Detroit manager lays out planned changes to city workers' pensions

June 18 Wed Jun 18, 2014 5:48pm EDT

June 18 (Reuters) - Detroit's emergency manager laid out plans on Wednesday for changes to the city's two retirement systems even as bankruptcy proceedings continue.

Kevyn Orr, who was tapped by Michigan's governor in March 2013 to run Detroit, said all current and new city workers will be subject to the changes effective July 1. The changes maintain a defined benefit system, but require new deductions from workers' paychecks for pensions and matching contributions from the city.

"The city and its labor partners have come up with what we think is the best option to strengthen employee pensions so we can continue to meet future obligations in a financially responsible and sustainable manner,"� Orr said in a statement.

He added that the changes resulted from months of "intense negotiation" with city unions and retirees.

Accrued benefits will be frozen as of June 30 and no new employees will be allowed to earn benefits under prior General Retirement System and Police and Fire Retirement System benefit formulas.

Detroit's pension systems are a major contributor to the $18 billion in debt and other obligations that led to the city's historic municipal bankruptcy filing in July 2013. Detroit has about 22,000 retirees who currently receive pensions, but only about 9,000 active employees supporting the funds, according to Orr's office.

While Detroit has reached settlements with several major creditors, voting by thousands of creditors, including city workers and retirees, on a proposed debt adjustment plan will not be completed until July 11. Federal Judge Steven Rhodes, who is overseeing the bankruptcy case, has scheduled an Aug. 14 start date for a hearing to determine if the plan is fair and feasible.

The debt adjustment plan includes a reduction or elimination of annual cost of living adjustments and pension cuts for some retirees. Money pledged by foundations, the Detroit Institute of Arts and the state of Michigan would be tapped to ease the cuts. (Reporting by Karen Pierog; Editing by Eric Walsh)

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