A Detroit employee savings plan drained $450 million from a public pension fund over 10 years, contributing to the fund’s fiscal distress, the city’s main restructuring adviser said.
Charles Moore testified Friday in federal court in Detroit that the savings plan weakened the city’s underfunded $2.8 billion General Retirement System by guaranteeing employees a minimum interest rate for the accounts.
The savings plan gave workers interest payments at the expense of the pension fund, Mr. Moore told U.S. Bankruptcy Judge Steven Rhodes. One employee got an extra $1 million from the program, he said.
“Did you get an answer explaining why” the pension board allowed the payments, Mr. Rhodes asked Mr. Moore.
Mr. Moore said he never got a satisfactory explanation.
Part of the extra payments would be clawed back as part of the city’s debt adjustment plan by cutting pension checks as much as 15.5%, depending on how much extra money an employee got, Mr. Moore said.
Mr. Rhodes is holding a trial to decide whether Detroit’s plan to cut more than $7 billion in debt is fair and feasible. Mr. Moore was the second of about 25 witnesses the city will call in the coming weeks to try to persuade Mr. Rhodes to approve the proposal. Mr. Moore is a senior managing director at restructuring firm Conway MacKenzie.
Detroit filed the biggest ever U.S. municipal bankruptcy last year, listing $18 billion in debt and saying that decades of decline had left it unable to provide basic services to its almost 700,000 residents while still meeting financial obligations.