Breaking Down the Deal: What today’s pension settlement is and means

Breaking Down the Deal: What today’s pension settlement is and means

Today’s big news in the bankruptcy – at least as of 1:30 p.m., which is early in the day in the Detroit Chapter 9 world – is that the city reached a deal with the Retired Detroit Police and Fire Fighters Association (RDPFFA) leadership about pensions.

The big points:

  • No cuts to current amounts in pensioners’ monthly checks. (In the last formal document from the city, they had been as high as 14 percent.)
  • Previously proposed cuts to cost-of-living increases are halved. (That’s from about 45 percent to 18 percent.)
  • The RDPFFA agrees to support a Voluntary Employee Beneficiary Association (VEBA) to manage retire health care. (This still means cuts are likely coming.)
  • The RDPFFA gets a voting representative on a new board of governance for pension assets and management.
  • The RDPFFA leadership will support the city’s formal restructuring proposal (translation: there will be a communication campaign to its members urging approval) when it’s voted on during May and June. But that support is dependent on the legislature enacting Gov. Rick Snyder’s proposal that the state provide $17.5 million annually for 20 years toward pension funding. (That, of course, is the “Grand Bargain” that also includes $366 million from foundations and $100 million from the Detroit Institute of Arts. It funds the pensions and protects the sale of artwork at the museum.)
  • The city agreed to use a 6.75 percent annual return on pension investments as a way to calculate future funding levels. The previous assumption had been lower, making less cash available in the forecasting used to inform the city-association talks.

Now, remember, we in the media are working off a statement from the bankruptcy court mediators and a few interviews with attorneys as source material for these reports. We haven’t yet seen the formal deal, but that doesn’t lessen its impact. This represents the first agreement between the city of Detroit and a group of its retired workers.

It’s also the biggest deal involving pensioners in a municipal bankruptcy. No other municipality has had such complicated pension issues in debt restructuring. The deal avoids a court-imposed “cramdown” in which pensioners could be forced to accept the city’s offer, whatever it would be.

So that’s basically good news for retirees covered by this.

What we don’t yet know are whether other provisions are part of the agreement that will make significant changes. For example, will modifications be made to retirement eligibility like raising the age for it? Will the fire department assume any additional duties like emergency medical services? What is the final structure of the board that will govern the pension funds? What will health care benefits for retirees be?

Also, importantly, this deal is limited to the 6,500 members of the police and fire association, not general retirees, assuming the members follow their leadership’s example and vote in favor of the plan. The general retirees are facing a bigger cut under the city’s last public plan: up to 34 percent.

Under the terms of the “grand bargain” both employee groups must vote in favor of whatever plan the city ends up with or that $816 million goes away.

Negotiations are continuing, we do know that.

-By WDET’s Sandra Svoboda

@WDETSandra and nextchapter@wdet.org