Pensions

  • Appeals court to hear Detroit bankruptcy eligibility appeal this month

    A federal appeals court plans to hear arguments later this month on the eligibility of Detroit’s bankruptcy filing, according to court documents. The hearing in front of the Sixth Circuit Court of Appeals in Cincinnati will be held just two weeks before the confirmation hearing on the Plan of Adjustment is scheduled to begin in bankruptcy court in Detroit.

    Here’s the story:

    After Bankruptcy Judge Steven Rhodes ruled last year that Detroit’s bankruptcy case could go forward, several groups representing employees and retirees appealed his decision to the Sixth Circuit. In February, that court ruled the appeal could proceed but refused to expedite it as the attorneys had asked. Now the court says it will hold  arguments on the issue July 30.

    Each side will have one hour to argue before a three-judge panel, the court wrote.

    The city has asked the arguments on the appeal be postponed if pensioners vote in favor of the city’s Plan of Adjustment. Votes are due July 11, and the city plans to report votes to the bankruptcy court by Monday, July 21, city spokesman Bill Nowling said earlier this week. City lawyers repeated that plan in their request for the postponement of eligibility arguments.

    According to terms reached in negotiations and in the “Grand Bargain,” if the two classes of pensioners — police/fire and non-uniform — vote in favor of the plan, they agree not to pursue pending litigation, such as the appeal of the bankruptcy eligibility. Several employee groups who are parties to the appeal have reached agreements with the city as part of the bankruptcy negotiation and have agreed to support the Plan of Adjustment. These include the Police and Fire Retirement System; the General Retirement System; the Official Committee of Retirees; American Federation of State, County and Municipal Employees Council 25; Retired Detroit Police and Fire Fighters Association, the Detroit Retired City Employees Association, the Detroit Police Command Officers Association and the International Union, UAW.

    But the Retired Police Member Association, the Detroit Fire Fighters Association and the Detroit Police Officers Association — have not reached agreements with the city in the bankruptcy and are also parties to the eligibility appeal.

     

    -By WDET’s Sandra Svoboda

    @WDETSandra and nextchapter@wdet.org

     

     

  • On Michigan Radio: One week left in bankruptcy plan voting

    The clock is ticking. Detroit’s bankruptcy settlement has gotten through the State Legislature, and the private foundations have chipped in for pension funding. Now the 32,000 city employees and retirees are being asked to say “yes” to having their pensions cut, and promising not to sue the city. In return, the pension cuts will not be as severe as they would be under what’s become known as the Grand Bargain. Michigan Radio’s Detroit reporter Sarah Cwiek joins Stateside and explains the transparency issue surrounding the voting process, what the different classifications of retirees mean, and what we should keep our eyes on, during next week leading up to the July 11th deadline.

  • 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

  • Mediation today in pension deal lawsuit

    The city’s lawsuit over what’s been termed a “disastrous deal” in how it funded pensions in 2005 and 2006 — a description levied with the benefit of 20-20 hindsight — is the subject of a court-ordered mediation session today.

    Chief U.S. District Judge Gerald Rosen, also the head mediator in the city’s bankruptcy case, issued an order to the city, several insurers and the banks that financed the “Certificates of Participation” (COPs) for the city’s two pension funds. Attorneys are to appear at noon today to discuss the deal, which provided about $1.8 billion for Detroit’s two pension funds under terms that later became unaffordable for the city.

    The city, in a lawsuit filed in January by Emergency Manager Kevyn Orr, calls the COPs deal illegal.

    As part of the city’s bankruptcy case, an agreement was reached earlier this year with UBS and Bank of American Merrill Lynch, the banks that funded an interest-rate restructuring related to the COPs. Bankruptcy Judge Steven Rhodes twice rejected settlements of $230 million and $165 million before approving the $85 million in March for the city to settle the debt, known as the interest-rate “swaps” deal. Detroit incurred the debt in 2009 when it pledged casino taxes as collateral to avoid defaulting on pension debt payments. The city ended up locking itself into high interest rates on bonds, and the deal became too costly when interest rates plunged.

    Judge Rosen is considered the chief architect of the “grand bargain,” the “swaps settlement” and has led talks between the city and employee groups in reaching settlements in the bankruptcy case. Judge Rhodes has repeatedly encouraged attorneys for the city and its creditors to keep discussing settlements in advance of the Aug. 14 bankruptcy trial.

    Here’s Reuters’ story on the mediation session today.

  • AFSCME inks contract, supports Plan of Adjustment

    Members of Detroit’s largest employee union ratified a five-year contract that includes 12.5 percent pay increases over the next five years. As part of the agreement, the American Federation of State, County and Municipal Employees Council 25 agreed to publicly support the city’s Plan of Adjustment. Pensioners are currently voting on the plan as part of the bankruptcy proceedings.

    Detroit’s Emergency Manager Kevyn Orr and Ed McNeil, a special assistant to the AFSCME council’s president, appeared together today to announce the terms of the deal, which was negotiated against the backdrop of Detroit’s bankruptcy.

    ”It provides a  level of stability for the city with regard to both labor relations and one of its most crucial bargaining units. It also provides the city with the ability to prospect out over the next five years indeed for the next nine ts cost of labor and more importantly it provides the employees a level of stability as far as what’s going to happen to them,” Orr said. “We’re mindful that this whole process of emergency management and the bankruptcy has been somewhat destabilizing and this agreement allows us to get some level of stability and progress moving forward.”

    Matt Helms reported the story for the Detroit Free Press.

    By in Kevyn Orr, Pensions, WDET
  • Agreement nearly reached for annuity lump-sum payback option

    Detroit pensioners would be able to make a lump-sum payment to return money from their annuities under an agreement reached “in concept,” an attorney said in bankruptcy court today.

    Judge Steven Rhodes was scheduled to hear arguments on a motion filed by Detroit’s General Retirement System (GRS) that seeks to allow retirees make one-time repayments instead of spreading them out over their lifetimes with 6.75 percent interest tacked on. But Robert Gordon, a GRS attorney, told Judge Rhodes that “The parties have agreed to a resolution in concept to this motion. … There is one issue still sort of out there that needs to be resolved and discussed among the parties. We hope to resolve it today.”

    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. 

    Under the Plan of Adjustment, which retirees are currently voting on with ballots due back July 11, the city recoups “excess interest” from pensioners by reducing their monthly payments. During town hall and information meetings about the voting, the GRS attorneys say, several pensioners complained about not having the option for a lump sum payback.

    Attorneys for the retirement system filed the June 20 motion for the lump-sum option, which was supported by the Official Committee of Retirees.

    The city of Detroit objected to the suggestion in a June 24 court filing, arguing that because the GRS has publicly endorsed the Plan of Adjustment, “it is thus disingenuous, at best, a quite a surprise to the City, for the GRS to ask the Court, six weeks after the commencement of solicitation of the Plan, to undo the parties agreement and rewrite the terms of the agreement.”

    Some pensioners have said their vote on the Plan of Adjustment depends on whether they have a lump sum repayment option.

    Gordon said in court attorneys for the pensioners and the city hoped to reach a full resolution today or Friday. “It would be very important, I think, to announce this resolution before the weekend,” he said. “It could affect voting and voting on going on right now. ”

     

     

  • Detroit’s clergy weigh in on the Plan of Adjustment voting

    They speak to thousands from the pulpits each Sunday. So The Michigan Chronicle asked a group of Detroit’s pastors how they think pensioners should vote in the city’s bankruptcy case.  While many lamented the undemocratic nature of the emergency manager law and the unfairness of “anything other than that which would give them their full benefits,” this group of pastors told Chronicle Senior Editor Bankole Thompson it may be worth “looking at the bigger picture.”

    Here’s the full story.

  • WSJ: Detroit’s lessons to learn

    Detroit’s bankruptcy continues to offer a multitude of “teachable moments,” and this week, restructuring expert Lisa Donahue weighs in on the Wall Street Journal’s Bankruptcy Beat blog about how she thinks the Detroit Chapter 9 should be interpreted and what actions other municipalities and states should take based upon the experience here. She begins:

    Facing issues head-on is difficult, and it’s tempting to put off until tomorrow what should be done today. But it’s unwise. That’s perhaps the No. 1 lesson from Detroit—and one that applies as much to cities and other municipalities as to companies.

    Donahue, who works at Alix Partners, also opines that the election of Mike Duggan as mayor reflects  a “new spirit emerging in a grassroots way among Detroiters themselves.”

  • Detroit’s New Pension Program: Employees have questions, concerns

    As part of the restructuring of Detroit’s finances during the bankruptcy process, there is a new pension program for current and future city workers that requires contributions from the employees. About 100 people attended a city-organized meeting Tuesday where they asked questions and voiced concerns about the plan, how they were notified about it and where it fit in the Chapter 9 timeline.

    Hear NextChapterDetroit’s Sandra Svoboda discuss the meeting with WDET News Director Jerome Vaughn.

    The city’s Chief Operating Officer Gary Brown said because there were so many questions, there would be a second meeting.

    Terms of the new plan maintain parts of a defined benefit system but also require a contribution from current employees, which will be deducted from their salaries beginning July 14. For police and firefighters, the contribution will be 6 percent of their weekly pre-tax base salary, while non-uniform employees in the General Retirement System  will contribute 4 percent. For employees hired after June 30, the contributions will be 8 percent.

    Dubbed “hybrid” pension plan by some, the new arrangement has received some national attention as public pension funding is a concern across the country. The Washington Post editorial board, for example, lauded the plan:

    To be sure, the Detroit proposal runs counter to the conventional policy and legal wisdom about pensions, which holds that public workers may never be required to accept a downward adjustment in their vested rights, no matter the financial straits of the city or state that employs them. (Private-sector workers enjoy no such presumption.) But this is precisely why the Detroit idea, yet another positive result of emergency manager Kevyn Orr’s stewardship, is welcome.

     

     

     

     

    By in Pensions, WDET