Detroit Again. Auditor Says Its Pension Fund made Billions of Dollars in Unathorized Payments

There are times when words seem inadequate to report news items that are so grotesque that they are hard to believe even when they come from a most respectable source. Today’s New York Times reports in a  front-page, above-the-fold story that an audit has disclosed that “Detroit’s municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping to push it into bankruptcy, according to people who have reviewed the payments.” Mary Williams Walsh, Detroit Spent Billions Extra From Pensions, N.Y. Times, Sep. 26, 2013, at p. A1 — click here.

“The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired, and cash to families of workers who died before becoming eligible to receive a pension, according to reports by an outside actuary and other people with knowledge of the matter.” Id. at A4

The outside actuary concluded that “the extra payments had cost the city nearly $2 billion over 23 years . . .” That’s “billions” with a “b.”

That’s pretty bad, isn’t it. But it isn’t all. It turns out that this was only one such pension fund. There was also another one. The outside actuary credited with this disclosure, was unable to get the data from a second pension plan (for police officers and firefighters) so that God only knows what may be going on there.

And if that weren’t enough there is fight going on between two or three auditors (hired by different people with dogs in this fight) as to the proper way of analyzing this mess and the bona fides of some of the auditors. But the firm hired by Detroit’s  “emergency manager” who was appointed before the bankruptcy filing, said “the two city plans appeared to have a $3.5 billion shortfall, much larger than previously disclosed” in annual valuation.