Detroit emergency manager Kevyn Orr’s Plan of Adjustment submitted to the bankruptcy court is meeting stiff resistance from retirees across the board who say the plan is at their expense.
The Committee of Retirees, selected to be part of the bankruptcy negotiations, reacted swiftly to the plan, calling it “non-confirmable.” Announcing its opposition to the plan, the group said under it, many retirees would see their pensions reduced from between 40 and 50 percent, despite the relatively strong funding levels in the pension plans.
Added to that, the group said the City of Detroit seeks to cut spending on retiree healthcare by more than 85 percent and to terminate all retiree healthcare benefits after 20 years. Retirees, represented by the Committee, number more than 23,500. Approximately 87 percent of Detroit retirees live in Michigan, and most of those live outside of the city of Detroit.
“Unless the city agrees to meet its funding obligations over time, retirees are owed more than $12 billion in unfunded pension and other post employment benefits (OPEB), most notably healthcare,” the group said. It estimated that under the plan, about 20 percent of current retirees will be forced below the poverty line in the next decade.
“The city’s proposed Plan of Adjustment is based on the flawed premise that it needs to dramatically reduce retirement benefits in order to invest in its very necessary revitalization,” said Ron Bloom, vice chairman of Lazard, which is serving as financial advisor to the Official Committee of Detroit Retirees.
“Of course, the city needs investment, but there is no reason for it to come at the expense of its pensioners,” said Bloom, who helped lead the team at the United States Treasury responsible for the restructuring of General Motors and Chrysler. “The city seeks to use assumptions regarding the health of the pension plans that are significantly different than those used by the State of Michigan and hundreds of cities across the state and around the country. This difference is then used to attempt to justify substantial reductions in pension benefits that are simply not necessary.”
Terri Renshaw, chair of the Retiree Committee, agreed.
“The city’s plan, if actually confirmed in its current form, would cause significant harm to retirees, their spouses and dependents,” Renshaw said. “Many retirees who live on the edge will fall below the poverty line. Everyone else will see major cuts to their pension checks and healthcare coverage, with devastating consequences for them personally and the communities in which they live.”
The retirees group is putting a human face to the bankruptcy crisis, citing three seniors who will be drastically affected by the cuts.
Dorothy O’Dell, 86, widow of a Detroit Fire Department battalion chief, suffering from leukemia. The city’s plan will slash her annual household income of $18,000, made up entirely of survivor benefits. Out-of-pocket healthcare costs will increase by approximately $7,000.
Debbie Godfrey, 59, and her husband are both retirees. The Godfreys will see their healthcare costs increase by $16,000 as a result of the city’s plan. In addition, each will also see a significant cut to their pension.
Gordon Smith, 64, a 26-year veteran of the Detroit Police Department, is suffering from severe arthritis that makes walking painful. Smith and his wife, who is ill with lung disease and asthma, will see an increase of approximately $4,000 to their healthcare costs. The city’s plan also will cut the Smiths’ pension benefits which make up approximately 75 percent of their combined household income of $30,000.
Meanwhile, Detroit Mayor Mike Duggan and City Council President Brenda Jones issued a joint statement on the Plan of Adjustment as a reality check.
“The Plan of Adjustment is a sober reality check for our city. While some city services would receive much needed help, it is no surprise there will be difficult decisions ahead that affect residents, city workers and retirees,” Duggan and Jones said.
“The plan proposal provides us a framework for how we can move forward in delivering our most vital services with limited resources. The Mayor’s Office and City Council are committed to working together to achieve the goal of putting the city back on a solid financial foundation.
Across every department of city government, we are working together to identify new revenue streams and cost efficiencies that will allow us to provide well-managed services that all Detroiters expect and deserve.”
The two said the city’s future depends “on our ability to grow its tax base, maximize efficiencies and manage costs. That is why we are united in our commitment to delivering a level of service that allows our city to retain and attract residents, grow businesses and encourage other forms of investment.”
Sandy Baruah, president and CEO of the Detroit Regional Chamber, hailed the plan.
“Detroit’s Plan of Adjustment provides a clear, workable and reasonable strategy to exit this historic bankruptcy. It is critical to understand that the reason the city is in bankruptcy is that the resources simply do not exist to pay the obligations that exist, including pensions, creditors and others,” Baruah said.
“Any party to any bankruptcy proceeding that expects to emerge fully whole simply does not understand the painful reality of the situation. Finally, Mr. Orr’s Plan of Adjustment focuses on needed investments in the city that are necessary for future success. At the end of the day, positioning Detroit for growth and success is the reason for these unprecedented actions.”
But Shirley V. Lightsey, a 79-year-old retiree who is the vice chair of the Retiree Committee, disagrees.
“It is more than a shame that the city has proposed to so drastically cut retirement benefits, beyond what is needed to support its plan to reinvest. It is a slap in the face to those who gave their working lives to the city,” Lightsey said.
“Too many people have worked too long to accept such treatment without a fight. However, if the city and others truly want to work with retirees, the Committee remains ready, willing and able to work with them to seek a mutually acceptable solution.”
Tina Bassett, spokesperson for the General Retirement System of the City of Detroit, also denounced the Plan of Adjustment, calling its release premature.
“We believe releasing the Plan of Adjustment (POA) at this time is premature since we are still in mediation with many issues that need to be considered and discussed before any agreements can be reached,” Bassett said. “We are greatly disappointed that the POA contains debilitating and unnecessary cuts to accrued pension benefits and know the city can afford much better treatment to the people who have dedicated years of their lives in service of the city.”
She continued, “We will continue to negotiate in good faith with all parties to resolve the issues before us and reach the best possible outcomes for our retirees, members and beneficiaries. Fortunately the POA is a dynamic document that can be amended as mediation and negotiations move forward. It is our hope that this premature action will not slow down the process for consensual resolution with all parties as increased litigation will be costly and delay resolution.”
“Dorothy O’Dell, 86, widow of a Detroit Fire Department Battalion Chief, is suffering from leukemia. The city’s plan will slash her annual household income of $18,000, made up entirely of survivor benefits. Out-of-pocket healthcare costs will increase by approximately $7,000.”
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