Breakthrough for Detroit Bankruptcy as Retirees Accept Pension Cuts

Retired workers in the bankrupt city of Detroit, Michigan, have accepted cuts to the pensions as part of a plan to help the city re-emerge from bankruptcy.

Detroit pensioners last night voted in favour of a plan to address the city’s bankruptcy by cutting part of their benefits.

According to a legal filing, a majority of members of the Detroit Police & Fire Retirement System and Detroit General Retirement System (GRS) voted in favour of the move, which will see them lose annual inflation-linked increases. GRS members will also take a 4.5% hit to their payments. This is far less than originally proposed.

In return the state of Michigan will have to find $816 million to secure pension funding for the two schemes. It has already agreed to contribute $350 million over 20 years, alongside a $330 million contribution from endowments and foundations based in the state.

“The voting shows strong support for the city’s plan to adjust its debts and for the investment necessary to provide essential services and put Detroit on secure financial footing,” Detroit Emergency Manager Kevyn Orr told the New York Times.

Following this vote, the bankruptcy will move to its final phase. Next month Judge Steven Rhodes will rule on whether the reorganisation and funding plans are enough to settle the case.

Earlier this year the California Public Employees’ Retirement System (CalPERS) voiced opposition to the plans to cut benefits, arguing that the decision threatened the security of the entire US pension system. But Judge Rhodes ruled that the bankruptcy proceedings outranked any state law protecting pensions.