Prichard, Alabama, is not a city that is "too big to fail".
The following excerpts summarize the story.
This struggling small city on the outskirts of Mobile was warned for years that if it did nothing, its pension fund would run out of money by 2009. Right on schedule, its fund ran dry...
... the retired fire marshal who died in June... was too young to collect Social Security. “When they found him, he had no electricity and no running water in his house,”...
The pensions were nowhere as generous as we read about in California and bigger cities.
... Its biggest pension came to about $39,000 a year, for a retired fire chief with many years of service. The average retiree got around $12,000 a year. But the plan allowed workers to retire young, in their 50s....
Workers paid 5.5 percent of their salaries into the pension fund, and the city paid 10.5 percent. But the fund paid out more money than it took in, and by September 2009 there was no longer enough left in the fund to send out the $150,000 worth of monthly checks owed to the retirees. The city stopped paying its pensions.
The problem is also due to demographics.
The city’s rapid decline began in the 1970s. The growth of other suburbs, white flight and then middle-class flight all took their tolls, and the city’s population shrank by 40 percent to about 27,000 today, from its peak of 45,000. As people left, the city’s tax base dwindled.
Demographics problem will hit all developed countries in the next few decades, though it will not be as bad as above.