Bankrupt Detroit reaches pension deal with police, fire
A major association representing Detroit's police and fire retirees has agreed to support a deal with the City of Detroit in which uniformed pensioners would not receive cuts
By Nathan Bomey, Matt Helms, Alisa Priddle and Susan Tompor
Detroit Free Press
DETROIT — A major association representing Detroit's police and fire retirees has agreed to support a deal with the City of Detroit in which uniformed pensioners would not receive cuts to their monthly pension checks.
The deal — revealed Tuesday afternoon by Detroit bankruptcy mediator Gerald Rosen — comes as the city is also close to reaching a settlement with its Official Committee of Retirees and two independently run pension fund boards.
Rosen said in a statement that the Retired Detroit Police and Fire Fighters Association agreed to support a deal that would involve no cuts to monthly pension checks and keeping "almost half" of annual cost-of-living adjustment increases.
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.
It also comes as 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 Free Press reported Tuesday morning that the city was close to a deal with retirees on pension cuts.
Detroit police retiree Mustafa Abdur-Rahman, 52, of Macomb Township, said he's ready to vote for the deal.
"I'd say 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."
Judge Steven Rhodes, who last week admonished the city and creditors to reach deals "now," must still approve the city's restructuring plan, which is expected to face stiff opposition from some major financial creditors.
The 78-year-old retiree association represents about 6,500 police and fire pensioners, accounting for 80 percent 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.
The retiree association also agreed to support the establishment of a Voluntary Employee Beneficiary Association (VEBA) to manage retiree health care, which is expected to deliver significantly reduced benefits to retirees.
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 representing 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 deal comes after the City of Detroit said late Monday in court filings that it had agreed to a concession with retirees: raising the expected rate of annual investment returns for pension funds to 6.75 percent, which correspondingly improves their funding outlook.
The association agreed to support a reduction in retirees' 2.25 percent COLA benefit, which was a significant sticking point in confidential mediation sessions.
The 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 be allowed to spin off as an independent institution.
A group of nonprofit foundations and the DIA have collectively agreed to contribute another $466 million — all over 20 years — to the grand bargain to help reduce pension cuts.
In his latest restructuring plan, called a plan of adjustment, Detroit emergency manager Kevyn Orr had proposed monthly pension cuts of 6 percent for police and fire retirees and 26 percent for general retirees with no COLA benefits for either side.
If the retirees rejected the grand bargain, those cuts would rise to 14 percent and 34 percent, respectively.
The city is expected to file a reworked plan of adjustment and accompanying disclosure statement 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.
Copyright 2014 Detroit Free Press