Detroit’s bankruptcy lawyers negotiated for a 4.5% reduction in pensions (not including fire and police) with no annual standard of living increase. In addition, some pensioners left their funds in a savings account with the City of Detroit where they received large interest and bonus payments. Detroit’s bankruptcy lawyers now argue that those interest and bonus payments were excessive and seek to recoup funds paid to those savers as part of the grand bankruptcy deal.
The State of Michigan, and local charities and trusts, recently made a commitment of funds to Detroit’s bankruptcy in order to preserve pensions and city assets. Many pensioners have stated that these additional funds, which limit the burden on pensioners, help the cause for voting to approve the Detroit bankruptcy deal.
Even if the deal is approved by the pensioners, bankruptcy lawyers for both sides will still have to show the bankruptcy court that by granting approval of the deal, the bankruptcy will be favorable to the citizens of Detroit, Michigan in the long run.
If the bankruptcy court feels the city will still operate with a callous disregard for the fate of its citizens and fall back into the financial distress, the court could deny the city its bankruptcy discharge.
As City of Detroit retirees and some active workers contemplate casting ballots for the proposed bankruptcy plan, angst over lost money from city savings accounts could prove a wild card in the voting.
Thousands remain upset by the city’s complex move to claw back some interest paid into city savings plan from July 1, 2003, to June 31, 2013. The clawback — fancy words for take back — applies to about 9,900 retirees and active workers’ savings plans.
Regardless of frustration, many retirees facing the loss must understand that it can’t be avoided, even if they vote no on the plan of adjustment, Detroit emergency manager Kevyn Orr said. But voting yes and having the plan approved by pensioners would cap how much money can be taken, he said.
The clawback, plus regular pension cuts under the city’s proposed bankruptcy plan would be capped at 20% of a pension check, if pensioners vote to approve the plan. Active city workers would see lump sums disappear from their savings accounts, which work like annuities after retirement.
To be counted, pensioners must cast ballots and have them arrive in the mail by July 11. They’ve already received ballot packets, which lists how much each individual pensioner, active worker or former employee is losing if they participated in the city’s savings plan. Orr said the city paid excessive interest and bonuses into the plan, even in really poor economic times. He said that was unfair and is taking back some of it to help pensioners, in general.
It’s really vexing for some retirees and active workers because they thought a savings plan would be a safe pot of money. Who wouldn’t be upset?
On top of any losses from the clawback, pensioners also face cuts to their monthly pension check as part of the bankruptcy. If Orr’s plan is approved, general retirees would lose all future cost-of-living adjustments plus 4.5% of their monthly pension checks. Police and fire wouldn’t see any cuts to pension checks and their annual cost of living adjustment would decrease to 1% from a little more than 2%.
Getting majority yes votes and approval from the two groups of pensioners — general retirees and police and fire — could speed Detroit’s move out of bankruptcy, with a potential resolution to the whole thing as early as fall.
But if one or both retiree classes rejects the plan, then the ultimate level of cuts to benefits would be up to Orr to propose and for the bankruptcy judge to approve.
But Orr stresses that the cuts would for sure be a lot deeper than currently proposed because $816 million would disappear from the equation. That money has been pledged by state lawmakers, national and local foundations and the Detroit Institute of Arts to lessen cuts to pensioners and at the same time protect DIA masterpieces from being sold to pay off city creditors.
The pledges are valid only if everyone agrees to the plan and also agrees not to sue later. The deal — negotiated by bankruptcy mediator U.S. District Judge Gerald Rosen — has been dubbed the grand bargain.
Even so, the numbers are shocking for some retirees who have pensions and the annuity savings plans.
For retirees with a pension reduction as a result of an annuity clawback, pension checks could be cut by up to 20% each month — the maximum 15.5% annuity cut plus the 4.5% across the board cut — if both classes of pension claims approve the plan of adjustment. But if retirees reject the plan, the risk is that the clawback goes much, much higher, according to the emergency manager’s team.
Susie Nicholson, 67, who retired in 2006 and lives in Farmington Hills, hates the clawback and plans to vote no on the plan of adjustment. She worked in wastewater treatment on Jefferson Avenue.
She said the clawback would eliminate $350 a month from her pension check, plus about $100 lost each month from the 4.5% cut. Her total cuts are nearly 20% a month.
“It’s an unfair situation,” she said. “Why should we have to take such a deep cut?”
James Bryant, 69, said he’s leaning toward voting yes. He worked 35½ years for the city and retired in 2000 after working in the public library.
“We love our city, and we want to see it coming back,” he said. “And it’s coming back.”
Bryant does not face any clawback. And he doesn’t like voting to see a 4.5% across-the-board cut to his pension. But it’s better than the 27% or possibly more Orr predicted if the plan is rejected and the grand bargain money goes away. Bryant said he doesn’t think people should let their anger cloud their judgment.
The Detroit Free Press: http://www.freep.com/article/20140616/COL07/306160011/Detroit-retirees-vote-Susan-Tompor
