(Adds filing and details of revised plan)
By Karen Pierog
April 25 A committee created by a U.S.
bankruptcy court to represent Detroit's retired workers said on
Friday it reached an agreement in principle with the city over
pensions and healthcare, potentially giving the city a key ally.
The agreement, which was incorporated into a revised debt
adjustment plan the city filed with the court late on Friday,
added to a pile of deals Detroit reached with other major
creditors this month.
It also increases the ranks of creditors that Detroit
Emergency Manager Kevyn Orr has lined up so far to support his
plan to adjust the city's $18 billion of debt and exit the
biggest municipal bankruptcy in U.S. history that was filed in
"The deal, which includes significant protections and
potential enhancements for retirees under the city's plan, a cap
on maximum pension losses to individual retirees and
significantly greater funding for retiree healthcare benefits,
reflects the significant efforts of the nine-member committee
and its professionals," said a statement released by the retiree
committee's law firm Dentons.
Sam Alberts, a Dentons attorney, said pension cuts agreed to
by Detroit's two retirement systems could be significantly
restored under certain circumstances.
According to the newly revised debt adjustment plan, a fund
reserve account would be used to restore cuts if the pensions'
funded ratio reaches a trigger level.
The revised plan also requires the systems to have special
committees in place to guide investments over a 20-year period.
Last week, the board of Detroit's Police and Fire
Retirement System accepted a deal that would result in no
pension cuts for public safety workers but would reduce cost of
living adjustments (COLAs) to 1 percent.
The General Retirement System board also accepted a deal for
general city workers that calls for a 4.5 percent cut in
pensions as well as the elimination of COLAs. The pension
changes would be on a ballot sent to thousands of Detroit's
workers and retirees, who will be asked to vote on the city's
final debt adjustment plan.
But those deals and the one with the retiree committee
depend on $816 million the city would tap to aid its retired
workers. Michigan Governor Rick Snyder has asked the state
legislature to approve $350 million of that amount, while the
rest would come from philanthropic foundations and the Detroit
Institute of Arts, which pledged the money to avoid a fire sale
of art works due to the bankruptcy.
As for retiree healthcare, Alberts said that if Detroit
succeeds in invalidating $1.45 billion of pension debt sold in
2005 and 2006, the money the city would have allocated to pay
off that debt would instead be tapped for retiree medical
Earlier this month, Judge Steven Rhodes, who is overseeing
Detroit's bankruptcy case, approved a crucial settlement between
the city and two investment banks over costly interest-rate
swaps. Also, the city reached a deal with three bond insurance
companies over the treatment of voter-approved general
Before the deal with the retiree committee was announced on
Friday, Orr said in a speech to the American Bankruptcy
Institute in Washington D.C. that there is still a lot of work
"Because despite some of the successes we've had with
mediations and some of the settlements we've announced we've got
to negotiate definitive documents," he said. "We've got to get
through a plan structure where some of our counterparties
haven't agreed to anything. ... That's going to be difficult."
Hold outs include bond insurance company Syncora Guarantee,
which has been fighting the city over the swaps settlement.
The city's revised plan did not disclose any resolution for
Detroit's water and sewer department.
Rhodes last week ordered the city and its three nearby
counties into mediation over the creation of a regional
Orr's proposal to lease the city's water and sewer
departments to a regional authority for a hefty annual fee and
using that money for unrelated purposes had drawn objections by
officials in Macomb and Oakland counties, stalling previous
(Reporting By Karen Pierog, additional reporting by Tom Hals
and Lisa Lambert in Washington; Editing by David Gregorio & Kim