Oct. 22 (Bloomberg) -- A committee of Detroit’s retired workers sued the city and its state-appointed emergency manager, claiming a plan to cut funding for retiree health care by 83 percent violates the Michigan constitution.
The city-funded committee, which was created at the urging of emergency manager Kevyn Orr, filed the lawsuit today in U.S. Bankruptcy Court in Detroit in front of the same judge overseeing the city’s $18 billion bankruptcy.
“The impact of the city’s decision on the retirees will be devastating,” the committee said in the complaint. “Many of them are economically vulnerable, living near the poverty line, of advanced age and incapable of returning to the workforce.”
After putting Detroit into bankruptcy in July, Orr ordered funding for retiree health-care benefits reduced to about $30 million a year from about $180 million, according to the complaint.
By filing the lawsuit on behalf of about 24,000 retired Detroit employees, the committee and two retiree associations are trying to reverse the cuts and force Orr to accept court oversight of the issue. Under Chapter 9 of the U.S. Bankruptcy Code, which the city used to file its bankruptcy, Orr wasn’t required to seek approval for his decision to cut retiree benefits from U.S. Bankruptcy Judge Steven Rhodes.
The committee asked Rhodes to temporarily stop the city from implementing a plan to pay less for health care by forcing its older retirees into the federal Medicare program and younger retired workers onto cheaper insurance plans, like those available on the health exchanges set up under President Barack Obama’s health-care law.
Under a notice sent out by Orr’s office, the older retirees must choose a new health-care plan by Dec. 7 and the younger retirees by Dec. 15.
Many retirees receive less than $20,000 a year, according to the complaint.
This week, employees and retirees are fighting to end the city’s bankruptcy, saying the case illegally threatens protected benefits. Detroit and its critics return to court tomorrow for a multiday trial in which city and state officials, including Michigan Governor Rick Snyder, may testify about whether the bankruptcy case should continue.
Orr’s spokesman, Bill Nowling, didn’t immediately respond to an e-mail requesting comment on the lawsuit.
The case is Official Committee of Retirees of the City of Detroit v. City of Detroit, 13-bk-05244, and the bankruptcy case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).
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