Detroit Union Seeks to Revive `13th' Pension Check Policy

Detroit’s bankruptcy judge should allow a state employment panel to reinstate a pension program that gave an extra check to retirees every year using excess earnings, a city union said in court papers.

Before it ended in 2011, the policy of issuing a “13th” check and related payments cost the city $1.92 billion from 1985 to 2008, according to a report commissioned by the city. Before the Michigan Employment Relations Commission could consider restoring the checks, the city filed for bankruptcy, putting the issue on hold, according to court records filed Sept. 24 in U.S. Bankruptcy Court in Detroit.

The city allowed the pension board to give out an extra check almost every year for so long that the payment became a right that couldn’t be revoked unilaterally, according to a ruling by Doyle O’Connor, an administrative law judge with the commission.

“A practice that continues for three decades is a tacit agreement,” O’Connor said in an oral ruling in February. The city should have negotiated the change with the union as part of a new employment contract.

Detroit has said its biggest unsecured debt is an unfunded pension liability of $3.5 billion. The city also owes about $1.4 billion on bonds it issued to bolster city employee pension systems.

Automatic Stay

In its motion, the American Federation of State County and Municipal Employees asked U.S. Bankruptcy Judge Steven Rhodes to lift the so-called automatic stay, which prevents lawsuits against the city while it is in bankruptcy. Because of the stay, O’Connor hasn’t issued a written recommendation that the commission can use to force the city to restore the power of the pension board to issue the extra checks, the union said in its filing.

Resuming the 13th-check policy “would bring back a practice that would really damage the funds,” Bill Nowling, a spokesman for Detroit Emergency Manager Kevyn Orr, said in a telephone interview today.

Sharon Levine, an attorney for the union, didn’t immediately return e-mails requesting comment on the filing.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporters on this story: Steven Church in U.S. Bankruptcy Court in Detroit at schurch3@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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