Kevyn Orr, the state-appointed emergency manager handling Detroit's bankruptcy, proposed closing and freezing the city's pension plans effective Dec. 31, confirmed William Nowling, Mr. Orr's spokesman.
All future employer contributions would go to a newly created 401(a) plan, and there would be no future cost-of-living adjustments with respect to accrued benefits. A 457(b) deferred compensation plan would also be created as part of the proposal.
Any change in benefits would require approval of the state treasurer first, Mr. Nowling said.
Active members not vested in the defined benefit plans at the time of the freeze will not be entitled to benefits, according to the proposals obtained by Pensions & Investments.
Detroit's two municipal pension plans are the $3.4 billion Detroit Police and Fire Retirement System and $2.77 billion Detroit General Retirement System. Mr. Orr has said the systems have about $3.5 billion in combined unfunded liabilities.
“We do not support the approach taken in the proposal and do not understand why such a proposal would be brought forward before Judge (Steven) Rhodes even rules on the eligibility of bankruptcy,” said Tina Bassett, GRS spokeswoman, in an e-mailed statement. “It is difficult to believe that this is a 'good faith' effort put forward by (Mr. Orr) and is inconsistent with the open and diligent efforts requested of the bankruptcy mediation process.”
Ms. Bassett added that no one from GRS had any input on the proposal. “We believe it is unseemly and disingenuous to present a proposal involving a new benefit structure that will affect the pensions of our members, beneficiaries and city employees not yet vested, without seeking our input, suggestions, knowledge and expertise.”
The proposal comes at the same time the city's auditors released a report on the city's pension and health care benefits that claimed there were several inconsistencies with pension disbursements and unemployment compensation.