Detroit has become such a complicated financial mess – with its pension problems and the city’s bankruptcy filing – that many people don’t fully understand the nuts and bolts of the situation.

Even more important: a lot of Americans are wondering: Could what happened in Detroit happen to me? Could I lose my pension?

The short answer is: Detroit fiscal woes are largely an aberration, but – and this is a BIG but – municipalities and employers nationwide are closely watching what happens in the Motor City. So in some ways, the outcome of Detroit’s pension crisis could have a ripple affect on troubled pension plans all across America.

But before you get all worried about losing your pension, first understand the scope of the problem and the facts about Detroit’s pension problem.

A PRIMER ON PENSION PROBLEMS

Here’s a primer that includes 10 facts about Detroit and pension issues nationwide.

Fact #1: Detroit’s Chapter 9 bankruptcy is the largest municipal bankruptcy in United States history.

Fact #2: Detroit officials say the city has $18 billion in debt.

Fact #3: Although the city claims its pension is underfunded by $3.5 billion, union officials dispute that figure and claim the shortfall is much less.

Fact #4: Detroit has 34,000 retirees, pension beneficiaries and active duty workers.

Fact #5: The city says 40% of its budget goes to pay their pensions and benefits, sapping Detroit’s ability to pay for basic services needed for the city’s 685,000 residents.

Fact #6: To emerge from bankruptcy, the city has come up with its own solution, known as an “Adjustment Plan,” which includes the following proposed adjustments (or changes) to its pension plan:

• Healthcare benefits are to be eliminated for those under age 65
• The city will pay ZERO into the pension fund for the next 10 years
• Cost of living increases are being eliminated
• Pension cuts would total 6% for firefighters and cops and 26% for everyone else; those numbers rise to 10% and 34% if unions don’t agree quickly

Fact #7: A Judge in mid-April approved an $85 million settlement deal between Detroit and two banks (UBS and Bank of America) over some bond investments that went sour. That deal may pave the way for Detroit to work other dealers with its creditors and help the city emerge from bankruptcy.

BROADER IMPLICATIONS

There are two schools of thought regarding the scale of pension problems in the U.S.

Fact #8: A January report by the Nelson A. Rockefeller Institute said there are 14 million workers nationwide covered by pension plans that are underfunded by at least $1 trillion.

Fact #9: Some people contest those numbers and debate how widespread pension under-funding really is in America. They argue that it’s a concentrated issue, in cities where there’s corruption and fiscal mismanagement. These observers say overall, most pensions in America are fine.

Fact #10: Assaults on many pension plans continue nationwide. In at least 10 other states – including New York, California, Virginia and Tennessee – there are efforts underway to try to cut pensions of municipal workers, or eliminate defined-benefit plans. Cities are asking for cuts too: including places like Houston, Chicago, and New Orleans.

The Bottom Line

So what’s the bottom line?

If Detroit is able to get out of its pension responsibilities, that bodes very poorly for American pensioners – including current and future retirees – especially because many city and government workers don’t get Social Security.

Without their pensions, these employees will have less financial stability in their Golden Years and will be forced into an economically uncertain retirement.