Detroit Emergency Manager Kevyn Orr announced the delay, saying it would allow for the mediation process with the city’s retirement funds to play out, according to a Reuters news report. While he is willing to give the mediation process a chance, Orr says that “he reserves the right to retroactively freeze the General Retirement Fund, which covers non-public safety workers, retroactive to January 1 if mediation fails to produce an agreement on a $3.5 billion unfunded pension liability the city cannot afford to pay.”
Detroit has recently been restructuring its pension debt in an effort to pull the city out of bankruptcy (see “Detroit Makes Progress in Restructuring Pension Debt”).
According to the news report, Orr may also be reacting to negative feedback from the Detroit General Retirement System about the proposed pension freeze.
If enacted, the freeze would close the General Retirement System pension fund to any new or rehired employees and stopping benefit accruals for current workers. It would also stop employee contributions to the pension and annuity savings funds, and end cost-of-living adjustments for pension payments made to retirees.
The pension funds—the General Retirement System and the Police and Fire Retirement System—have filed an appeal with the 6th U.S. Circuit Court of Appeals in an effort to overturn a ruling made on December 3, 2013, that found the city is eligible for Chapter 9 municipal bankruptcy.
This is not the first time that city officials and the city pension funds have been at odds over the course of Detroit’s bankruptcy process (see “Pension Systems Oppose Detroit’s Bankruptcy”).
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