April 16 (Reuters) - Detroit’s two pension systems reached tentative settlements with the bankrupt city over major financial issues late on Tuesday, a significant step in Emergency Manager Kevyn Orr’s effort to roll up agreements with major creditor groups.
Mediation continued on Wednesday over various governance matters and Bruce Babiarz, spokesman for the Detroit Police and Fire Retirement System, said details were not available as the situation was still fluid.
The fund for public safety workers and Detroit’s General Retirement System said in a joint statement that the settlements still have to be reviewed by their boards and that negotiations with the city will continue for several days.
“The proposed settlements will ultimately be decided on by current employees and retirees who are eligible to cast a ballot in the bankruptcy process to accept or reject the settlement offer,” the statement said.
The two pension funds represent some 23,000 active and retiree members.
Detroit’s Chapter 9 municipal bankruptcy case, the biggest in U.S. history, has been on the fast track since last week when the city won bankruptcy court approval for a crucial deal over interest rate swaps and reached a settlement with bond insurance companies over the treatment of voter-approved general obligation bonds.
On Tuesday, federal court mediators announced that Detroit had reached its first settlement with a group representing retired city workers.
Under the deal with the Retired Detroit Police and Fire Fighters Association, pensions for retired police and fire department workers would not be decreased but cost-of-living (COLA) increases would be cut in half. A separate voluntary employee beneficiary association plan, or VEBA, will be established for retiree healthcare, according to a court statement.
Citing multiple sources, the Detroit News reported that pensions for general city workers would be reduced by 4.5 percent and would not receive an annual COLA under the tentative deal with the general retirement system.
In its latest plan to adjust $18 billion of debt and exit bankruptcy, Detroit had cited much bigger pension reductions of as much as 14 percent for police and fire and 34 percent for general employees. The city is expected to release a revised bankruptcy blueprint ahead of a Thursday court hearing on unresolved creditor objections.
Detroit’s plan still faces a vote by its scores of creditors and a determination by Judge Steven Rhodes if it is fair and equitable and does not discriminate unfairly among unsecured creditors, which include other bond insurers and bondholders that could face much steeper cuts of as much as 85 percent.
Reporting By Karen Pierog, additional reporting by Lisa Lambert in Washington; Editing by Tom Brown