The lawsuit, which the trustees filed in US Bankruptcy Court, Eastern District of Michigan Southern Division, alleges that the investment committee overstepped its authority, breached its fiduciary duty, and subverted the pension and city’s personnel payment policies.
The investment committee was established within a plan of adjustment that was created as part of the bankruptcy filed by the city of Detroit in fiscal year 2014-2015. The nine-member committee assumed responsibility for the investment of the pension plan’s assets. It is comprised of four police and fire retirement system trustees and five financial professionals selected by the state of Michigan, the city of Detroit, and the Police and Fire Retirement System Board of Trustees, in consultation with the Foundation for Detroit’s Future.
“This adversary proceeding is brought to remedy the breaches of fiduciary duty committed by the PFRS Investment Committee and its individual members and Chief Investment Officer,” said the complaint, “to obtain injunctive relief and declare the parties’ rights and responsibilities … pursuant to the terms of the Eighth Amended Plan of Adjustment of Debts of the City of Detroit.”
The complaint was filed with the court on behalf of the board of trustees by outside special counsel Couzens Lansky.
The conflict between the pension and the investment committee is centered on pay raises the investment committee promised to its CIO and deputy CIO that would have raised their annual salaries to $315,000 and $285,000, respectively. According to the pension’s board of trustees, CIO Ryan Bigelow’s compensation was increased twice since last winter – first in December to $264,000 from $242,000, and then again March to $315,000.
The committee also approved a 75% pay raise for then deputy CIO Kevin Kenneally to $224,000 from $162,781 annually. When the pension’s trustees objected, the investment committee arranged a deal for Kenneally to resign as an employee and be hired as an independent contractor with fewer duties, higher pay, and a $60,000 signing bonus.
Kenneally resigned from the pension board staff on Dec. 27 and assumed a role as an independent contractor on Jan. 6. However, the board of trustees has refused to pay invoices submitted by Kenneally. The board also authorized the hiring of special counsel to assist in writing the complaint to request that the Federal Bankruptcy Court, which approved the plan of adjustment, rules on the validity of the contract and the ability of the board to set employee wages.
The trustees also claim the investment committee has indicated that it would attempt to delay or prevent approximately $18.3 million in payments from the so-called “Grand Bargain” that was part of the city’s bankruptcy unless the trustees agree to fund the pay raises.