Detroit Emergency Manager Kevyn Orr said the cut in city workers' paychecks is designed to strengthen the two pension funds while maintaining a defined benefit retirement program. )
Detroit — City employees will see deductions in their paychecks beginning next month as Detroit moves to implement a new hybrid pension plan, the emergency manager’s office said Wednesday.
The new pension formulas will go into effect July 1 for all active and new employees under the General Retirement System and Police and Fire Retirement System. The move is designed to strengthen the two pension funds while maintaining a defined benefit retirement program, Kevyn Orr said in a statement.
As part of the pension changes, which were negotiated with the Official Committee for Retirees of the City of Detroit and public employee unions, current employees who participate in the general pension system will contribute 4 percent of their weekly pre-tax base salary, and police and fire employees will contribute 6 percent toward the cost of benefits payable under their respective hybrid pension plans. Police and fire members hired after June 30 will contribute 8 percent, the city said.
In addition, the city will contribute a match amount to the respective new funds for each employee who participates. Deductions will be seen in employee paychecks beginning July 14.
Some employees whose individual bargaining units have ratified new collective bargaining agreements could see their pension deductions offset by salary increases intended to incrementally return employees to 2010 pay levels over the next four years, Orr added.
“The city and its labor partners have come up with what we think is the best option to strengthen employee pensions so we can continue to meet future obligations in a financially responsible and sustainable manner,” Orr said in a statement. “This new pension plan is the result of months of intense negotiation between the city, its unions and its retirees.”
“The city’s intention all along was to create a sustainable retirement plan for its employees that is fiscally sound and continues to meet their needs,” he added.
Along with the establishment of the new pension plan formulas, benefit accruals under each fund’s current benefit formulas will be frozen on June 30 and closed to new employees. All current and future employees will participate in the new hybrid plans beginning July 1.
The city will hold a public hearing at 10 a.m. Tuesday in the 13th floor auditorium at City Hall regarding the changes.
Active city employees who participate in the current plans will receive the benefits they have earned through June 30, plus an additional benefit under the new hybrid plan formula, as long as they satisfy vesting requirements, officials said.
Employees who are vested in their benefits under frozen general or police and fire fund plans as of June 30, 2014, or who work with the city long enough to become vested in those benefits in the future, will receive their accrued benefits earned through June 30, when they would have been eligible to receive those benefits if they had not been frozen.