DETROIT (AP) – Detroit’s state-appointed emergency manager has told the city’s two municipal retirement systems that it wants to freeze the city’s pension plans.
Emergency manager Kevyn Orr wants to close the pension plans to new employees by the end of the year as the city moves to a 401(k)-style system. Orr also wants to put a freeze on all accrued future benefits for existing members of the systems. The city would contribute 10 percent of police and firefighter base pay and five percent of the base pay of non-uniformed workers to the pension plan.
Pension officials received the proposal last week. On Thursday, Orr released preliminary results from an audit of the General Retirement System and the Police and Fire Retirement System that showed retirees received interest payments of more than 20 percent over a number of years as the pension systems were losing millions of dollars. He also has ordered 21 officials with both systems to provide retiree pension payment records.
No one from the General Retirement System had any input in the pension proposal, according to Tina Bassett, a spokeswoman for that system.
“We believe it is unseemly and disingenuous to present a proposal involving a new benefit structure that will affect the pensions of our members, beneficiaries and city employees not yet vested, without seeking our input, suggestions, knowledge and expertise,” Bassett said.
The General Retirement System has about 20,500 members. The police and fire system has nearly 12,700 members, according to the audit ordered by Orr.
Orr has said the city has underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage.
In July, he made Detroit the largest U.S. city to seek bankruptcy protection. He has said the city has $18 billion or more in debt. Creditors, including city retirees, are fighting the bankruptcy petition in federal court. They claim Orr has not negotiated in good faith on settling the city’s debt and has not proved Detroit is insolvent.
Preliminary results of the audit by Detroit’s auditor general and inspector general listed a 2010 General Retirement System report that reveals more than $73 million was lost in real estate investments. The Police and Fire Retirement System the same year reported a more than $52 million loss for similar investments.
Orr had asked for an independent review of citywide employee benefit programs. He questioned a past policy in which cash payments were made by the General Retirement System to the accounts of retirees and active city workers.
“This report helps shed light on certain practices undertaken by Detroit’s two pension funds,” Orr said in a news release. “The purpose of the audit is to help identify how the city can address its present financial crisis and going forward help determine the basis for and what, if any, actions that must be taken.”
The sub-prime mortgage meltdown that sent real estate investment portfolios across the country into a nosedive also negatively impacted Detroit’s retirement systems, both systems said Thursday in a joint statement.
But their boards “have been taking appropriate steps over the last several years to reduce the asset allocation to real estate holdings,” the systems said. “The pension funds are currently operating well within industry standards.”
The audit also looked at city administration and employee benefits between July 1, 2011 and March 31, 2013, and found that 13 percent of 1,484 unemployment compensation claims investigated were “likely fraudulent,” while another 36 percent were “highly questionable.”
It also found that 58 people were getting benefits despite having no employment history with Detroit.
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