A federal judge's ruling last week that Detroit public employees could lose pension benefits in bankruptcy court should provide a cautionary warning to California labor unions.

Judge Steven Rhodes concluded that the Motor City is not only eligible for protection from creditors, but also that a workout plan could include trimming retirement payments. Rhodes stressed that his holding does not necessarily mean that pensions will be cut, only that they could be.

To understand the potential reach of the ruling, keep in mind that pension benefits fall into two categories, accruals workers might earn with future labor, and benefits already earned by current and retired employees through past work.

People protest outside the U.S. Courthouse where federal bankruptcy Judge Steven Rhodes is to rule on Detroit’s Chapter 9 bankruptcy eligibility
People protest outside the U.S. Courthouse where federal bankruptcy Judge Steven Rhodes is to rule on Detroit's Chapter 9 bankruptcy eligibility December 3, 2013 in Detroit, Michigan. Detroit is the largest city in U.S. history to file for bankruptcy.(Photo by Bill Pugliano/Getty Images)

In California and Michigan, both types of benefits are often considered protected by the respective state constitutions. But Rhodes determined that the U.S. Constitution's bankruptcy clause trumps those protections.

Government agencies should have the right to reduce future accruals, just as private-sector employers can -- and they shouldn't have to wait until they're insolvent to do so. If employers find that benefits are unaffordable, they should be able to ratchet back the rate at which new benefits are earned to reasonable levels.

In California, prospective benefits are sacrosanct because of a series of poorly reasoned legal rulings, the most recent by the state Supreme Court in 1991. San Jose Mayor Chuck Reed's pension initiative would change the state Constitution and force the current Supreme Court to revisit misguided past decisions.


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The system must be fixed before more municipalities reach bankruptcy. For state and local governments to climb out of their deep holes of pension debt, they must first stop digging.

As the California Little Hoover Commission, a state bipartisan watchdog group, concluded, pensions will strangle funding for needed public services unless officials can and do reduce future accrual rates for current workers.

But what about benefits already earned with past labor? Judge Rhodes warned in the Detroit case that they, too, are vulnerable in bankruptcy court. On this point, attorneys disagree whether California's pension system is legally distinguishable from Detroit's, whether Rhodes' reasoning would apply here. It should be noted that the judge in the Stockton bankruptcy similarly warned he could trim retirement benefits, but has not had to so far.

It's distressing to think about taking away pension benefits for which employees have already worked. That's a last-ditch alternative everyone should seek to avoid. But so is municipal bankruptcy.

Public employee labor unions in California would be wise to join efforts to allow adjustments of future accrual rates. That would be the best insurance against threats to the benefits they've already earned.