Members of the $2.77 billion Detroit General Retirement System and $3.4 billion Detroit Police & Fire Retirement System will see their defined benefit plans remain open, but their pension benefits will be cut by 34% and 10%, respectively, under the city's plan of adjustment filed in U.S. Bankruptcy Court on Friday.
However, if members approve the adjustment plan in the timely manner the decrease will be 26% for the general employee fund and 4% for the fire and police fund, according to the plan. Future cost-of-living adjustments would also be eliminated as part of the plan.
The exit plan is contingent on foundations supporting the Detroit Institute of Arts Museum making pension contributions through an “irrevocable commitment of at least $365 million by the foundations.”
A coalition of foundations already pledged last month to commit at least $370 million to help cover pension obligations. The group includes the $10.9 billion Ford Foundation, New York; $8.2 billion W.K. Kellogg Foundation, Battle Creek, Mich.; and $3.3 billion Kresge Foundation, Troy, Mich.
The pension funds may appeal the plan submitted by Kevyn D. Orr, the state-appointed emergency manager, which still needs approval from Steven W. Rhodes, the U.S. Bankruptcy Court judge overseeing Detroit's bankruptcy petition.
Mr. Orr has estimated the city's pension liabilities total $3.5 billion.
“Gov. (Rick) Snyder and Kevyn Orr might consider this blueprint a 'comeback' and 'the best path forward,' but don't believe the hype,” said Jordan Marks, executive director of the National Public Pension Coalition, in a statement. “A more than 30% cut combined with the virtual elimination of health care is devastating to the people who dedicated a career to Detroit, and depend on these benefits to meet basic needs. Wall Street, which posted record profits in 2013, can afford to pay for the damage it reaped on the city. We can and must do better.”
Benefits could be greater for certain members who are under a minimum household income threshold. However, overall cuts could be more severe if the pension plan funding ratios decline for the year ending June 30.
Under the plan submitted by Mr. Orr, secured creditors would receive 100% of what they are owed, while unsecured creditors would receive 20%.