Published on Aug 4, 2013

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Detroit Ch. 9 may set pension precedent

Orr: Law doesn’t shield retirees from cuts

By Chad Halcom and Kirk Pinho

A new committee will take shape in the coming weeks to represent more than 23,000 retirees in court and negotiate their future benefits as a class of creditors in Detroit’s Chapter 9 bankruptcy. But do the retirees have any special legal claims that set them apart as creditors? Detroit Emergency Manager Kevyn Orr told Crain’s in an interview last week that he believes federal bankruptcy doctrine prohibits the city from treating its 9,750 employees and 23,500 retirees differently from any other unsecured creditors — or even from each other. “We don’t see any doctrine in the bankruptcy code that allows you to discriminate,” he said. “In fact, most of the doctrine of the code prohibits you from discriminating against classes of creditors unless their behavior is unreasonable. So we treated them as we think federal law requires them to be treated. We are not discriminating.” That means Judge Steven Rhodes, who ordered the retiree committee formation on Friday, may well make the call that sets the new legal standard on retirees’ creditor rights at U.S. Bankruptcy Court. No other municipal bankruptcies have advanced to a court precedent for Detroit or others to follow when it comes to pensions, although retirees preserve contractual rights under a reorganization plan in Jefferson County, Ala., that’s up for court review this week. Orr is awaiting a new actuarial analysis of the city’s two employee pension fund obligations from Seattle-based Milliman Inc. and said he hopes to have completed reports in hand later this month. His attorneys said in court Friday that they could submit a reorganization plan by year’s end, three months ahead of Rhodes’ schedule. The city has two employee pension funds, the General Retirement System and Police and Fire, with an estimated $3.5 billion in unfunded claims. But this unfunded debt figure could change based on the Milliman review…

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