Yesterday we reported that Detroit Emergency Manager Kevyn Orr had frozen the pensions of city employees and directed that new employees would get a 401(k)-style defined-contribution plan rather than defined-benefit plans. But only hours after that story broke, Orr abruptly reversed course. Now he says he’ll delay the freeze until bankruptcy negotiations with the city’s retirement funds play themselves out. The Chicago Tribune reports:
Despite the delay, Orr said he reserves the right to retroactively freeze the General Retirement Fund, which covers non-public safety workers, retroactive to January 1 if mediation fails to produce an agreement on a $3.5 billion unfunded pension liability the city “cannot afford to pay.”“The city remains in a financial emergency, and to the extent that mediation can assist in finding a way to improve services for all of its 700,000 residents, then it is worth continuing,” Orr said in a statement.
This executive order has had a strange history. Orr issued it on December 30, but it was not revealed to the public until yesterday. It seems likely that Orr is simply firing an opening shot to gain an advantage in negotiations with the retirement funds. Nonetheless, city workers should take note: their pensions are unlikely to survive the bankruptcy unscathed.