Emergency Manager Kevyn Orr on Monday temporarily halted a Dec. 31 freeze of pension benefits for 5,600 non-uniform employees to give retirees and labor unions more time to negotiate in bankruptcy mediation sessions.

Orr made the decision hours after The Detroit News first reported Monday that he quietly imposed a freeze on earned pension benefits for employees in the General Retirement System before the New Year and closed the plan for all newly hired employees after Dec. 31.

Closed-door negotiations over Detroit’s debt-cutting plan of adjustment continued over the two-week holiday break, but are expected to intensify this week as Orr races to meet a self-imposed early January deadline for filing the plan.

“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 Monday in a statement. “But time is running short, and the city’s financial status remains dire. An additional delay without the prospect of a mediated solution threatens to further erode essential services and public safety.”

Chief U.S. District Court Judge Gerald Rosen, who is mediating Detroit bankruptcy negotiations, urged Orr over the weekend to halt the benefit freeze to allow for a possible debt-cutting deal with pensioners, Orr spokesman Bill Nowling said Monday.

If negotiations fail to resolve the city’s financial emergency, Orr reserves his right to reinstate the changes in employee retirement benefits, Nowling said.

Orr has already delayed cutbacks to employee and retiree health insurance until March to give the city and its creditors more time to negotiate those benefits in mediation.

In another delay to the bankruptcy proceedings, the closing arguments in a trial over a pension-related debt settlement scheduled for Tuesday was postponed until next week because the federal courthouse in Detroit will be closed due to the inclement weather, a court spokesman said.

In his Dec. 30 order, Orr also called for the creation of a new 401(k)-style defined contribution retirement plan for existing and future city workers starting Jan. 1, according to a copy of the emergency manager’s order obtained by The News.

Orr’s office said Monday he halted the accrual of pension benefits in order to “help stabilize the severely underfunded pension fund” and give the city more money to spend on services.

As part of the order, Orr also eliminated the pension “escalator,” effectively eliminating any future cost-of-living increases for all retired city employees in the General Retirement System.

The emergency manager’s order also closed the pension system’s Annuity Savings Fund, an added benefit for some municipal workers. Under the order, years of service and final annual compensation used to calculate pensions will be frozen and the city will make no other contributions to the fund.

Orr said the freezing of pension benefits “will enhance the city’s capacity to provide or cause to be provided necessary government services essential to the public health, safety and welfare in addition to rectifying the city’s financial emergency.”

Orr issued the directive through the powers vested to him by Michigan’s emergency manager law, Public Act 436 of 2012. His order did not affect Detroit’s Police and Fire Retirement System, which is better funded than the General Retirement System.

City employees who were not already vested in the retirement system “shall not be entitled” to pension benefits, according to the order.

The General Retirement System reported having 5,658 active Detroit workers and 12,118 retirees receiving monthly pension checks on its June 30, 2013 financial report, the most recent data available.

Orr has targeted both pension plans for cuts in Detroit’s ongoing Chapter 9 bankruptcy case. The reductions in benefits come as the emergency manager’s legal team and attorneys for the pension funds, retirees and labor unions are locked in negotiations over a debt-cutting plan of adjustment.

Tina Bassett, a spokeswoman for the General Retirement System, called Orr’s pension freeze “an outrageous and over-zealous action.”

“Again the EM’s office demonstrates a lack of integrity and willingness to make a good faith effort when negotiating with our pension system,” Bassett said in a statement early Monday that questioned why Orr would take such action in the midst of mediation.

Later, when Orr announced he would hold off on the freeze, Bassett said the fund welcomes the “opportunity to continue to negotiate in good faith as part of the continuing federal mediation process.”

Orr’s order was sent to Mayor Mike Duggan, union officials, members of City Council, former Mayor Dave Bing and the Michigan Treasury Department.

Source: The Detroit News