New contract sweetens deal for Detroit pension official
Detroit — Members of an investment committee for a city pension fund slammed the terms of an agreement executed by its chairman that grants a pension executive 75% more in pay and a $60,000 signing bonus for his work as a contractor.
The Dec. 2 contract — amended Monday to boost the incentive package by another $10,000 — was debated during a contentious special meeting held to vote year-end certifications to trigger the release of an $18.3 million infusion for the pension system arranged as part of Detroit's bankruptcy deal.
The investment committee for the Police and Fire Retirement System has battled for nearly a year with the pension fund's board of trustees over a pay hike for system's deputy investment officer Kevin Kenneally.
Under the latest agreement, Kenneally will resign his city position on Dec. 27 and rejoin the system Jan. 6 as a contract worker under his newly created Detroit-based firm, KJK Associates.
Matt Gnatek, an investment committee member and chairman of the police and fire pension board, demanded a legal opinion to show that proper research had been done in drafting the agreement that some worry will conflict with state and federal laws.
"You can change the name of it, but the job duties are still the same thing," Gnatek said. "Let's not try to put lipstick on a pig and call it something else. Let's call it what it is, it's an end-around."
The additional $10,000 in incentive pay, revealed to committee members just ahead of the Tuesday meeting, he added, is another "glaring issue."
"I can tell you as a lay person, this looks very odd," Gnatek said.
The investment committee voted this summer to allow its chairman Bob Smith and the system's Chief Investment Officer Ryan Bigelow to craft a contractor agreement for Kenneally. The three-year deal will pay Kenneally $285,000 annually, up from the current pay of $162,781 that he earns as a city employee.
Smith has said it's important to the health of Detroit's police and fire and General Retirement System pension funds that the investment team has the resources needed to monitor a collective $4 billion-plus in assets.
The investment committee is one of two established under Detroit's debt-cutting plan to make investment policy decisions for the two pension funds.
Smith, during Tuesday's meeting, said the incentive bonus factors in the lag time from when the committee voted this spring to increase Kenneally's pay to $224,000 per year to ensure his earnings were competitive. The raise was supposed to go into effect Jan. 1, 2019.
The revised amount, he said, "is around keeping that commitment."
Smith has said the pay also accounts for costs Kenneally will incur on his own for health care as well as Social Security payments and other benefit obligations.
Kenneally and Bigelow declined to comment on the pay issue after Tuesday's meeting.
During the meeting, Bigelow said officials had worked through concerns raised over potential conflicts with IRS rules and state and federal labor law tied to Kenneally's transition from a city employee to a contract worker.
Kenneally, he said, will be responsible for providing his own office space and covering the cost of his own equipment and resources. But he will be eligible for travel expense reimbursement, if it's approved by the pension system, Bigelow told the committee.
Jeff Pegg, a committee member and pension trustee who opposed a raise for Kenneally all along, said Tuesday he believes he believes the contract is flawed.
The committee, he said, agreed Smith and Bigelow could arrange an agreement but other members were left in the dark about the specifics. The contract also lacks a provision requiring Kenneally to obtain liability insurance.
"Going forward, I think we should execute contracts as a committee, not as the chair," Pegg told Smith. "Things may be missed."
The committee's special counsel, Sean Gallagher, agreed Tuesday to draft a legal opinion in support of the agreement. The contract, as written, he said, "lowers the risk" of issues with the labor department and IRS. Gallagher declined further comment.
Ron King, an attorney for the pension fund's board of trustees, noted all sides agree the investment committee can retain outside contractors. But King said there are "a number of issues with the contract" and it puts the system, board and Kenneally in a "precarious position."
"We want to be careful not to breach the contract, it's already been executed," King told The News. "But we have to look at what options we have that protect the system."
The committee Tuesday unanimously approved its certificates of compliance that had been left in limbo after Smith moved last month to put off the vote as members debated the fate of Kenneally's pay increase.
The oversight board took the position that it had the power to hire support personnel and pay them with assets of the retirement system. But police and fire pension trustees said Kenneally's pay was off-limits because he's classified as a city employee. Detroit's City Council has discretion over salary and compensation ranges for city job classifications.
The pension fund this spring refused to sign off on the raise adopted by the investment committee, deeming it "excessive."
In a confidential memorandum to the committee last month, Gallagher warned that the ongoing pay rift could put the $18 million at risk. The pension trustees' refusal to give Kenneally a raise, he argued, could amount to "potential defaults" in the terms of the so-called "grand bargain" funding commitment crafted in the city's bankruptcy to pump up its pension system.
It would then make it impossible, Gallagher wrote, for the investment committee or its chair to execute the certifications.
The salary proposal for Kenneally, as well as a series of raises for the system's Chief Investment Officer Ryan Bigelow, stemmed from a competitive pay analysis commissioned by the committee that recommended higher pay ranges for the pair.
A provision of the city's bankruptcy plan does give the committee authority to select, remove and set Bigelow's pay.
His compensation increased twice since last winter. The investment committee first adopted a proposal in December 2018 that took his annual $242,000 pay to $264,000. And in March, it voted it up again to $315,000.
Gnatek raised the possibility Tuesday that the pension board, which next meets Jan. 9, might not agree to fund Kenneally's contract.
"It's something I'd be very concerned about. I would hate to see somebody's whole life to be torn up," he said. "Once he resigns and the pension board decides not to make that payment, Kevin is out there in the wind."
But Smith told members that he was comforted by discussions during the committee's last meeting when it was stated the invoices, once submitted, would be approved.
"I'm relying on that," he said.