February 21, 2014 at 5:48 pm

Bankruptcy exit plan riles Detroit retirees

Roger Doppelberger, right, 52, reads a detroitnews.com article about Detroit Emergency Manager Kevyn Orr as his daughter, Maria Doppelberger, left, 14, both of Lexington, surfs the web for an Apple iPod touch at the Moore Public Library in Lexington. (Todd McInturf / The Detroit News)

Detroit — City retirees are riled at the plan released Friday that would cut the pensions nearly 35 percent for general retirees and 10 percent for police and fire members.

The cuts are cushioned by $815 million that Gov. Rick Snyder, private foundations and the Detroit Institute of Arts have pledged to a fund to bolster pensions and shield DIA assets from being auctioned to satisfy creditors. If the DIA rescue deal isn’t approved in bankruptcy, pension cuts would be deeper or “materially diminished,” according to the city’s disclosure statement filed Friday.

The reductions would fall to 27 percent for general retirees and 7 percent for police and fire retirees if the two independent pension boards agree to back the plan of adjustment, Detroit Emergency Manager Kevyn Orr said in a Friday conference call. The proposal also says additional benefits will be given to pensioners “who are most in need,” according to the 440-page disclosure document.

But the plan includes the discontinuation of cost-of-living adjustment increases in pensions for about 23,500 retirees.

“I think that helped quite a bit,” Snyder said Friday in Washington, D.C., where he is participating in a meeting of the nation’s governors. “That was the point of doing it was to help minimize that impact. I think it’s a very constructive step, and I certainly hope the retirees see value in that and will want to settle on that.”

The proposed pension cuts were based on June 2012 statements by the general retiree board and the police and fire pension board that their funds were 77 percent and 96 percent funded, respectively. Orr’s consultants have contended the pension funds have larger shortfalls.

Retiree groups still attacked the proposed reductions.

The Official Committee of Retirees called the plan of adjustment “nonconfirmable.” Without significant changes, the committee said retirees would not vote to confirm the plan because it violates the state Constitution and federal bankruptcy law requirements.

Federal bankruptcy Judge Steven Rhodes has ruled the pension cuts are allowed under federal bankruptcy law.

The committee, which represents about 23,500 employees, said the plan would force 20 percent of current retirees under the poverty line in the next 10 years. The group said it is particularly concerned about a proposed more than 85 percent cut to spending on retiree health care and an end to all retiree health care coverage in 20 years.

City unions also were upset with the proposal.

“Retires cannot survive these huge cuts to the pensions they earned,” American Federation of State, County and Municipal Employees Council 25 President Al Garrett said in a Friday statement. “The plan is unfair and unacceptable.”

Orr defended the pension cut proposal Friday as very fair considering the “dire” financial position of the city and at least one of its pension funds. He said uniformed retirees, which have a better-financed pension fund, should look at the plan and say: “We did OK.”

For general system retirees, the city’s proposal is taking the retiree board’s projected pension shortfall “on faith,” since its consultants have estimated the underfunding of the general retiree system is more severe, Orr said.

The emergency manager said he needs agreement from both groups of retirees for the proposed reductions to take effect.

While pensioners said they had been bracing for the cuts under the plan of adjustment filed Friday, it wasn’t any less upsetting when they heard about the formal proposal.

Roger Doppleberger, 53, a retired water department employee, said he was bracing for a cut and has decided to get another job.

Doppleberger said the reduction is likely to cost him about $500 a month and he’s upset. The plan does not include calculations for the impact on each individual retiree.

“I saw this coming down the road five years ago. I expected this. I expected them to take the whole damn thing,” said Doppleberger, who worked 27 years in the city’s water department. He has found another job down south in the lumber industry, he said. “In a general sense it means a handshake is worth (nothing). They are giving away pretty much what we’ve been promised.”

Doppleberger said he took lower wages to have a good pension. He’ll adjust, but he’s concerned mostly for his former co-workers.

“I think about all the people I worked with who are much older than I am. Who is going to hire them?” Doppleberger said.

Under the plan, Detroit’s current employees will continue to earn pensions under a traditional defined benefit plan, rather than defined contribution arrangements. The plan also says the two pension funds will operate under more conservative investment return assumptions, which will result in pension fund stability.

That is a critical element as the city must be assured it will have sufficient money for operations and the $1.5 billion investment program in the future, officials said.

Emery Esse, 63, a retired police officer since 1990, said after the cut he believes he will receive less than $2,000 a month. That’s peanuts to a man who as a member of Detroit SWAT who saw his partner killed and had the same gunman shoot at him before Esse said he eventually killed the suspect.

“Rick Snyder, Kevyn Orr and the rest of them are thieves. They are stealing from the retirees who gave their lives for the city,” said Esse, who lives outside Michigan and spent 20 years on the job.

Esse said his former colleagues are stressing out. One had triple bypass surgery recently and his wife asked people not to talk about the mounting costs, Esse said.

Esse has been working odd jobs, while his wife works to make ends meet.

“It’s just not right. This whole thing is not right,” he said. “I don’t know why the people of Michigan can watch this happening. Our pension is not that great in the first place.”

The plan also calls for the city to create a Detroit voluntary employee beneficiary association to provide health care.

“The City’s Plan, if actually confirmed in its current form, would cause significant harm to retirees, their spouses and dependents,” Official Committee of Retirees Chair Terri Renshaw said in a statement. “Many retirees who live on the edge will fall below the poverty line. Everyone else will see major cuts to their pension checks and health care coverage, with devastating consequences for them personally and the communities in which they live.”

The group cites three examples of the impact, including Dorothy O’Dell, 86, a widow of a Detroit Fire Department battalion chief, who is suffering from leukemia. The plan will cut her annual household income of $18,000, made up entirely of survivor benefits. Her health care costs would increase about $7,000, the group estimated.

The governor’s proposed 2015 fiscal year budget included a $17.5 million annual appropriation from the tobacco settlement fund to pay for the state’s $350 million pledge to Detroit’s pensions over 20 years.

Snyder has not decided whether he wants to spread out the payments over 20 years or issue bonds for the entire sum and deposit the proceeds into the city’s pension funds, spokeswoman Sara Wurfel said.

A final decision as to whether the state will support the Detroit pension fund rests with the Legislature, which could add conditions on how the money is spent.

Curtis Jacobson, 85, of Detroit, said the $350 million Snyder is pledging in state funds shortchanges retirees who believed their pensions were protected by the state constitution. He worked as an accountant and auditor in the city’s finance department for 23 years.

“The governor is bound by the constitution of the state of Michigan and he’s got to guarantee that the pensions are paid,” Jacobson said.

Snyder has said he wants investment of the pension funds to be managed independently of the city’s traditional retirement system boards, which are loaded with retirees and political appointees.

“The state’s focus is on protecting and minimizing the impact on retirees, especially those on fixed, limited incomes, restoring and improving essential services for all 700,000 Detroit residents and building a foundation for the city’s long-term financial stability and economic growth,” Snyder said in a statement.

“This plan of adjustment is a critical step forward as we look to resolve problems decades in the making.”

But Snyder’s likely re-election opponent, Democratic former U.S. Rep. Mark Schauer, attacked the governor and Orr for proposing the cuts.

“By proposing deep pension cuts to retirees, Gov. Snyder has demonstrated once again that he’s not on the side of Michigan seniors,” Schauer said in a statement. “Our state constitution is crystal clear that pensions must be protected, which is why they never should’ve been included in Detroit’s bankruptcy filing in the first place.”

The Republican governor’s recent public statements about giving pensioners a better recovery over bondholders has already earned him scorn from one of the three Wall Street rating agencies.

“The governor’s comment that state funds will not bail out bondholders or Wall Street but are going to Michiganders suggests an ‘us versus them’ orientation to debt repayment that undermines willingness to pay public debt in Michigan,” Fitch Ratings said in a Jan. 27 statement.

If U.S. Bankruptcy Judge Steven Rhodes determines the bondholders are unsecured creditors like pensioners, the federal bankruptcy code requires their treatment under the plan of adjustment be “fair and equitable.”

But in some cases, there can be discrimination among different classes of unsecured creditors, said Laura Bartell, a bankruptcy law professor at Wayne State University, who is watching the case.

Reginald Amos, a retired deputy fire chief, called it “a hell of a blow for the retirees.” City retirees and employees are facing cuts on top of concessions Amos said he has given over the years.

“It’s very frustrating. Like I’ve said before, I don’t think you’ll find anywhere else in the top 15 cities in the United States where this has ever happened,” said Amos, who added the proposed 10 percent cut might knock down his monthly income to about $7,000 a month. “(But) that’s what happens when citizens don’t hold their leaders accountable.”

Amos said he learned a lesson when he was laid off in 1975 to save money. But he is concerned about some colleagues who are not as fortunate. Workers were made promises that are now not being kept.

“We have no one to blame, but ourselves,” Amos said. “For me, this is a loss, but I’ll survive it. I know others who are in worse shape than I am. It’s just one big ol’ mess.”

Detroit News Staff Writer Chad Livengood contributed.