Detroit pension fund sues its oversight panel over 'unlawful' executive pay raise
Detroit — A city pension fund is suing its financial oversight board over an "unlawful campaign" to boost the pay of an investment executive.
The Detroit Police and Fire Retirement System filed suit Tuesday in federal bankruptcy court against its investment committee, alleging "breaches of fiduciary duty" over the handling of a pay raise for the pension system's deputy investment officer, Kevin Kenneally.
The long-running compensation battle culminated in December when the oversight board executed an agreement to give Kenneally a $285,000 salary and $60,000 signing bonus to resign his status as a city employee and work instead as a contractor.
The investment committee is one of two established under Detroit's debt-cutting plan to make investment policy decisions for the general and police and fire pension funds after the city's bankruptcy.
The committee has the authority to set the pay of the system's chief investment officer, but its ability to decide the salary of its deputy has been under dispute.
The oversight board has argued it has the power to hire support personnel and pay them with assets of the retirement system. But police and fire pension trustees have said Kenneally's pay was off-limits to the oversight board because he was classified as a city employee.
"By conspiring with Kenneally to resign" and enter into the contractor agreement, lawsuit said, the investment committee "exceeded the terms of its authority" and "has violated its fiduciary duty to PFRS and the active and retired police officers, firefighters and their beneficiaries it is bound to serve."
The complaint asks the bankruptcy court to rule whether the committee breached its fiduciary duty. The pension board also wants an injunction preventing Kenneally’s contract from being implemented and enforced.
Investment Committee Chair Bob Smith said the committee has "acted in good faith," but "just ran into a conflict about what authority we had and didn't have."
"We've been very transparent about this," Smith said. "We used the process that we thought was in our purview and they disagreed, so the bankruptcy judge now needs to decide."
Kenneally was hired in February 2018. The investment committee voted last spring to raise his pay from about $163,000 to $242,000. But the increase didn't materialize after the police and fire pension board deemed it "excessive" and failed to sign off.
Later, the investment committee worked out the three-year agreement with Kenneally that required him to resign his city employee status and become an independent contractor.
It's a "scheme" that the pension board contends violates the city's bankruptcy plan, and the contractor agreement violates state and federal law and the Michigan Constitution, the board contends.
Kenneally resigned his post with the city on Dec. 27, 2019. His new role as an independent contractor began Jan. 6, under his new firm, Detroit-based KJK Associates.
The police and fire retirement system, in a Tuesday news release, said it has refused to pay invoices Kenneally has submitted.
Kenneally declined to comment.
The lead attorney hired by the pension board to represent it in the court action could not be reached Tuesday.
The rift also prompted an attorney for the investment committee to threaten in a confidential memorandum that the pension board's resistance to Kenneally's pay adjustment amounted to noncompliance with the city's bankruptcy plan.
As a result, the investment committee warned that year-end certifications to trigger the release of an $18 million infusion for the pension system was at risk. Those certifications ultimately were approved.
The investment committee first recommended raises for Kenneally and the system's Chief Investment Officer Ryan Bigelow after it commissioned a competitive pay analysis in 2018 that recommended higher compensation ranges for the pair.
Bigelow's pay was boosted from $242,000 to $264,000, and later it went up to $315,000.