Full police, fire pensions in Detroit's bankruptcy?

By Rod Meloni - Reporter, CFP ®

DETROIT - In nearly 20 years on the job here in Detroit, there are many memorable moments where I was front row and center:

The UAW national contract settlements, Detroit's casino vote, Kwame Kilpatrick's perjury, his being escorted around the federal courthouse in shackles, his trip to the jailhouse after his sentencing, Big 3 executives figuratively holding tin cups in Washington, D.C., asking the feds for money, their bankruptcy filings, their exits from bankruptcy, Detroit filing for bankruptcy.

Today is another memorable moment for that list.

My photographer and I arrived at the Retired Detroit Police and Fire Fighters Association union hall in Sterling Heights just before noon. Inside the board room sat Judge Gerald Rosen and 11 members of the association board. They were in the process of voting on a settlement with the city of Detroit that sent a shockwave throughout and brought with it the surprising headline of the year: No Police and Fire Retiree Pension Cuts in Detroit's Bankruptcy!

The judge left the building without comment. The union president Don Taylor came over and did an interview with us. The first words out of his mouth flipped the script in the most unexpected way and went against every expectation that had been set back in July of 2013.

The one thing Kevyn Orr had promised from day one was to expect painful benefit cuts, particularly to pensions. There were early estimates that pensioners would receive only pennies on the dollar and as time went on there was the thought that, particularly for police and fire pensioners, the losses would be much less than that but still substantial.

Then RDPFFA president Don Taylor said the following: "We accepted the agreement as proposed. The major components in there was the police and fire retirees will not see any cut in their pension."

Excuse me? Are you kidding? I thought silently. As is my habit when gob smacked like that with the camera digitizing, I wanted to make certain I was hearing what I thought I was hearing. I asked ever so eloquently "NO?" He said "no cuts" with a smile. He then rattled off the rest of the deal for his 6,500 members

"They will retain 45 percent of their cost-of-living increase. We will maintain our two positions on the pension board, one each. One for police and one for fire and we'll have a separate VEBA which will give us more healthcare coverage."

And just like that the biggest fears and the spark of the largest and most vocal protests of this historic municipal bankruptcy disappeared for 20 percent of the city's 32,000 employees and retirees. Part of this deal requires the police and fire retiree union to support Kevyn Orr's plan of adjustment which should give it a major boost.

Now, let's take a minute to consider the magnitude of this deal. Retired police and firefighters, who do not receive Social Security, were expecting at least a 4 percent and perhaps a 6 percent cut in their pension benefits. That may not sound like a lot of money but this is retirees we are discussing. The average Detroit pensioner takes home $20,000 gross. That 4 percent cut means a loss of $80 a month or $960 a year. If you have no other investments, that money is meaningful, especially if you have health issues and need to buy medications. The 6 percent cut would have meant $100 a month or $1,200 annually. That the mediation process, where a federal judge brokers a negotiated deal, was able to restore these pension benefits and allow for 1 percent cost-of-living adjustments going forward along with the possibility of higher COLA in the future [should the investment fund perform well] is remarkable. It is also what Judge Steven Rhodes has been urging Detroit's creditors to do from the bench for months now.

The ripple effect of this deal goes beyond significant. Immediately the other police and firefighter unions were back in mediation talks to try and cut their own deals, certainly with the hope of coming away with the kind of gold the RDPFFA did.

But none of this is that simple. Yes, it is the fervent hope of these other public safety unions to restore their pensions too, but their membership is largely currently employed which means not only are they negotiating pensions and healthcare, they are also negotiating collective bargaining agreements. This complicates the matter greatly because they are now involved in current and future benefits where the city is "service insolvent" as the Judge Rhodes repeats often.

The outcry from these unions along the way has been loud and constant. They are trying to negotiate contracts with a broke city and turns up its nose at pretty much every proposed contract because it is not so much negotiating contracts as it is trying to exit bankruptcy with a workable city. These are decidedly two different goals and that friction is likely to ensure the current police and firefighter ranks will end up work for much less money. For, them keeping pension benefits is nice but having a decent paycheck that will one day net a pension check is more important. The pension check is also figured based on the three highest income years multiplied by the number of years of service and then a discount factor. The lower the pay the lower the pension.

Then there is the question about whether the general retirees will get as sweet a deal. It still seems highly unlikely their full pensions will be restored because it is more difficult to find the money to replace 26 percent of a $20,000 a year pension with the DIA, the foundations and state of Michigan backed grand bargain. There is a limited pie to slice here and it appears, at least on its face that the first to get their deals are going to get more money. I am told it is entirely possible there could be a benefit in waiting.

We will have to see. But for all of the doom and gloom this painful bankruptcy process has brought Detroit, today was a different day, a surprising day and certainly one to remember.

Copyright 2014 by ClickOnDetroit.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.