Detroit Reaches Accord With Police, Firefighter Retirees

Detroit reached an agreement on pensions and health benefits with a group representing retired police officers and firefighters, as mediators seek deals with other retirees in the city’s record $18 billion bankruptcy.

Police and firefighter retirees would see no cuts in their monthly pensions, while cost-of-living increases would be reduced by more than half. Previously the city had offered the group 94 percent of their pensions and no cost-of-living increases.

The deal can go through only if the city wins approval of a proposal from the state and private foundations, who offered $816 million to bolster the city’s pension systems in exchange for a plan that would shield Detroit’s art collection from a forced sale. To get the money, the city must have the support of current and retired city workers who haven’t yet settled.

“The mediators hope that this settlement will encourage all of the remaining parties to the bankruptcy to redouble their mediation efforts to reach meaningful agreements,” the group said in a statement distributed by the U.S. District Court in Detroit, where the chief judge is overseeing negotiations.

Detroit filed the biggest-ever U.S. municipal bankruptcy in July, saying it couldn’t meet financial obligations and provide essential services. Since then, the city and creditors including bond insurers, public pension systems and unions have been negotiating over cuts.

Pension Cuts

A court-approved committee representing all retirees, including former general employees who have an average pension of about $19,000 annually, isn’t covered by today’s accord. Under the city’s current proposal, those retirees would see their pensions cut by 26 percent and lose all future cost-of-living increases.

Today’s deal is between the city and the Retired Detroit Police and Fire Fighters Association, which represents 6,500 members.

Amy Malsin, a spokeswoman for the law firm representing the retiree committee, declined to comment, saying the group hasn’t seen the proposal.

The retiree committee has said that 20 percent of retired city workers would be thrown into poverty under the current proposal. Detroit’s emergency manager, Kevyn Orr, has said the city will dedicate about $50 million it is saving from a deal with bondholders to help impoverished retired workers.

On April 17, the city is scheduled to seek permission from U.S. Bankruptcy Judge Steven Rhodes to send its debt-adjustment plan to creditors, including the retirees, for a vote.

For the city to get the $816 million, a majority of those voting in each group must approve the city’s plan, and that majority must also hold two-thirds of the claims of all those voting.

Should enough retirees reject the plan, general workers would see their pensions cut by about a third, while police and firefighters would lose 14 percent.

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

Before it's here, it's on the Bloomberg Terminal.