Detroit's recovery plan approved by judge
Published: November 7, 2014 - Pensions & Investments
Detroit emerged from bankruptcy Friday, a little more than 15 months after
filing for Chapter 9 protection, after bankruptcy court Judge Steven W. Rhodes
approved the city's recovery plan, including settlements with the city's
creditors.
The plan will eliminate the city's $18 billion of outstanding debt, of which
$3.5 billion is combined liabilities for the $3.4 billion Detroit Police &
Fire Retirement System and $2.77 billion Detroit General Retirement System.
To achieve the debt savings, the recovery plan devised by Kevyn D. Orr, the
Detroitfs former emergency manager, will close the cityfs two public pension
plans to new employees on Dec. 31. Hybrid plans will be available on Jan. 1 for
new employees.
The pension benefits of existing employees and retirees covered by the
General Retirement System will be cut by 4.5%. Pension benefits were not cut for
participants of the Police & Fire Retirement System, but guaranteed
cost-of-living increases were cut for beneficiaries of both public defined
benefit plans.
During Friday's hearing in U.S. Bankruptcy Court in Detroit, Mr. Rhodes
called the settlement allowing the state of Michigan off the hook for pension
underfunding reasonable, but he noted that it is on the glowest end of
reasonableness.h
Mr. Rhodes told the court that even though the Michigan Constitution does not
trump federal bankruptcy, it does give reason to give retirees better treatment,
adding that the bankruptcy process does discriminate against creditor classes,
but not unfairly. gFairness and unfairness are a matter of conscience,h he
stressed.
Trustees of the General Retirement System said in a statement released
Fridaythat they are grelieved that this turbulent period in Detroit's history
and in our pensioners' lives has come to conclusion.h
Settlement of the pension obligations hinged on donations totaling $366
million from a diverse group of Detroit area foundations.
The Foundation for Detroit's Future was created to collect the foundation
grants, make distributions to the two city pension funds, and gmonitor the
city's compliance with ongoing grant conditions, including proper pension fund
oversight and the provision of status reports,h said a statement released Friday
from the Detroit Foundation Funders Group.
Crain's Detroit Business reporters Amy Haimerl and Sherri Welch
contributed to this story. CDB is a sister publication of Pensions &
Investments.