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Detroit Pension Funds Sue to Block City Bankruptcy Filing

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July 18 (Bloomberg) -- Two Detroit pension funds sued the city’s emergency manager and the governor of Michigan, asking that a court find a bankruptcy filing would conflict with the state’s constitutional protection of public retirees’ rights.

The General Retirement System and the Police and Fire Retirement System of the City of Detroit filed the lawsuit yesterday in state court in Ingham County, Michigan, seeking a judgment that Governor Rick Snyder can’t authorize a bankruptcy filing that could reduce pension benefits.

The funds also sued Detroit Emergency Manager Kevyn Orr, who was appointed by Snyder in March to lead the city out of a fiscal crisis that has put it on the brink of a Chapter 9 municipal bankruptcy.

“It appears imminent that the governor will grant the emergency manager the unconditional power to proceed under Chapter 9,” pension-fund lawyers said in complaint. “The emergency manager will seek to have the city’s pension debts impaired” unless the funds accept Orr’s imposition of cuts.

Reducing payments to city retirees would conflict with a provision of the state’s constitution that bars such action, according to the suit, filed on behalf of the plans and more than 32,000 active and retired Detroit employees. Two similar lawsuits were filed by individual retirees in the same court earlier this month.

Hearing Set

A hearing on the other suits is set for July 22 in Ingham County Circuit Court in Mason.

“As a matter of policy, the emergency manager’s office doesn’t comment on pending litigation,” said Bill Nowling, Orr’s spokesman.

The lawsuit is “premature and speculative given that there is no Chapter 9 bankruptcy filing or even a determination by the governor for such an action,” Sara Wurfel, a spokeswoman for Snyder, said in an e-mail. “We’re fully confident in both the spirit and constitutionality of the state’s most recent emergency manager law.”

The new suit is General Retirement System of the City of Detroit v. Orr., 13-768-CZ, Circuit Court, Ingham County, Michigan (Mason).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

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

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