DETROIT, MI – The City of Detroit reached a deal Tuesday with a retired police and firefighters group to preserve current pensions, according to mediators.
The deal, which Detroit bankruptcy mediator Gerald Rosen revealed, comes as the city also is close to reaching an agreement with its Official Committee of Retirees and two independently run pension fund boards.
The Retired Detroit Police and Fire Fighters Association agreed to support a deal that would involve not cutting monthly pension checks and keeping almost half of annual cost-of-living increases, Rosen said in a statement. The current cost-of-living adjustment is 2.25%.
The latest deal, which comes after separate accords with two global banks and unsecured bondholders, could hasten the city’s emergence from bankruptcy and speed the city’s plans to reinvest in services.
Mediation continues with the Detroit Retirement Systems, which control the city’s pension fund assets, and the U.S. government-appointed Official Committee of Retirees. The Detroit Retired City Employees Association expects to begin its negotiations with the city later this week.
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In court filings late Monday, the city said it had agreed to a concession with retirees, raising the expected rate of annual investment returns for pension funds to 6.75%, which correspondingly improves their outlook.
Detroit police retiree Mustafa Abdur-Rahman, 52, of Macomb Township, Mich., said he’s ready to vote for the deal.
“I’m thrilled about it,” said Abdur-Rahman, who receives a monthly check of about $3,500. “If I know what I’m working with up front, I can adjust what I’m doing. It’s like a Social Security check: I’ve never heard them cutting a Social Security check, but if they’re going to cut the cost of living, I can take that.”
Holding the line on pension cuts for the uniformed retirees “is a favorable result, to put it mildly,” said Ryan Plecha, a lawyer for the city’s retiree associations. The general retiree association also is optimistic it can negotiate a better deal than past offers, but he did not want to compare the two groups.
Bankruptcy Judge Steven Rhodes, who last week admonished the city and creditors to reach deals “now,” still must approve the city’s restructuring plan, which is expected to face stiff opposition from some major creditors.
The 78-year-old retiree association represents about 6,500 police and fire pensioners, accounting for 80% of the city’s uniformed retirees. It does not have binding negotiating power, but its support of a deal is viewed as politically significant because it will try to convince retirees to back the settlement.
Frank Rossi, 76, a former fire engine operator, woke up to the good news his pension could remain intact. The Chesterfield Township resident is reserving judgment on whether he’d vote in favor of the deal.
“I’ll believe it when I find out that’s the truth,” said Rossi, who retired in 1992 after 29 years in the fire department and needs the $1,850 monthly check. “I just keep my fingers crossed, that’s all.”
The police and fire retiree association also agreed to support the establishment of a Voluntary Employee Beneficiary Association to manage retiree health care, which is expected to deliver significantly reduced benefits to retirees. A separate benefits association would be set up for the general retiree association.
Don Taylor, president of the Retired Detroit Police & Fire Fighters Association, was not immediately available for comment. The association’s board unanimously agreed to back the deal, which must still be approved by a majority of uniformed pensioners. They represent two-thirds of the city’s unfunded pension liabilities.
“This settlement agreement was reached after intensive negotiating sessions over the past several months in which the parties’ interests were fully and vigorously represented by counsel and all issues robustly negotiated,” Rosen said.
The police and fire retiree association agreed to support the city’s restructuring proposal if the state of Michigan follows through on its promise to contribute $350 million as part of a “grand bargain” in which the Detroit Institute of Arts is allowed to spin off as an independent institution.
A group of nonprofit foundations and the art museum collectively have agreed to contribute another $466 million over 20 years to the grand bargain to help reduce pension cuts.
The deal would require retirees to relinquish their right to pursue lawsuits over pension cuts against the state of Michigan, which has not yet approved its $350 million portion of the deal. The groups also must agree on details associated with the city’s pension investment projections, including the annual rate of return and the total of the unfunded pension liability.
Because individual retirees and active vested pensioners still must cast ballots on the restructuring plan from Detroit emergency manager Kevyn Orr, any deals would require the retirement systems and the Official Committee of Retirees to recommend a “yes” vote to pensioners.
Such a lobbying campaign could be compared to a union group attempting to convince its membership — in this case, about 32,000 people entitled to a pension — to vote yes on a bargaining proposal.
In his latest restructuring plan, called a plan of adjustment, Orr had proposed monthly pension cuts of 6% for police and fire retirees and 26% for general retirees with no cost-of-living benefits for either side. If the retirees rejected the grand bargain, those cuts would rise to 14% and 34%, respectively.
Orr has argued that pension cuts are necessary to help the city return to financial sustainability and start reinvesting in city services, including police, fire and blight removal.
“This is another significant step forward as we work towards securing Detroit’s long-term financial viability,” said Orr in a statement. “I thank the Retired Detroit Police and Fire Fighters Association for its willingness to compromise, and I encourage all other parties to reach resolutions with the city in a timely fashion.”
The city was expected to file a reworked plan of adjustment and accompanying disclosure statement at some point Tuesday.
Bill Nowling, a spokesman for Orr, declined to discuss the agreement with the retiree association or the status of negotiations with other groups involved in the pension resolution.
“We continue to make progress,” Nowling said. “There’s still a lot to work through.”
Tina Bassett, a spokeswoman for the General Retirement System, said negotiations continue for the other retirees.
“We are still negotiating in good faith and hope to be able to announce something soon,” Bassett said.
The city’s pension systems and retiree committee had vigorously contested Detroit’s bankruptcy restructuring proposals. Both groups have appealed prospective pension cuts to the Cincinnati-based federal appeals court. But those appeals would be dropped if the retirees agree to a deal.
Detroit’s bankruptcy still faces several significant hurdles. Each individual class of creditors must vote on the plan of adjustment, and Rhodes must decide whether the votes constitute enough legal support to allow the city to exit bankruptcy.
Rhodes also must determine in a massive plan confirmation trial that the restructuring proposal is fair, equitable and viable.
Several major creditors are likely to continue opposing the city in court, including bond insurers Financial Guaranty Insurance Co. and Syncora, which would incur steep losses if the city’s restructuring proposal proceeds.
Detroit filed for bankruptcy protection in July, citing $18 billion in debts and projected liabilities
From USA Today