Retirees could bear brunt of Detroit bankruptcy

DETROIT Fri Jul 19, 2013 9:47pm EDT

A image of the Detroit skyline is seen on the podium where Detroit Emergency Manager Kevyn Orr and Michigan Governor Rick Snyder will address the media about filing bankruptcy for the city of Detroit during a news conference in Detroit, Michigan July 19, 2013. REUTERS/ Rebecca Cook

A image of the Detroit skyline is seen on the podium where Detroit Emergency Manager Kevyn Orr and Michigan Governor Rick Snyder will address the media about filing bankruptcy for the city of Detroit during a news conference in Detroit, Michigan July 19, 2013.

Credit: Reuters/ Rebecca Cook

Related Topics

DETROIT (Reuters) - When Paula Kaczmarek moved to Detroit in 1978 to work for the city's public library system, a guarantee of good retirement benefits was a key sweetener that convinced her to leave her previous job in Boston.

"I basically came here for future security," said Kaczmarek, who retired in 2012, two years earlier than she planned, as the public library was facing potential layoffs.

Kaczmarek is among the more than 20,000 unionized retirees whose pensions and healthcare benefits hang in the balance after Detroit filed the largest municipal bankruptcy in U.S. history.

In an interview, Kevyn Orr, Detroit's state-appointed emergency manager, said restructuring the city's crippling legacy costs is critical to Detroit's recovery.

"We can't pay benefits with money that's not there," he said. "It can't be done."

Retirees and labor officials acknowledged that the city's finances were in shambles and they would have to share in the sacrifice to help Detroit recover. But they said some of the significant benefits cuts reportedly proposed by Orr in talks with creditors would have a devastating impact on their lives.

"I do have some compassion for people who are investors in Detroit, naturally, because a lot of my pension income is based on investing," said 63-year-old retired city librarian Ellen Simmons. "But it's hard to have a lot of sympathy when there are 20,000 real people who are not living high on the hog."

Although city retirement benefits are enshrined in Michigan's constitution, there is no clear road map for what will happen in a Chapter 9 bankruptcy, experts said. The question is made more complicated by the fact that it is unclear who has the legal authority to negotiate on behalf of the retirees.

Orr and labor officials have locked horns over how to manage pension and retiree healthcare obligations. Orr was appointed by Michigan Governor Rick Snyder in March to try to resolve the city's financial crisis and tackle its $18.5 billion in long-term debt.

The city lists about $644 million in unfunded pension liabilities, but Orr has said the number is closer to $3.5 billion if "more realistic assumptions" are taken into account. Other unfunded post-employment liabilities, which include retiree healthcare costs, account for $5.7 billion of the city's outstanding debts.

The city of Detroit's two largest unsecured creditors are the city's general retirement fund and the police and fire departments' retirement fund.

In a court filing, Orr said the city intended to create a committee of retired employees to represent those workers.

"The appointment of a retiree committee is adequate representation for these individuals and to facilitate the city's restructuring of its pension and other post-employment benefit liabilities," Orr said in his filing.

Orr faced three separate lawsuits from current and retired workers trying to bar his attempts to file Chapter 9.

The conflict ratcheted up when Detroit filed for bankruptcy in federal court Thursday just minutes before labor lawyers could block those efforts in another state court located 90 miles away.

At this point, it's unclear how much of a haircut, if any, the retirees will be forced to take. Still, they're preparing for the worst.

Simmons, who retired in January after working for the public library for more than 30 years, said she might have to go back to work or even move in with one of her children depending on how much is cut from her pension.

"My married kids, do they want mom living with them? They'll be gracious about it, but that's not what any of us want," she said.

(Reporting by Joseph Lichterman and Deepa Seetharaman; Additional reporting by Paul Lienert; Editing by Lisa Shumaker)

FILED UNDER:
We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (2)
morbas wrote:
Detroit’s T’Rxpublican appointed emergency manager usurps democratic principles, proposes unjust burdening of hard earned benefits, a pool of wages contracted by employers to those employed. Insensitivity of the T’Rxpublican is dismissive attitude towards the people welfare entitlements as a their means. Akin to the aristocratic view of superiority and exemption to responsibility, aye even subjugation by Christianity itself. The debt has one cause, the aristocratic view of superiority and exemption to responsibility, aye even subjugation of Christianity itself. They would rather mint Caesar’s denarii and subjugate humanity to a slaves wage, then steal back wages paid. Detroit is the peoples property (through labor and tax); corporate lawyer-ed take over by usurping the will of the peoples is unjust. The municipality revenue issue is national in scope not unique to just Detroit-MI, embodies a T’Rxpublican national strategy towards a Banana Republic of stratified social classes, including a large, impoverished working class and a ruling plutocracy that comprises the elites of business, politics, and the military.

Jul 20, 2013 7:40am EDT  --  Report as abuse
brickem30 wrote:
Did you really think the country could support your extravagances? You are breaking your state and trying to take the country down with you.Private sector unions by all means ,yes…Public sector unions are a dictatorship…

Jul 20, 2013 8:13am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

Pictures