Hindsight's Always 20/20....except when it isn't...

A Detroit Free Press article indicates $445 million was re-invested in the Detroit Pension Fund between 1985 until 2008, a 23 year period during which a controversial "13th check" was annually distributed to active city workers and  retirees. The article, written by Free Press reporter, Nathan Bomey, cites an affidavit presented in federal court, prepared by Pension Board member, John Riehl, for the General Retirement System, (non-uniformed) pension fund.

http://www.freep.com/article/20131002/NEWS01/310020022/Detroit-13th-check-pension-General-Retirement-System

The annual breakdown charted in the article, shows a total if $756.2 Million went directly to active City of Detroit employees, and a total of $195 Million went to retirees. The Free Press article asserts that their own actuarial analysis supports the fact that the Pension Fund would be in better shape today, if only those checks had not been given to workers and retirees, and instead, the entire amount, roughly $1.9 Billion, including the original $445 Million, had been reinvested in the General Fund.  The Free Press did not share any investment strategy that would yield such a return, nor do they explain how the inherently variable nature of the amount of annual re-investment would affect their projections.  But Mr. Riehl pointed out in an Op-Ed that:

From the WSJ

“Some say that if the board had invested those excess earnings funds over the 23-year period, the pension fund would be in better shape today,” Riehl wrote in a Free Press op-ed Sunday. “Given the numerous factors that influence fund performance over such a long period, it’s impossible to predict whether that’s true.”

From the WSJ: The post - 9/11 crash

If you consider the volatility of the auto industry over that same time period, as well as a generally sluggish national economy for 15 of those 23 years,  three stunning stock market crashes, not to mention several rollercoaster "corrections," it's hard to argue with Mr. Riehl's assertion. Context is everything.  For instance, just consider the impact of the events leading up to bankruptcy of Chrysler & GM, and the complete meltdown of our financial institutions, and the fact that  the stock market was in freefall in 2007, 2008, & much of 2009.  In fact, most credible financial analysts put agregate public pension losses at 25% for that three year period alone.
(edited 10/5/13)
 On Friday, October 4th, Federal Judge Stephen Rhodes, permitted Administrative Law Judge, Doyle O'Connor, to proceed with a pending ruling on the banning of the 13th check for active and retired workers. The Administrative Law Judge ruled in favor of the workers, saying that the City was wrong to ban the check in 2011, but compared the ruling to acknowledging a passenger with a ticket that allowed for a complete refund  for sailing on the Titanic. The notion of bonuses deserves a fuller discussion, which we will  attempt to address in future posts.
(Some questions have been raised about whether pension funds were diverted into annuity funds for active workers, which certainly warrants a fuller discussion.)