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Detroit Emergency Manager Proposes Pension Freeze, Defined Contribution Plan

Wednesday, October 2, 2013
By Nora Macaluso

Sept. 27 --City of Detroit employees with fewer than 10 years on the job would have their pension benefits frozen and be moved to a defined-contribution plan effective Jan. 1, 2014, under a proposal made Sept. 26 by Kevyn Orr, the city's emergency manager.

Workers vested in the General Retirement System of the City of Detroit -- those who have worked for Detroit for 10 years or more -- would have their benefits frozen at levels based on years of benefit service and average final compensation as of Dec. 31, when the plans would be frozen. New employees would go directly into the new plan.

The city would contribute 5 percent of each employee's base pay to accounts under the new plan after three years of employment.

“We've given the proposed language to stakeholders and want to get feedback,” Bill Nowling, a spokesman for Orr, told Bloomberg BNA Sept. 26. Michigan Treasurer Andy Dillon must also approve the proposal, he said.

Tina Bassett, a spokeswoman for the retirement plan, said it was not clear how the proposal would fit in with the bankruptcy process. “We do not support the approach taken in the proposal and do not understand why such a proposal would be brought forward before Judge Rhodes even rules on the eligibility of bankruptcy,” Bassett said in a Sept. 26 statement e-mailed to Bloomberg BNA. “It is difficult to believe that this is a 'good faith’ effort put forward by the EM and is inconsistent with the open and diligent efforts requested of the bankruptcy mediation process.”

“No one from the GRS had any input into this proposal,” Bassett said. “We believe it is unseemly and disingenuous to present a proposal involving a new benefit structure that will affect the pensions of our members, beneficiaries and city employees not yet vested, without seeking our input, suggestions, knowledge and expertise.”

Bassett said she was not sure of the next steps for the proposal. “We really don't know the process yet,” she told Bloomberg BNA Sept. 27. “No one has spoken to us.”

Auditor's Report Released
The proposal came on the same day Orr's office released a report detailing an investigation into the city's pension and health-care benefits that found “several inconsistencies” regarding financial calculations, in addition to potentially fraudulent unemployment claims and other problems. The auditor general and inspector general plan a similar investigation into the Police and Fire pension system, the report said.
White House Officials Meet
Meanwhile, the Obama administration began working with Detroit leaders to provide aid during the city's bankruptcy process. White House officials including Attorney General Eric Holder, National Economic Council Director Gene Sperling and Transportation Secretary Anthony Foxx met Sept. 27 with city and state representatives, pledging millions of dollars in grants and aid to help with blight, housing, transportation and public safety.

Sperling said the meeting was the first of many to help Detroit. Don Graves, executive director of the President's Council on Jobs and Competitiveness and a deputy assistant secretary at the Treasury, will serve as the administration's “point person” on Detroit, responsible for coordinating federal efforts and serving as a “constant presence with real connections” to the federal government, he said.

Detroit became the largest city ever to file for Chapter 9 protection on July 18, 2013 (25 BBLR 1005, 7/25/13).

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