The Milliman Report provides clues as to what the City will propose

[BankruptcyGuy]

This report, linked in today's Free Press [[http://www.freep.com/assets/freep/pdf/C4210424816.PDF) lays out the baseline scenario and what I'd guess the City is thinking the ultimate resolution of pension issues will be:

A freeze on the plan [[no more contributions, benefits do not increase);

No COLAs for retirees;

A 10% defined-contribution plan.

The status quo, assuming a 6.57% return, will require the City to pay between $190M and $240M per year into the DPFRS to keep it afloat. For the DGRS, it's between $190M and $315M. That could be as high as $565M per year, just to stay afloat.

The freeze plan saves the City over $180M/year.

It is unlikely that the Court will find that Detroit is not insolvent, given this information.

[Ray1936]

As a DPD retiree, I can live with that. I'm under the old [[pre-1969) plan anyway, which has no COLA. Those who retired under the new plan can adjust to it. Only thing that would be a killer would be runaway national inflation, and I don't see that around the corner.

[cla1945]

As a DPD retiree, I can live with that. I'm under the old [[pre-1969) plan anyway, which has no COLA. Those who retired under the new plan can adjust to it. Only thing that would be a killer would be runaway national inflation, and I don't see that around the corner.

I agree with Ray, I could live with that.

Funny thing though, the City is still offering a pension plan to new police recruits as of today. There is a new class of 20 and a proposed class coming up in the near future. A DFD hiring was going to take place and was cancelled as of today with no explanations offered. Why don't they take pensions off the table and offer a 401K instead, right now?

[BankruptcyGuy]

I agree with Ray, I could live with that.

Funny thing though, the City is still offering a pension plan to new police recruits as of today. There is a new class of 20 and a proposed class coming up in the near future. A DFD hiring was going to take place and was cancelled as of today with no explanations offered. Why don't they take pensions off the table and offer a 401K instead, right now?

They would need the union's support for that, which they won't get right now. Later, with a 10% contribution looking pretty good compared to 0%, the union might get on board.

[Detroitguy]

Its my understanding that newly hired officers no longer receive pensions. The DPOA agreed with the city to discontinue it for new hires. Here's a news story about it:

Detroit Strikes Deal With Police Union
Detroit Mayor Says Agreement Will Save City Millions


Published On: Oct 02 2011

DETROIT -
Detroit Mayor Dave Bing said Tuesday that a "historic" agreement had been made with the city's police union.


In a release, Bing said the agreement with the Detroit Police Officers Association will save the city millions of dollars.


"This is a historic agreement for the City and DPOA," said Bing. "It shows that we are executing our plan to return the City to fiscal stability by reducing pension costs and doing so through hard work and tough negotiations. I want to thank the leadership of DPOA and the rank and file officers that protect us everyday for their cooperation.?


The agreement will result in the following changes:


Wages: No general wage increases for bargaining unit members during the life of this contract.

Reduction of Multiplier: Defined benefit pension plan multiplier reduced for credited service accrued by Association members after Sept. 1, 2011.

Elimination of COLA Escalator: Pension benefits earned based on service rendered after Sept. 1, 2011, will no longer receive a per annum COLA escalation. Pension benefits earned pursuant to service rendered prior to that date would still be subject to the escalator.

Defined Contribution Plan for New Hires: All bargaining unit members hired into the Department after the later of July 1, 2012 or the date when this defined contribution plan has been completed and can be implemented would not accrue benefits under the present defined benefit plan between the parties. Rather, they would receive benefits only pursuant to a defined contribution plan requiring an annual employer contribution of 10 percent of the participant?s annual base salary and an annual employee contribution of 5% of the participant?s annual salary.

[Cliffy]

I agree with Ray, I could live with that.

Funny thing though, the City is still offering a pension plan to new police recruits as of today. There is a new class of 20 and a proposed class coming up in the near future. A DFD hiring was going to take place and was cancelled as of today with no explanations offered. Why don't they take pensions off the table and offer a 401K instead, right now?

Think about what you just proposed and then think about it some more if you can't figure it out.

[BankruptcyGuy]

The freeze is the part to which they won't agree. This is why the retirees don't want to be represented by the unions; their interests [[pensioners--preserve existing pensions, even if it means eliminate pensions for current workers; union--preserve pensions for existing workers) have diverged.

[Novine]

That doesn't make much sense. The constitutional provision doesn't differentiate between those who are retired and those who are employed. If one goes down, they all potentially could go down.

[Cincinnati_Kid]

I would think they would be more in favor of a freeze as opposed to having their pensions cut.

[professorscott]

That doesn't make much sense. The constitutional provision doesn't differentiate between those who are retired and those who are employed. If one goes down, they all potentially could go down.

The constitutional provision doesn't say anything about any retirees at all, as I read it. It just says that money put into the pension funds can't be diverted. Money not put into the pension funds doesn't exist, and that's what the argument is about, I believe. But I await BankruptcyGuy's analysis; he's the expert and I am not.

[corktownyuppie]

The constitutional provision doesn't say anything about any retirees at all, as I read it. It just says that money put into the pension funds can't be diverted. Money not put into the pension funds doesn't exist, and that's what the argument is about, I believe. But I await BankruptcyGuy's analysis; he's the expert and I am not.

The constitutional provision is about both the funds in the pension fund as well as a separate obligation to fund any shortfall in the funds. The state is constitutionally prohibited from taking any action which would disrupt that obligation.

At issue now is whether or not a bankruptcy filing would be considered an action which would disrupt the obligation and therefore a prohibited action. then, even if that's true, the question becomes weighing which law reigns supreme, the federal bankruptcy laws vs the state constitution.

both parties will use the threat of victory in order to leverage a settlement which will allow resolution without forcing the court to answer this question and forcing all the parties to litigate it.

Judge Rhodes has ruled that the retirees are able to have their own representatives independent of the current employees. I take this as an implicit acknowledgment that their interests are distinct from the union employees currently working for the city.

BankruptcyGuy, will retirees be forced into the class? Or could they forego class representation and choose to litigate themselves for their own settlement? Is it like a class action lawsuit where joining the class forces you to accept the class settlement? will the retiree reps be able to negotiate unilaterally...or will they need to strike a deal and get a 51% vote out of the retirees?

if what you're reading from the Millman report is correct, I'm optimistic. As soon as the news coverage starts reporting that a deal could be had by simply removing COLAs for retirees and freezing funding going forward for current employees, the sympathy will shift drastically.

This is a looooooooong way from "they're taking away our pensions."

[mwilbert]

The constitutional provision is about both the funds in the pension fund as well as a separate obligation to fund any shortfall in the funds. The state is constitutionally prohibited from taking any action which would disrupt that obligation.

The above may all be true, but so far as I know this provision of the constitution has really been adjudicated, so we really don't know what it means. We will probably know a lot more in a few years.

[Locke09]

The above may all be true, but so far as I know this provision of the constitution has really been adjudicated, so we really don't know what it means. We will probably know a lot more in a few years.

But we do know that it is talking about accrued financial benefits and we know what accrued financial benefits are. They are the monetary benefits you have earned to-date whether you are a retiree or current vested employee. Accrued benefits are independent of whether or not they have been completely funded or whether or not you are currently collecting them.

At issue might be a) what are financial benefits - do they include healthcare or just the pension amount, b) does this obligation hold up in bankruptcy court, c) what is the State's obligation towards enforcing this or making the pensioners whole, and questions of that nature.

[Hermod]

One possibility:

City makes up shortfalls in the funds.

Existing retirees: Full benefits as agreed [[maybe no COLAs)

Existing employees: Pension based on a blend of defined benefits and defined contributions depending on years of service to date.

New employees: Defined contributions only.

[Scottathew]

Hopefully this is all true. Seems like we're headed toward a solution that's fair to those depending on their pensions and also will realize some savings to the city.

[BankruptcyGuy]

That doesn't make much sense. The constitutional provision doesn't differentiate between those who are retired and those who are employed. If one goes down, they all potentially could go down.

I'm not sure how much time current employees must be employed to be pension-eligible. I don't believe Section 24 of the Michigan Constitution prohibits freezing a pension, even if some employees who are on the cusp of eligibility lose out.

[BankruptcyGuy]

BankruptcyGuy, will retirees be forced into the class? Or could they forego class representation and choose to litigate themselves for their own settlement? Is it like a class action lawsuit where joining the class forces you to accept the class settlement? will the retiree reps be able to negotiate unilaterally...or will they need to strike a deal and get a 51% vote out of the retirees?
"

Yes, in bankrputcy, groups of impaired parties can be put into a class, which votes. With creditors, it's generally voting based on amounts owed. Would it be the same with the pensioners? Maybe. I can imagine a bit of consternation if those who have been receiving benefits for years have the same voting power over those who have just started.

I'd be interested to know what the vesting period is for DPFRS and DGRS members. That would provide some additional guidance.

[BankruptcyGuy]

At issue might be a) what are financial benefits - do they include healthcare or just the pension amount, b) does this obligation hold up in bankruptcy court, c) what is the State's obligation towards enforcing this or making the pensioners whole, and questions of that nature.

The Michigan Supreme Court has already ruled rather clearly that healthcare benefits are not protected by Section 24 of the Michigan Constitution.

[corktownyuppie]

The above may all be true, but so far as I know this provision of the constitution has really been adjudicated, so we really don't know what it means. We will probably know a lot more in a few years.

Well, we may or we may not. I think Rosen is well-respected enough by attorneys that he may be able to mediate a settlement before the legal question even needs to be addressed. Given what is being signaled in the report, it shouldn't be hard for the city, its retirees, and city employees to get 90% of what they're asking for. Given a choice between 90% of my demands vs. the potential of an unfavorable ruling giving me 0% of my demands...I'd be taking the deal.

That holds true for both the EM's side and the employees/retiree's side, IMHO.

[professorscott]

Well, we may or we may not. I think Rosen is well-respected enough by attorneys that he may be able to mediate a settlement before the legal question even needs to be addressed. Given what is being signaled in the report, it shouldn't be hard for the city, its retirees, and city employees to get 90% of what they're asking for. Given a choice between 90% of my demands vs. the potential of an unfavorable ruling giving me 0% of my demands...I'd be taking the deal.

That holds true for both the EM's side and the employees/retiree's side, IMHO.

That's a big ten-four. Attorneys in this situation have to be keenly aware of the principles of risk management, and the downside risks for both sides are significant enough that they should settle somehow. I think the bankruptcy court is very likely to allow such a settlement, but I'll let BankruptcyGuy weigh in on this.

[mwilbert]

Before the pension issue can be settled in bankruptcy, the bankruptcy filing has to be found valid, and one of the issues is whether the state can authorize a filing that may impair retirement benefits. I'm reasonably sure it is going to be difficult to avoid having that point ruled upon unless the parties can settle prior to the bankruptcy which I don't think can happen.

[Novine]

"Given a choice between 90% of my demands vs. the potential of an unfavorable ruling giving me 0% of my demands...I'd be taking the deal."

In what world are those the two choices?

[Hermod]

"Given a choice between 90% of my demands vs. the potential of an unfavorable ruling giving me 0% of my demands...I'd be taking the deal."

In what world are those the two choices?

The real world. Going into court is always a "crap shoot" and you don't know which way it will go. A settlement is a sure thing. The two choices are to settle or to go into court [[with great uncertainty).

[Locke09]

The real world. Going into court is always a "crap shoot" and you don't know which way it will go. A settlement is a sure thing. The two choices are to settle or to go into court [[with great uncertainty).

I think the point is that Orr is only offering 10 cents on the dollar, not 90 cents on the dollar. If you offer me 10 cents on the dollar or I can go to court where I might get zero - I'm going to take my chances in court.

The idea that Orr is planning on offering retirees 90% is speculation.

[Eber Brock Ward]

Orr is offering ~10 cents on the dollar on the unfunded portion, which means they'd be receiving anywhere from 60-90 cents on the dollar in total.

Not a bad deal when compared to what residents get, what with public safety, EMS, etc. services being in the condition they're in.