Judge rules Detroit may reduce pension benefits as part of bankruptcy case
Published: December 3, 2013 - Pensions & Investments
Detroit was officially deemed bankrupt by Judge Steven W. Rhodes in U.S.
Bankruptcy Court in Detroit on Tuesday, according to a court news release.
Mr. Rhodes also ruled that Detroit may legally reduce public pension benefits
under Michigan state law.
After a two-week trial to establish the city's eligibility for protection
under Chapter 9 municipal bankruptcy code, Mr. Rhodes agreed with Kevyn D. Orr,
Detroit's state-appointed emergency manager, that the city should receive
protection from lawsuits or other actions that could get in the way of reducing
debt and cutting pension benefits.
Mr. Orr filed the city's bankruptcy petition on July 18, listing debts
totaling about $18 billion, including a combined $3.5 billion of liabilities for
the $3.4 billion Detroit Police & Fire Retirement System and $2.77 billion
Detroit General Retirement System.
gUnder the Michigan Constitution, municipal pension rights are contract
rights. Therefore, because the State of Michigan authorized the filing of this
case, municipal pension rights in Michigan can be impaired in this bankruptcy
case, just like any other contract rights,h according to a summary of Mr.
Rhodes' ruling in the court release.
In September, Mr. Orr proposed closing and freezing the city's pension plans
effective Dec. 31, confirmed William Nowling, the emergency manager's
spokesman.
All future employer contributions would go to a newly created 401(a) plan,
and there would be no future cost-of-living adjustments with respect to accrued
benefits. A 457(b) deferred compensation plan would also be created as part of
the proposal.
Mr. Rhodes ordered the city and its creditors — including unions, bondholders
and retiree groups — into confidential mediation sessions overseen by Gerald
Rosen, the chief judge of the U.S. District Court in Detroit.
Bloomberg contributed to this story.
Original Story Link: http://www.pionline.com/article/20131203/ONLINE/131209974/judge-rules-detroit-may-reduce-pension-benefits-as-part-of-bankruptcy-case
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