Detroit pension officials: Funds 'cannot be touched' in bankruptcy
CHRISTINE FERRETTI THE DETROIT NEWSDetroit— Seeking to quell fears of retirees, Detroit pension fund officials stressed Wednesday their opinion that the funds’ current combined value of $5 billion “cannot be touched” in bankruptcy.
Pension officials said the market value of the retirement funds is not in danger despite a judge’s ruling Tuesday that Detroit is eligible for bankruptcy and that pensions can be impaired to restructure the city’s debt.
“There are people out there that are panicking and we do not want that panic,” said Michael VanOverbeke, general counsel for the General Retirement System.
“That money cannot be touched through the bankruptcy process and proceedings. It’s there for the exclusive benefit of the members and beneficiaries and will be used to pay the benefits that have been promised.”
The General Retirement System met Wednesday with its restructuring advisers in a closed-door session hours before the funds jointly filed an appeal of U.S. Bankruptcy Judge Steven Rhodes’ Tuesday ruling.
The Police and Fire Retirement System is expected to meet today.
“We absolutely still believe in our assertion that you cannot impair retirement benefits ... the vote of the people overrides the will of the Legislature and the governor,” VanOverbeke said Wednesday.
“The battle is long from over and we’ll continue to fight for the members and beneficiaries and see that the best result is made for all.”
Pension officials say the $5 billion can be used to pay pension obligations to retirees, but not to pay off city debt. Any cuts, they say, would involve shortfalls in the pension funds.
The city’s pension funds contend there is a $1.5 billion shortfall, though Emergency Manager Kevyn Orr estimates the figure is $3.5 billion.
“We’ll continue to aggressively pursue the full amount of those claims,” VanOverbeke said, adding the mediation and bankruptcy process will determine what the plan will look like going forward.
The fire and police fund earned $176 million in the last quarter and is valued around $3.2 billion, said fund spokesman Bruce Babiarz.
The funds’ actuarial firm, Gabriel, Roeder, Smith & Company, has said the police and fire system is 96 percent funded and the general retirement system is about 78 percent funded.
A separate study, commissioned by the city, contemplates different actuarial assumptions and other factors being negotiated in bankruptcy.
Under Public Act 436, Orr is able to ask the state treasurer to appoint him sole trustee of either or both funds if the funded value falls below 80 percent.
“It’s a provision in the emergency manager law that has not been exercised or raised,” VanOverbeke said.
In March, the funds retained Clark Hill law firm as its restructuring adviser and, in June, brought on the investment firm Greenhill to act as a financial adviser.
cferretti@detroitnews.com
From The Detroit News: http://www.detroitnews.com/article/20131204/METRO01/312040095#ixzz2mawe0PbZ
Even if this is true, they have a problem. The problem is the unfunded liability. Retirees won't get the benefits they thought they would because the city will not make up for many years of promising much while funding little.
ReplyDeleteHi Mark,
ReplyDeleteI posted this article because I believe similar financial situations will happen across the nation.
In Mass, PRIT was created to take away financial autonomy from the regional retirement boards. This move was promoted as "financially responsible" because the state treasurer was earning more of a rate of return than the regional retirement boards. I believe since the conglomeration of PRIT the rate of return has not materialized….you certainly don't hear about the fantastic increases in retirement investments anymore.
I fear this financial scenario may have consequences on the national level, the state level and the local level. All levels of government have unfunded liabilities as well as huge debt burdens, which in my opinion will create the next financial implosion. The quantitative easing ( the printing of the money) is not going to solve this problem.
I believe the next step on the federal and state level will be an attempt to control private pensions to increase, on paper, asset value to continue to print more money.
On a local level, the only way I can figure to try to mitigate these issues is to get the Town's debt down to a lower level. Not sure how to do that without increasing taxes, which would be a bad idea on top of the rate increases in water, sewer and electricity as well as the override.
Hopefully, Templeton will be Open for Business very soon. Maybe we can stop paying rent for town offices. What a concept?
Thank you for your work on the Advisory Board. I hope for everyone's sake I am wrong about a financial meltdown.
Hi Julie - well, you know the "solution" I would like the town to pursue. Selling the light company to a National Grid. I don't know if it is marketable, that probably depends on whether any poison pills exist. But the idea of selling an asset, collecting much more in taxes from National Grid, and using the proceeds from the sale to pay down debt does have some appeal to me. Most citizens of the USA do not receive their electricity from a municipal light company, and they do just fine. But I am frankly disappointed in how paralyzed the town appears, unable to take action lately. I know this would be a major effort, and is very unlikely to be pursued.
ReplyDeleteMark, my husband has been saying that we should sell the Light Company for a couple of years. We are not getting any more service than we would from a National Grid and we could have NG keep a crew in town as part of the deal. I am sure that is what people are afraid of, being left in the dark. The people in town are in the dark as it is, because they do not understand this administration is in it for themselves, and are milking the business for all it is worth. Things can't get any better if we do not have any industry, and that is not on the horizon anytime soon. The School Committee can try to force more overrides but I do not think that will work again, and there will never be enough money for them. We are in the same mess as a lot of other towns, and I can not see a answer anytime soon. Selling the light company would enable us to get the things we really need, pay off some of the debt, and have a few bucks in the bank. Again I do not have a problem with the linemen, as this is not their doing, and we could find a solution for them. We simply cannot keep the Templeton Municipal Light as it is, because it does us no good and just has provided a nest for a few to be comfortable in. All the profits are being sucked away and it is probably much worse than I can imagine. Bev.
DeleteBev - I think I've been saying it for like 10 years.
DeleteWho knows how much it's worth? Who knows if they have any poison pills? It may be just a pipe dream.
The value of our light department is enormous in my opinion. When we asked for the contracts for 5k or more and they found out they were required to hand them over it became a turning point for our town. Now we have shown the general manager and commission they are in violation of the chapter 164 laws, many i might add. The cost of our energy has been inflated for years and years as be bought in "heavy" to the nuclear production of MMWEC. At a meeting it was told to us by JD we would in 4 years see a huge reduction in the power costs. I would think that value will add a large value to a buyer interested in the plants purchase. We were told the contracts for any MMWEC deals were not in the light companys office or any files of them were at MMWEC. WHY would that be we don't have any copies of the contracts with them.
ReplyDeleteDoes MMWEC own TMLWP or does Templeton own it?
I think if they ask thier lawyer he will charge them 375. per hour to tell you. Mark you are correct and i have talked to the assesors about a assesment of both the light and water assets to get a figure of the taxable amount that the pilot should be based on. like it was N.G. If we look at the amount of" MISC." income they have we would need to call that the towns money, In the past the misc.income was given up and still should be. Above and beyond what they pay for a pilot.
Vote Mitchell for selectman!
ReplyDeleteRemember the past to ensure a better future.
The nuclear option should NEVER be used.