According to news reports, Detroit filed for Chapter 9 bankruptcy–the largest municipal bankruptcy filing in the nation’s history in terms of debt. But, prior to the filing, the General Retirement System and the Police and Fire Retirement System sued Governor Rick Snyder and Emergency Manager Kevyn Orr to prevent it. Orr has proposed to restructure Detroit’s debt and cut the pension benefits of thousands of city employees.
The lawsuit asked the Ingham County Circuit Court to prevent Snyder from authorizing Orr to carry out the bankruptcy, contending that the resulting pension cuts would violate the retirees’ right to a pension, as guaranteed under Michigan’s state constitution. Now, with the filing already done, there is a 30- to 90-day period for determining whether the city is eligible for Chapter 9 protection and determining how many claimants might compete for the limited resources the city has.The bankruptcy petition seeks protection from creditors and unions that are renegotiating $18.5 billion in debt and other liabilities.
According to the news reports, Orr has not specified how pensions would be cut under his restructuring proposal. He and his consultants are in discussions with the boards of the two pension systems about the potential cuts.
Last month, Orr initiated investigations of the two pension systems to look into charges of possible fraud, corruption and waste (see "Detroit Pension Funds Being Investigated").
Orr has also had a commission reviewing whether the pension systems are underfunded and by how much, the news reports said. If the systems are less than 80% funded, Orr currently has the power to remove the boards of the pension systems and to have the Michigan state treasurer appoint a trustee.
The pension systems have combined assets of more than $5 billion and represent more than 30,000 active and retired city workers.