Michigan Judge Rules Against Bankruptcy Push

A judge in Ingham County, home to Michigan’s capital, Lansing, ruled that Mr. Snyder’s action had violated the state Constitution because it could cut the pension benefits of retired public employees. The judge, Rosemarie Aquilina, said pensions were protected under state law, and issued an order that the bankruptcy filing be withdrawn.

Her ruling was immediately challenged by Michigan’s attorney general, who appealed to the state’s Court of Appeals on the grounds that the Chapter 9 bankruptcy filing stayed all legal proceedings related to Detroit’s debt obligations.

While the ruling may be overturned, it underscored the mounting tension in the city and the legal battles ahead as bondholders, retirees and other creditors attempt to recover money owed them by the city.

Mr. Snyder and Detroit’s emergency manager, Kevyn D. Orr, estimate the city’s debt and other long-term obligations at $18 billion.

After weeks of mostly unsuccessful negotiations with creditors to settle debts, Mr. Orr recommended a bankruptcy filing to Mr. Snyder this week. The city then filed for Chapter 9 on Thursday, minutes before Judge Aquilina was to hold a hearing on the employee pension funds’ constitutional challenge to a potential bankruptcy proceeding.

The president of one public employees’ union hailed the judge’s decision on Friday. “There is too much at stake to play political games with the hard-earned retirement security of Detroit’s public workers,” said Lee Saunders, head of the American Federation of State, County and Municipal Employees union.

But at a joint news conference on Friday, Mr. Snyder and Mr. Orr were resolute on the need for a bankruptcy filing.

Mr. Snyder, a Republican who has pushed a pro-business agenda in the state, said Detroit had no other options to deal with its debts and improve city services ranked among the nation’s worst.

“This is the time to say enough is enough in terms of the downward decline of the city of Detroit,” he said.

Now that the city has filed, Mr. Snyder and Mr. Orr said they wanted to reassure Detroit’s 700,000 residents that police, fire and other essential services will continue to function.

Mr. Orr, who was appointed by the governor, predicted that residents might start to see improvements soon, saying that the bankruptcy filing offers “breathing room” and will allow Detroit to use its limited resources to put more police cars and ambulances into service.

Depending on the outcome of the appeal of Judge Aquilina’s order, the initial bankruptcy hearings could begin as soon as next week.

On Friday, Judge Steven W. Rhodes was picked to oversee the case. Mr. Rhodes is a hometown selection, having served for 28 years as a bankruptcy judge in the Eastern District of Michigan.

The initial stages of the case will consist of Mr. Orr and possibly state officials showing that there was no available remedy for Detroit’s troubles other than bankruptcy.

“We didn’t make this decision in haste,” Mr. Orr said. “This is a decision that has been winding its way through the city for the better part of six decades.”

Employee unions and creditors may argue otherwise — either by challenging the size of Detroit’s debt, or Mr. Orr’s assertions that he bargained in good faith to reach out-of-court settlements with bondholders, retirees and others.

Some labor unions had accused Mr. Orr of using bankruptcy as a threat during negotiating sessions.

Mr. Orr said that despite marathon talks with creditors, there was little or no movement toward settlements.

“We are finally at a point where we simply can’t kick this can down the road any further,” he said.

There is no blueprint for Detroit’s recovery at this point. In the short term, Mr. Orr said that a deal with two secured creditors, Bank of America and UBS, to accept 75 cents on the dollar for $340 million in liabilities would free up casino revenues that could be used for city services.

The arrangement would provide the city with about $11 million a month in casino receipts. That cash is critical to keep the city safe and functional during a drawn-out bankruptcy process.

Mr. Orr said he expected Detroit to emerge from bankruptcy before his term as emergency manager ends in 14 months.

For Mr. Snyder, placing the state’s largest city in bankruptcy is a calculated risk that its decline could be reversed under court supervision.

He said that he did not anticipate any direct state or federal money would be needed in the effort, but that government grants to help remove abandoned buildings and improve Detroit’s infrastructure would be essential to the city’s comeback.

Media Decoder: Weinstein Company Loses Appeal to Use Movie Title ‘The Butler’

Eliot Spitzer promises to spend plenty on the race for New York City comptroller without revealing where it comes from.

Mark Kozelek shares a song about his mom, who cleaned his ears, dropped him off at rehab and helped him buy a Les Paul.

Preoccupations: Unpaid Interns: Silent No More

Last month, a federal judge in New York ruled that unpaid interns on the movie “Black Swan” should have received at least the minimum wage. The judge also allowed a class-action suit to go forward against the Fox Entertainment Group, the parent company of the film’s production division.

Gutsy and improbable when it was first filed two years ago, the “Black Swan” case was a pioneering direct challenge to the internship system. Now more than 15 other lawsuits have followed in its wake, according to an online database maintained by ProPublica, the investigative journalism Web site.

The companies being sued operate in a wide range of intern-heavy industries. Global brands, famous television and fashion personalities, multinational subsidiaries flush with profits — these are some of the employers that have refused to pay young workers at least $7.25 an hour. How have they done this for so long?

The federal law is clear: if internships at profit-making companies are to be unpaid, they must foster an educational environment. (The rules are different for nonprofit and governmental agencies.)

Good internships are out there — ones that pay, ones that train and ones that lead to real jobs at the end. But many others fall far short — and more people are taking action. “I think enough people have finally seen what a trap this has become,” said Eric Glatt, one of the victorious interns in the “Black Swan” case.

In addition to filing lawsuits, interns are organizing beyond the courtroom, using some of the same strategies as fast-food workers, freelancers and various groups of part-time, temporary or guest workers.

For example, two students at New York University recently created a petition demanding that the university stop advertising unpaid internships on campus; more than a thousand people signed in a matter of days.

With the Obama administration now pushing to increase the minimum wage, some activists are focusing on what they see as government hypocrisy. Washington is a hub for overworked, unpaid interns, the White House and Congress included. What good is a minimum-wage increase when so many people work and make no wages at all?

“There are lots of people who care about this issue; there’s a lot of anger about this issue. We want to build a movement,” said Mikey Franklin, co-founder of the new Fair Pay Campaign, who plans to hire professional organizers to galvanize interns in hubs like New York and Los Angeles. He hopes for support from organized labor, whose leaders, he said, are waking up to the issue’s mobilizing potential.

And Intern Labor Rights, a New York-based group formed out of the Occupy Wall Street movement, is forming a coalition with like-minded groups in Canada, Britain, France, Switzerland, the Netherlands and Austria. In all of those countries, campaigns to make internships fairer are also under way.

What interns are demanding is hardly a mystery: respect for their work. In short, it’s time to start envisioning and putting into practice a healthy, effective internship culture. For better or worse, pay is the fundamental currency of respect in every modern economy. Unless it’s a bona fide training or volunteer position, an internship should be paid, open to all and transparently advertised — and should never result in the displacement of other employees.

TRAINING, mentoring, experience and opportunity are particularly vital for interns, which is precisely why many of them are willing to work longer, harder and for lower wages, running errands and doing other menial tasks. Interns know that they’re starting at the bottom, but they need employers to meet them halfway.

Those who can’t afford to work without pay are eager for the chance to break into the intern-heavy fields that are now all but closed to them. The demand for meaningful career options — coupled with a willingness to work hard for them — has never been stronger.

And yet, for too many people, internships have become slightly shameful, with overtones of menial work, immaturity, parental dependence and being stuck.

As long as the current system remains stubbornly in place, expect the intern revolt to continue.

Ross Perlin is the author of “Intern Nation: How to Earn Nothing and Learn Little in the Brave New Economy.”

DealBook: S.E.C. Charges Are Latest Test for Steven Cohen

Steve Marcus/ReutersSteven A. Cohen, the owner of SAC Capital Advisors, is accused of failing to supervise former employees who face criminal charges.

10:18 p.m. | Updated

After a long-running investigation into insider trading at the hedge fund SAC Capital Advisors, an inquiry that has produced several guilty pleas and a record $616 million civil penalty, the government on Friday brought a case for the first time against the fund’s billionaire owner, Steven A. Cohen.

In a civil action, the Securities and Exchange Commission accused Mr. Cohen of failing to supervise former employees who face criminal charges. The case, filed as an administrative proceeding at the agency rather than a lawsuit in federal court, contends that he ignored “red flags” that should have led him to investigate suspicious trading activity at SAC and take steps to prevent illegal conduct. If the S.E.C. prevails in its action against Mr. Cohen, there are a range of possible penalties, including assessing additional fines, barring Mr. Cohen from managing money for clients, or banning him from the financial services industry for life.

Although the case stops short of accusing Mr. Cohen of fraud or insider trading, it represents the first government action brought directly against him after an inquiry that has persisted for nearly a decade.

And while the government has taken its first direct shot at Mr. Cohen, it is unlikely to be the last. Federal prosecutors and the F.B.I. are continuing to build a criminal case against SAC, according to people briefed on the matter, who spoke on the condition of anonymity. The authorities expect to announce charges as soon as this summer, the people said, noting that prosecutors might indict other traders at SAC or the fund itself, a move that would effectively destroy the company.

Though a legal deadline to file some insider trading charges is approaching, authorities are planning to navigate around that requirement by filing a broader criminal conspiracy case against SAC, these people said. As long as one of the trades cited in the case took place in the last five years, then the government has leeway to include older trades to highlight a continuing scheme.

Mr. Cohen is not out of the woods, either. In May, federal authorities issued subpoenas to Mr. Cohen and five of his senior executives to testify before a grand jury. Mr. Cohen declined to testify, exercising his constitutional right against self-incrimination, the people briefed on the matter said.

Even if a criminal case never materializes, the S.E.C.’s action on Friday is a blow to Mr. Cohen, who has built SAC, which is based in Stamford, Conn., into one of the world’s largest and most powerful hedge funds, with about 1,000 employees and $15 billion in assets at the start of the year. It has a nearly unparalleled investment record, delivering nearly 30 percent annual returns, on average, over two decades. SAC’s investors, however, have already withdrawn billions of dollars from the fund this year as the government’s investigation has intensified.

Keith Bedford/ReutersMathew Martoma, a former employee of SAC Capitol Advisors, has denied charges of insider trading and is set to go to trial Nov. 4.

Mr. Cohen, 57, thought he put his legal troubles behind him in March when SAC agreed to pay a $616 million civil penalty to the S.E.C. The case resolved insider trading actions connected to the suspected misconduct of two former employees, Mathew Martoma and Michael S. Steinberg, though they did not directly implicate Mr. Cohen.

The S.E.C. filed its latest case, which accused Mr. Cohen of failing to supervise the two employees, a day before the five-year legal deadline to bring a case related to trades that Mr. Martoma made in July 2008.

“Hedge fund managers are responsible for exercising appropriate supervision over their employees to ensure that their firms comply with the securities laws,” Andrew J. Ceresney, co-director of enforcement at the S.E.C., said in a statement.

On Friday, Jonathan Gasthalter, an SAC spokesman, said the S.E.C.’s action had no merit. “Steve Cohen acted appropriately at all times and will fight this charge vigorously,” he said. “The S.E.C. ignores SAC’s exceptional supervisory structure, its extensive compliance policies and procedures, and Steve Cohen’s strong support for SAC’s compliance program.”

The firm’s compliance policies and procedures have come under fire as many former employees have found themselves under government scrutiny. Including Mr. Martoma and Mr. Steinberg, nine former SAC employees have been tied to insider trading while at the firm; four have pleaded guilty to criminal charges. Mr. Cohen has not been accused of any criminal wrongdoing.

Mr. Martoma, 39, and Mr. Steinberg, 40, have each pleaded not guilty to criminal insider trading charges and face separate trials in November. Lawyers for each declined to comment on the S.E.C. action against Mr. Cohen. Representatives for the United States attorney’s office for the Southern District of New York and the F.B.I. also declined to comment.

Despite the substantial investor withdrawals, Mr. Cohen has vowed to continue managing funds for outside clients, to whom he charges some of the highest fees in the hedge fund industry. Yet Mr. Cohen could return investors’ money and still run a sizable business that managed his own personal fortune. His wealth accounts for more than half of the fund’s $15 billion in assets.

The S.E.C.’s case against Mr. Cohen intensified this spring, people briefed on the case said, soon after the agency struck the settlement with the fund. The agency sent him a so-called Wells notice in late May, the people said, warning that the agency’s investigators would soon recommend charges.

Mr. Cohen’s lawyers pushed back in recent weeks, outlining a potential defense to the charges. But the agency decided to proceed, one person said, holding a special meeting with the agency’s five commissioners to consider the charges. The meeting was separate from the agency’s typical weekly gathering to discuss enforcement cases, a measure that allowed the agency to keep a tight lid on the case.

The case is not a slam-dunk. The S.E.C. must show not only that Mr. Martoma and Mr. Steinberg violated the law and that they operated under Mr. Cohen’s supervision, but also that Mr. Cohen failed to “reasonably” supervise them.

It could benefit the agency that the case will appear on its home turf. Instead of a being heard by a judge in federal court, the proceeding will take place before an S.E.C. administrative law judge, who will determine what penalties, if any, should be assessed against Mr. Cohen. The S.E.C. says that the illicit trading earned SAC profits and avoided losses totaling more than $275 million.

Friday’s filing provides additional details about two sets of trades made by SAC in 2008. The first involved Mr. Cohen’s collaboration with Mr. Martoma in accumulating large positions in the pharmaceutical companies Elan and Wyeth, which at the time were jointly developing an Alzheimer’s drug. In November, federal prosecutors charged Mr. Martoma with obtaining secret information from a doctor overseeing the drug’s clinical trials. That doctor, Sidney Gilman, has agreed to testify against Mr. Martoma.

Inside SAC, a number of other drug stock analysts at the fund objected to the large positions, but Mr. Cohen told them that he was following Mr. Martoma’s advice because he was “closer to it than you,” according to the court filing. The S.E.C. said that in a later instant message, Mr. Cohen said that it seemed as if Mr. Martoma “has a lot of good relationships in this area.”

Mr. Cohen also knew of a second doctor who might possibly have had secret information about the clinical trials, the S.E.C. said. Rather than express concern about the fund possessing potentially confidential information, Mr. Cohen encouraged Mr. Martoma to talk further with the doctor, according to the court filing.

On July 21, 2008, after building sizable holdings in Elan and Wyeth, SAC began aggressively selling shares in the two companies. The day before, on a Sunday, Mr. Martoma had a 20-minute phone call with Mr. Cohen. It is unclear what was said during that conversation, but Mr. Cohen, in a deposition that he gave to the S.E.C. last year, said that Mr. Martoma told him he had lost conviction in the positions.

The second trade at issue in the case involves shares of Dell. The S.E.C. also faults Mr. Cohen for not ferreting out what they suspect was illegal trading in shares of Dell in August 2008 by Mr. Steinberg and another former SAC employee, Jon Horvath, who pleaded guilty to criminal charges last year.

Friday’s court filing cites an e-mail about Dell that an SAC trader forwarded to Mr. Cohen, who was working at his summer home in the Hamptons. The e-mail was from Mr. Horvath, who worked under Mr. Steinberg, saying that he had a “2nd hand read from someone at the company” and went on to provide detailed information about Dell’s financial performance.

“Please keep this to yourself as obviously not well known,” Mr. Horvath wrote.

The S.E.C. says that based on this e-mail, Mr. Cohen should have taken prompt action to determine whether the fund was engaged in insider trading. Instead, according to the agency, Mr. Cohen quickly sold his small Dell position just before the company announced earnings.

Three hours after the earnings release, Mr. Cohen e-mailed Mr. Steinberg: “Nice job on Dell.”

The Boss: From Apple to Nest Labs, Always a Designer

During summers, we would return to Detroit, where my grandfather, a high school teacher and later a school superintendent, would teach my brother and me how to fix things around the house and build projects, like a soapbox racer, in his workshop.

Computers have fascinated me for as long as I can remember. In grade school, I took a summer programming class, using a mainframe computer with punch cards. My grandfather helped me buy an Apple II; he didn’t know anything about computers but recognized that, for me, it was an important tool — just like his hammers and drills. In high school, a friend and I started a small company, Quality Computers. We worked from his parents’ basement, reselling Apple II hardware and writing software.

In 1987, I entered the University of Michigan, in Ann Arbor, to study computer engineering. But my classes didn’t satisfy my interest in computers, so I founded an educational software company and another company to design computer processors for the Apple IIgs model.

After I graduated in 1991, I moved to Silicon Valley to pursue my dream job: working with General Magic, whose founders created the first Apple Macintosh. I knocked on their door until they hired me later that year. I spent four years there, developing hardware and software to create personal hand-held communications devices, including Sony’s MagicLink. In 1995, I pitched a hand-held product to the C.E.O. of Philips, the Dutch electronics giant. He hired me to build its mobile computing group to develop the Velo and Nino personal digital assistants.

Music has always been one of my passions. Philips wanted to expand in the United States, and the company named me vice president for business development to manage its digital music strategy and investments. Being a corporate guy wasn’t enough for me, so I left to start Fuse Systems, a consumer electronics company. But it foundered when the Internet bubble burst in 2001. That same year, Apple Computer hired me as a consultant in designing what would become the iPod digital music player. Computers plus music plus Apple — it was another dream gig.

Eight weeks later, I approached Steve Jobs with the initial iPod concept and was put in charge of building and leading the development team. One iPod led to another, eventually becoming 18 generations of iPods — and then three generations of the iPhone.

My wife also worked at Apple. Eventually I wanted to spend more time with our two children, and I also wanted a break. So in 2008, I stepped away as senior vice president of Apple’s iPod division and became a strategic adviser to Mr. Jobs. He was an incredible influence on how I think about bringing products to market.

After leaving Apple, we decided to build a “green” home in Lake Tahoe, Calif. While researching heating and cooling systems, I realized that the thermostat was ripe for innovation. I founded Nest Labs to build the self-programming Nest Learning Thermostat. When owners are away, sensors adjust the temperature to save energy. The thermostat has been selling in the United States and Canada for 20 months, but because the device is Wi-Fi connected, we know that it is being used in more than 80 countries.

We designed the thermostat for do-it-yourself installation, and we even include a custom screwdriver in each box. I think my grandfather would have liked that.

Corner Office: Joyce Brown of F.I.T., on Using Your ‘Third Ear’

Q. What was your plan for your career when you were younger?

A. I always knew I wanted to go into psychology. I’m a psychologist by training, which I think is a tremendous help in everything I do.

Q. How so?

A. Among the more important things I learned in pursuing the degree in psychology was an appreciation of an organization’s interrelationships. I think you have to follow process even if you’re not being a bureaucrat. I don’t want to be bound by the process, but I think respecting the process is important — respecting what everybody’s role is — then figuring out how to make everybody work together.

One thing that emerged from the training, and what I do day to day, is to understand who’s responsible for what and to make sure I don’t then ask someone else to do that person’s job. It’s very easy to slip and do that. You can involve others, of course. They may have a suggestion that’s easy enough to incorporate, and then everybody owns a little piece of it. But you have to be clear about who’s responsible. Otherwise, people will cross wires, and that will create a ripple effect that’s totally unnecessary.

Q. Other ways that you draw on your training in psychology?

A. I am convinced that I have a third ear. I listen, and I really pay attention and try very hard to understand the nuances. I tell people that I will listen to what they say, and will try to incorporate what I can from their suggestions if I think they fit the objective we’re trying to achieve. If we’re not going to do what they’re suggesting, I’ll tell them why. I think people deserve that. I will tell you why, and then we will proceed. I think it works, because people feel that they were listened to, and were given the respect of an answer about why I might disagree. You gain a lot by being respectful of people’s ideas.

Q. Talk about some other leadership lessons you’ve learned over the years.

A. It’s important not to choose alliances too early. There are always issues and camps that develop in any organization. You may think you understand them, but you don’t.

I don’t really think there are people who wake up every morning wanting to tear things down in an organization. But there are people with strongly held beliefs who are driven by various things — maybe their own need to be in the limelight, or maybe some deep philosophical belief.

Q. What have you learned from other leaders you’ve observed?

A. I had people who were very helpful to me, who saw something they thought was worth developing, and they created opportunities for me. Their ability to analyze and to be thorough and to think about the impact of one decision versus another was interesting and helpful to watch.

I also saw a lot of things I knew I didn’t want to do. Some people were emotional, histrionic, intolerant and wanted to humiliate people. I also saw people who didn’t pay attention to detail, which I think will sink you every time. My staff calls me Dr. Detail — lovingly, I’m sure. That doesn’t mean I micromanage, but I need to know the details. Things can come around and bite when you don’t pay attention to the real substance.

I’ve also seen people who didn’t respect process. They reached down into the ranks and had other people doing things that marginalized the people they needed to rely on to really get the job done and move the organization forward.

Q. How do you hire? What qualities do you look for? What questions do you ask?

A. I’m really interested in who you are and if you fit in with the culture, with the team — how committed you are to the objectives and goals we’ve set, the vision we have. I like to know how they got here, so I always ask what they thought they were going to do when they were younger, when they went to college.

Why did you choose your major? What did you think you were going to do? What was your vision for your career? How did you get where you are? What were the various things that happened along the way, because invariably it wasn’t a straight line. Then I like to know a little bit about where people grew up. Are they living in the same place they grew up, or did they leave their hometown to come to New York? Are they adventurous? Are they a risk-taker? What’s their passion about? What’s driving them?

Q. What are you listening for?

A. I’m listening for passion. I’m listening for a commitment to being the best, to being successful, and a commitment to something larger than themselves, not just their personal success. That kind of drive really does blossom into one’s work ethic and attitude and approach.

Q. Anything you have a particularly low tolerance for?

A. It’s kind of subtle, but I don’t like when people tear other people down because they’re not owning what might have been their mistake. If you don’t take any risks, you certainly won’t make any mistakes, but you’re not going to get that far, either. So it’s O.K. to make a mistake. You just need to own your mistake. That’s a bad sign for me if somebody doesn’t.

The other thing I don’t like is people who waste other people’s time. They’ll have meetings with no point — everybody has to come together just because you can call them all together. Then, at the end of the day, everybody’s just wasted an hour and a half, and there’s no point to the agenda. Maybe they’re just trying to show they’re in charge of something that they really don’t fully understand. So they might ask 25 questions, or even 10, when they didn’t need to ask any. Ultimately when people can’t answer all their questions, it does sort of make them seem much more smart and more important.

But it doesn’t really work when what you’re trying to do is build a well-oiled machine. All they had to say was: “How can I help you? Let’s figure this out.” They need to be committed to something beyond themselves.

DealBook: Detroit Gap Reveals Industry Dispute on Pension Math

Bill Pugliano/Getty ImagesMany in Detroit were alarmed recently when, seemingly out of nowhere, a $3.5 billion hole appeared in the city’s pension system.

Until mid-June, there was one ray of hope in Detroit’s gathering storm: For all the city’s problems, its pension fund was in pretty good shape. If the city went under, its thousands of retired clerks, police officers, bus drivers and other workers would still be safe.

Then came bad news. Seemingly out of nowhere, a $3.5 billion hole appeared in Detroit’s pension system, courtesy of calculations by a firm hired by the city’s emergency manager.

Retirees were shaken. Pension trustees said it must be a trick. The holders of some of Detroit’s bonds realized in shock that if the city filed for bankruptcy — as it finally did on Thursday — their claims would have even more competition for whatever small pot of money is available.

But Detroit’s pension revelation is nothing new to many people who run pension plans for a living, the math-and-statistics whizzes known as actuaries. For several years, little noticed in the rest of the world, their staid profession has been fighting over how to calculate the value, in today’s dollars, of pensions that will be paid in the future.

It may sound arcane, but the stakes for the country run into the trillions of dollars. Depending on which side ultimately wins the argument, every state, city, county and school district may find out that, like Detroit, it has promised more to its retirees than it ever intended or disclosed. That does not mean all those places will declare bankruptcy, but many have more than likely promised their workers more than they can reasonably expect to deliver.

The problem has nothing to do with the usual padding and pay-to-play scandals that can plague pension funds. Rather, it is the possibility that a fundamental error has for decades been ingrained into actuarial standards of practice so that certain calculations are always done incorrectly. Over time, this mistake, if that is what it is, has worked its way into generally accepted accounting principles, been overlooked by outside auditors and even affected state and municipal credit ratings, although the ratings firms have lately been trying to correct for it.

Since the 1990s, the error has been making pensions look cheaper than they truly are, so if a city really has gone beyond its means, no one can see it.

“When the taxpayers find out, they’re going to be absolutely furious,” said Jeremy Gold, an actuary and economist who for years has called on his profession to correct what he calls “the biases embedded in present actuarial principles.” In 2000, well before the current flurry of pension-related municipal bankruptcies, he wrote his doctoral dissertation on how and why conventional pension calculations run afoul of modern economic principles.

Mr. Gold made his prediction about taxpayer fury in an interview a number of years ago in which he also explained why he had chosen his topic. He said he hoped to help put a stop to the errors he saw his colleagues making before pension problems that were already starting to brew then boiled over and a furious public heaped blame, scorn and legal liability on the profession.

When a lender calculates the value of a mortgage, or a trader sets the price of a bond, each looks at the payments scheduled in the future and translates them into today’s dollars, using a commonplace calculation called discounting. By extension, it might seem that an actuary calculating a city’s pension obligations would look at the scheduled future payments to retirees and discount them to today’s dollars.

But that is not what happens. To calculate a city’s pension liabilities, an actuary instead projects all the contributions the city will probably have to make to the pension fund over time. Many assumptions go into this projection, including an assumption that returns on the investments made by the pension fund will cover most of the plan’s costs. The greater the average annual investment returns, the less the city will presumably have to contribute. Pension plan trustees set the rate of return, usually between 7 percent and 8 percent.

In addition, actuaries “smooth” the numbers, to keep big swings in the financial markets from making the pension contributions gyrate year to year. These methods, actuarial watchdogs say, build a strong bias into the numbers. Not only can they make unsustainable pension plans look fine, they say, but they distort the all-important instructions actuaries give their clients every year on how much money to set aside to pay all benefits in the future.

If the critics are right about that, it means even the cities that diligently follow their actuaries’ instructions, contributing the required amounts each year, are falling behind, and they don’t even know it.

These critics advocate discounting pension liabilities based on a low-risk rate of return, akin to one for a very safe bond.

In the years since his doctoral research, Mr. Gold and like-minded actuaries and economists have been presenting their ideas in professional forums and in scholarly papers crammed with equations and letters of the Greek alphabet. They have won converts, but so far no changes in the actuarial standards. Their theoretical arguments tend to fly over the head of the typical taxpayer.

Year after year there has been consistent resistance from the trustees of public pensions, the actuarial firms that advise them and the unions that represent public workers. The unions suspect hidden agendas, like cutting their benefits. The actuaries say they comply fully with all actuarial standards of practice and pronouncements of the Governmental Accounting Standards Board. When state and local governments go looking for a new pension actuary, they sometimes post ads saying that candidates who favor new ways of calculating liabilities need not apply.

A few years ago, with the debate still raging and cities staggering through the recession, one top professional body, the Society of Actuaries, gathered expert opinion and realized that public pension plans had come to pose the single largest reputational risk to the profession. A Public Plans Reputational Risk Task Force was convened. It held some meetings, but last year, the matter was shifted to a new body, something called the Blue Ribbon Panel, which was composed not of actuaries but public policy figures from a number of disciplines. Panelists include Richard Ravitch, a former lieutenant governor of New York; Bradley Belt, a former executive director of the Pension Benefit Guaranty Corporation; and Robert North, the actuary who shepherds New York City’s five big public pension plans.

This project has drawn fire from a large number of public pension officials. They recently wrote the Society of Actuaries a joint letter, urging it to reconstitute the Blue Ribbon Panel by adding more people “who can provide insight” into the many benefits of the current method, and expressed great concern about switching to a new one that could cause confusion and volatility. Of possible interest to the bondholders and taxpayers of Detroit, they also said that as fiduciaries they were required to “put the interest of all plan participants and beneficiaries above their own interests or those of any third parties.”

Much of the theoretical argument for retaining current methods is based on the belief that states and cities, unlike companies, cannot go out of business. That means public pension systems have an infinite investment horizon and can pull out of down markets if given enough time.

As Detroit has shown, that time can run out.

Monica Davey contributed reporting.