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Detroit Bankruptcy Tests State Pension Protections

Spencer Platt/Getty Images

Detroit’s attempt to revive its finances through bankruptcy court could hinge on a key question. Is the city obligated to its past employees? Or can it cut pension benefits for the sake of its present city services?

That legal question has never definitively been answered by the nation’s highest courts. But it could become increasingly important as cities from coast to coast are grappling with pension shortfalls that threaten their budgets.

Some cities, like Detroit, are located in states where pension benefits are guaranteed by state constitutions, laws or court precedent.

Yet Detroit’s emergency manager is asserting that those guarantees don’t apply in federal bankruptcy court. That could potentially place retirees in the same pool as numerous other creditors who may get mere cents for each dollar they are owed.

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