Annuity Lump Sum Re-Payment: Will be an option if pensioners approve city’s plan

Annuity Lump Sum Re-Payment: Will be an option if pensioners approve city’s plan

Steve Wojtowicz was waiting for this.

In an agreement announced this morning, Detroit pensioners like Wojtowicz will be able to make a lump-sum payment to return money from their annuity savings funds if they also vote, as a class, in favor of the city’s Plan of Adjustment. “Definitely it swayed my vote to a ‘yes,’ and I’ll be dropping it in the mail tomorrow morning,” said Wojtowicz, a 30-year employee of the Detroit Water and Sewerage Department. At least a few of his friends and former colleagues have told him the option is a deciding factor in their votes as well.

At issue is the Annuity Savings Fund that was available to non-uniform city employees.When employees retired, they had the option of a full pay out or receiving it monthly, according to court filings. Workers who paid into the annuity plan contributed up to 7 percent of their salaries with guaranteed rates of return of 7.9 percent. The pension fund covered the difference between the promised 7.9 percent and the lower, actual return rate, a policy the city contends drew down the pension fund and contributed to its underfunding by millions of dollars.

As part of the bankruptcy restructuring negotiations, attorneys for employees and retirees had agreed to a 20 percent “clawback” of the annuity funds. But because several retirees like Wojtowicz had asked, Detroit’s General Retirement System (GRS) filed a motion seeking to allow retirees make one-time repayments instead of spreading them out over their lifetimes with 6.75 percent interest tacked on. Judge Steven Rhodes scheduled a June 27 hearing about the request, but attorneys said they had  “agreed to a resolution in concept.” 

That agreement was announced today.

Wojtowicz’s payback totals  about $89,000. But he is 55 years old. By his calculation, his payback with interest, if he lives until he is 80, would be around $200,000.  He plans to use a home equity loan to make a lump sum payback if the city’s plan is approved in court.

But he acknowledges not all retirees have that option.

“I’ve talked to other people, they can’t afford to do it,” he says. “Some people aren’t in the situation to come up with, say, $60,000.”

 

6.30.14 Mediators Statement

-By WDET’s Sandra Svoboda

@WDETSandra and nextchapter@wdet.org