Detroit Emergency Manager Kevyn Orr is threatening to take over one of the city's pension funds after reports showed retirees receiving extra payments at the same time the funds were losing their value.
If the troubled city's General Services System pension fund keeps going at its current rate, it will not be able to pay pensions owed to current and future retirees within 12 years, Orr told The Wall Street Journal
Orr said taking over the fund is a "right, if not an obligation" that he has to consider.
But Pension Board workers said Orr's calculations are incorrect.
But either way, an October draft report reviewed by the Journal found that during a 12-year period that ended in fiscal year 2012, the pension funds paid out $1.22 billion in interest credits to retirees' savings accounts. Meanwhile, the funds lost $2.05 billion, or 25 percent of their net value, the report said.
Orr called earlier this year for the city to pay 20 cents on the dollar for the $3.5 billion the city owed in its police and fire pension funds. But pension board reps say they can run their system independently, and that Orr is overestimating the shortfall.
The board says the pensions are underfunded by $650 million, not the $3.5 billion Orr claims.
Orr earlier this year stopped making payments into the system, and a person familiar with the situation says Orr wants to take over the city's General Retirement System for non-uniformed employees and retirees. His office has estimated the fund has just 64 percent of the money it needs to meet obligations, while the fund officials put the figure at 80 percent.
According to Michigan emergency-management laws, municipal pension systems can be taken over if they are funded at below 80 percent, the WSJ reports.
Earlier this week, a federal judge ruled that Detroit is eligible for the biggest municipal bankruptcy in U.S. history
because the city is broke and negotiations with its thousands of creditors were unfeasible.
U.S. Judge Steven Rhodes also said the city could cut retiree pensions for the city that had once been the cradle of the U.S. auto industry and now a symbol of urban decay and mismanagement.
believed bankruptcy was Detroit's best bet for a return to financial stability, and Rhodes' ruling will now give Orr and other civic leaders an opportunity to test that argument.
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