by Scott McClallen
Facing a $131 million annual pension bill due in July 2023, Detroit Mayor Mike Duggan’s administration filed a lawsuit to request city pension funds extend by 10 years its repayment schedule from 20 to 30 years.
The lawsuit filed in U.S. Bankruptcy Court says a more extended payment plan would cost the city less over an additional decade as it approaches the “pension cliff” when it must resume payments.
However, the Police and Fire Retirement System of the city of Detroit still supports a 20-year amortization schedule.
“The PFRS has a fiduciary obligation is to ensure that benefits are paid to retired police, firefighters and their beneficiaries. Further it is our job as a board to ensure the system’s funds are properly invested and managed to provide for future funding,” Chairman Dean Pincheck said in a statement. “Trustees have heard from our actuarial and other financial advisors that have run numerous what-if scenarios based on multiple funding models including 30-year, 20-year and others. The 30-year model may be better for city budgets but is not in the best interest of retirees.”
The lawsuit says that actuarial mistakes in Detroit’s Plan of Adjustment caused accrued liabilities in two legacy pension plans of about $500 million.
For nine years, the city of Detroit has largely dodged pension payments via its 2013 bankruptcy agreement. The city plans to add $90 million into the Retiree Protection Fund, a dedicated IRS Section 115 Trust, and reach a $460 million balance before July 1, 2023.
Detroit has so far placed $355 million in the fund for both PFRS and General Retirement System beneficiaries. Still, Pincheck said they preferred the initial repayment schedule.
“We understand the fiscal position of the administration as the reason for the filing with the U.S. Bankruptcy Court to request a 30-year amortization of pension funds versus 20 years,” Pincheck said. “We believe the Board of Trustees vote in support of the recommendation of the PFRS Investment Committee to favor a 20-year repayment versus 30 years was and remains the correct position on this matter.”
Detroit received $826 million in one-time federal stimulus money from the American Rescue Project Act.
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Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.