None of these arguments appear to prevent restructuring. Assuming that pensions can in fact be restructured, Part VI discusses the Chapter 9 factors that may affect the extent to which they are or can be restructured in a particular case.