Detroit’s Plan of Adjustment: Breaking it down for pensioners

March 12th, 2014

What’s on Carole Neville’s mind about Detroit’s Plan of Adjustment?

Plenty, says the attorney who is representing the official retirees’ committee in Detroit’s bankruptcy case.  She’s heard the city’s side in court, in the media and in other discussions, and she’s got her own points to make publicly on behalf of the retirees.

Carole Neville

Attorney Carole Neville

She and Ryan Plecha, another lawyer for retirees, will be guests on The Craig Fahle Show between 9 and 11 a.m. Thursday. Tune it to 101.9 FM or online to hear them. They’ll also share some of the objections the pensioners are raising in their written objections to the bankruptcy judge.

RyanPlecha

Attorney Ryan Plecha

Next Chapter Detroit spoke with Plecha the day the Plan of Adjustment was released, which was the same morning the 6th Circuit Court of Appeals agreed to hear the pensioners’ challenge to the city’s eligibility for bankruptcy. Listen to that interview here.

Neville also gave us a preview of some of her thoughts about the Detroit situation.

Here are a few:

* “They’re neglecting the health care completely,” she says of the media and the city representatives. “Basically the city paid about $160 million a year for health care for its retirees, and then cut that during the Chapter 9 to $30 million a year, and it’s planning future cuts under the plan. There really is not going to be a significant health care program for retirees post-plan.”

So that means as pensioners’ checks shrink, they’ll also need to pick up a greater share of their health care costs. But just how much, no one knows.

“Right now there’s very little in the plan to be able to describe what the health care benefits in the future will look like. It’s four or five sentences,” she says. “It hasn’t been negotiated at all.”

Some of the retirees, including police and fire, are not eligible for Medicare.

“Some of them are really going to be hit terribly,” Neville says.  For the pensioners who are: “Medicare is not adequate to cover all the costs of health care, and people have to buy supplementals and that is an out-of-pocket cost that the city is not willing to pick up.”

Not willing or can’t?

“Can’t is a relative word,” Neville says. “It’s a question of priorities.”

The citys’ current plan cuts annual increases to pension payments that were similar to cost-of-living adjustments but not tied directly to inflation or another indicator, Neville says.

“For younger retirees, that loss is huge,” she says. “And it’s not being mentioned in any of the discussions.”

How attorneys are going to explain to the pensioners what they’re voting on when all 176,000 creditors receive the informational packets and ballots. “You have to drop a lot of the bankruptcy code references. As if people are going to understand what that means?” she says. “All of those things are going to need to be explained in plain English.”

Neville and her team are working to determine what each pensioner is facing under the city’s proposed Plan of Adjustment, which is still partially based on the “grand bargain.” That’s the yet-to-be-finalized deal that brings in $350 million of state money, $100 million from the Detroit Institute of Arts and $365 million from the foundation community. The funds would be allow the city to retain the DIA collection instead of selling it to fund pension payments.

“Our intention is to calculate what people’s pensions are now, what their pension is likely to be in the future if the DIA money comes in and if there’s no excess allocation. We’re going to give them the numbers,” Neville says.

The seriousness of the “swaps agreement” announced last week that if approved by the bankruptcy judge, would allow a “cramdown” of the city’s plan to all other creditors including pensioners.

The deal between the city and two investment banks drops the city’s obligation on interest rate swaps debt from $288 million to $85 million, according to court filings. Judge Steven Rhodes has rejected two previous agreements of $230 million and $165 million as too generous to the lenders, UBS AG and Merrill Lynch.

But if this deal is approved, that means the city has one class of creditors agreeing to its plan, which allows the plan to be “forced through” instead of being agreed upon by all groups of creditors, including pensioners.

Neville, who has represented creditors’ committees in dozens of bankruptcy cases, called the swaps deal “one of the most outrageous things” she’s ever seen.

Tweet us your questions for her using #DetNext.