Detroit Proposes Transition to 401(k)-Type Plan

September 27, 2013 ( – The emergency manager for the city of Detroit has proposed changes to the city’s two pension funds that could affect both current and future employees.

According to the Detroit Free Press, Kevyn Orr has put forth a proposal that would prevent current city employees from accumulating any more service time and prevent future employees from joining the pension plans. Instead, a 401(k)-type retirement plan would be established for city employees, with the city contributing of portion of the employee’s base pay.

Orr has proposed such changes to keep the pension funds financially stable, said the news report, elaborating that the way the pension system currently works is that employees do not contribute at all to their pension, with the city picking up 100% of the costs. The changes would affect around 9,700 city employees.

Orr has cited the pensions being underfunded, as well as the city declaring bankruptcy, as factors that prompted his decision to submit the proposed changes. In addition, a recent investigation by the city found poor investment returns and bad real estate investments cost the pensions more than $140 million (see “Detroit Pension Funds Being Investigated”).

In the news report, Orr was quoted as saying any cuts or reductions to pension benefits would not be put into effect during 2013.

This is not the first time that Orr and the pension funds have been at odds. In July, a court suspended lawsuits by the pension funds, which opposed the city bankruptcy (see “Detroit Pensions’ Lawsuit Against Bankruptcy Stayed”).