Detroit sues to stretch police and fire pension payments over 30 years

Dana Afana
Detroit Free Press

Mayor Mike Duggan is pressuring city pensioners to accept a 30-year repayment schedule of pension payments that were delayed during the bankruptcy under a new lawsuit.

Duggan’s administration filed the lawsuit on Wednesday in U.S. Bankruptcy Court, requiring the Police and Fire Retirement System (PFRS) to honor the 30-year period in Bankruptcy Judge Steven Rhodes' supplemental opinion instead when payments resume in July 2023, according to the filing. The PFRS in November 2021 adopted a 20-year repayment plan beginning in the 2024 fiscal year.

The city was given a “pension holiday” break from payments to PFRS and the city's General Retirement System for nearly 10 years as part of a restructuring plan after the historic bankruptcy in 2013.

Due to actuarial mistakes in the bankruptcy Plan of Adjustment, accrued pension liabilities for the two legacy plans were understated by about $500 million, according to the lawsuit. To cushion the amount the city would have to repay in the 2024 fiscal year, the city created a Retiree Protection Trust fund. The city is expected to have paid in $445 million into the fund by June 2023.

The PFRS board opposes Duggan's 30-year schedule. 

PFRS Chairman Dean Pincheck said that while the trust fund is seen as helpful to bolster pension payments, the board is adamant about a 20-year period.

“Trustees have heard from our actuarial and other financial advisors that have run numerous what-if scenarios based on multiple funding models including 30-year, 20-year and others," Pincheck said in a statement. "The 30-year model may be better for city budgets but is not in the best interest of retirees.”

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PFRS Spokesman Bruce Babiarz said pensioners will still receive their payments but the extension could affect the health of the fund in the future.

"There’s certain funding level requirements that it’s 60% funded and if they don’t put that money in early, they could risk certainly within 8-10 years of being underfunded by violating the state law and the Plan of Adjustment, and it could impact cost of living restoration that requires certain funding levels," Babiarz said. 

The city did not immediately respond Friday morning to a request for comment. 

During the mayor’s budget proposal in March, Duggan warned the city would have to slash the city budget to make the 20-year payments and would take the issue to bankruptcy court. If the bankruptcy ruling is unsuccessful, he plans to go to the state Legislature for help, he said previously. 

“We settled the bankruptcy case with these pension groups in the room agreeing to a 30-year amortization, which is a national standard,” Duggan said in March. “The Police and Fire board particularly didn’t want a 20-year amortization because it would’ve meant bigger pay cuts for police and firefighters.”

The city currently has $355 million in the fund for PFRS and General Retirement System beneficiaries and will add another $90 million this year.

The PFRS Board is a 16-member Board of Trustees, which oversees the $2.8 billion fund serving about 8,000 retired police and firefighters, and 3,000 active duty first responders.

Dana Afana is the Detroit city hall reporter for the Free Press. Contact Dana: dafana@freepress.com or 313-635-3491. Follow her on Twitter: @DanaAfana.