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Detroit pension executives begin talks on benefit cuts

Kevyn Orr
Kevyn Orr

Representatives from Detroit's two retirement funds began face-to-face talks with deputies of Kevyn Orr, the city's emergency fiscal manager, over his plan to cut pension benefits, which union leaders say is illegal.

Mr. Orr's proposal to restructure Detroit's more than $17 billion in debt and long-term obligations includes cutting pension payments, ending cost-of-living increases, removing some workers from the system and making the rest pay more.

“We all recognize the city is in trouble, and everyone has to make a sacrifice,” said Joe Barney, a paramedic and a union representative for Detroit emergency medical services workers, after the first of two meetings Wednesday. He said he was “angry, frustrated” that Mr. Orr treats the pensions as unsecured creditors, like lenders “who refuse to come into this city.”

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, who didn't attend the sessions, is trying to avoid what would be the nation's biggest municipal bankruptcy if Detroit sought court protection. The meetings gave his team a chance to lay out how his plan would affect the pensions. More specific steps await an actuarial report on the funds, which Mr. Orr has said owe a combined $3.5 billion more than they have assets to cover — a figure disputed by system trustees.

Mr. Orr has proposed that city employees with less than 10 years of vested service be taken out of the defined benefit plan and be moved to 401(k)-style savings plans.

There's no way employees or unions will bargain away pension benefits, said Michael VanOverbeke, a lawyer for the general employees retirement system, after the meeting. Michigan's constitution prohibits changes in accrued pension benefits, Mr. VanOverbeke said. Mr. Orr has said that a bankruptcy filing would negate the state protection.

Mr. Orr, in a June 14 report to creditors and union officials, said the city will defer about $104 million in pension contributions. The city has since defaulted on a $39.7 million payment owed on related debt, incurred to beef up the system. Mr. Orr has also proposed moving retirees who qualify into federal health-care programs such as Medicare to ease $5.7 billion in unfunded benefits for former workers.