Detroit manager freezes pension fund, creates 401k-type plan

Mon Jan 6, 2014 4:21pm EST

Jan 6 (Reuters) - Detroit Emergency Manager Kevyn Orr has frozen the pension fund for some of the city's workers, replacing it with a 401k-type plan, according to an executive order obtained by Reuters on Monday.

The pension freeze, which took effect on Dec. 31, only affects Detroit's General Retirement System, which covers non-public safety workers. The action closes the pension fund to any new or rehired employees and freezes benefit accruals for current workers. It also stops worker contributions to the pension and annuity savings funds and ends cost-of-living adjustments for pension payments made to retirees.

As of Jan. 1, the order created a defined contribution plan for affected workers.

Orr issued the order on Dec. 30, but it was not posted on a web page listing his other orders since taking over Michigan's biggest city in March.

Detroit's pension systems, made up of the general retirement and police and fire funds, are a major factor in the more than $18 billion in debt and other obligations that led to the city's historic municipal bankruptcy filing on July 18.

Tina Bassett, a spokeswoman for the General Retirement System, questioned Orr's action in light of ongoing U.S. Bankruptcy Court-ordered mediation between the city and its pension funds and other creditors.

"This is an outrageous and over-zealous action from the EM's office," Bassett said in a statement. "Again the EM's office demonstrates a lack of integrity and willingness to make a good faith effort when negotiating with our pension system."

Orr's spokesman was not immediately available for comment. Detroit's new mayor, Mike Duggan, had no initial comment, according to his spokesman.

The Detroit retirement systems have filed an appeal with the U.S. Court of Appeals for the Sixth Circuit, hoping to overturn Judge Steven Rhodes' Dec. 3 ruling that the city was eligible for Chapter 9 municipal bankruptcy.

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