Detroit retirees in the General Retirement System will be able to repay excess interest earnings credited to their retirement savings accounts by making a lump sum payment instead of getting monthly pension check reductions.
A committee representing retirees in Detroit’s bankruptcy announced Monday morning a deal has been reached between city and GRS officials to allow for a lump sum repayment.
In addition to a base pension cut of 4.5 percent, Detroit is attempting to recoup up to $239 million from retirees whose optional annuity savings accounts were credited with interest earnings that exceeded the retirement system’s actual investment returns. Retirees contributed 3, 5 or 7 percent of their paychecks to the savings fund, which is separate from their lifetime pension benefits.
In some years, retirees saw their annuity funds grow by at least 7.9 percent while the pension fund posted losses, which Emergency Manager Kevyn Orr contends harmed the overall health of the pension fund.
Some 12,000 members of the retirement system face reductions in their monthly pension checks of up to 15.5 percent through the annuity savings fund recoupment, or clawback.
The clawback only applies to past and present workers who had an active account from July 1, 2003, to June 30, 2013. During that 10-year period, retirees earned 11.1 percent in interest on their annuity savings, while the GRS pension fund only returned about 5.5 percent in profits, according to Orr’s office.
Under the deal, the voluntary lump sum payments would be capped at 20 percent of the highest value of a retirees’ account during the clawback period. The city will allow up to $30 million in lump sum payments, according to the Official Committee of Retirees.
“This cash option will make it easier on some people to pay the recoupment and allow them to maintain their monthly budgets without an additional adjustment to their pension benefits,” Orr said Monday in a statement. Orr’s office said retirees subject to the clawback will be mailed a letter explaining the “cash option.”
The deal comes just 11 days before retiree voting ends in Detroit’s historic bankruptcy. Members of the General Retirement System had requested the option to make a lump sum payment after a 60-day voting period began in May.