City Pension Plan Changes

City Prepares to Move to New, Hybrid Pension Plan for Employees July 1

• Changes reflect progress of bargaining agreements with employee unions, mediation with Retiree Committee.

• Public hearing set for June 24 to review pending changes to City ordinances

6/19/2014 – The City of Detroit took steps today to implement its new hybrid pension formulas under the General Retirement System (“GRS”) and Police and Fire Retirement System (“PFRS”) for all active and new employees beginning July 1, a move designed to strengthen the City’s pension funds while maintaining defined benefit retirement programs, Emergency Manager Kevyn D. Orr said today.

As part of the pension changes, which have been negotiated with the Official Committee for Retirees of the City of Detroit and public employee unions, and which have been proposed in a series of ordinance changes published today, current City employees who participate in GRS will contribute 4 percent of their weekly pre-tax base salary and employees who participate in PFRS will contribute 6 percent of their weekly pre-tax base salary toward the cost of benefits payable under their respective hybrid pension plans . PFRS members hired after June 30, 2014 will contribute 8 percent of their weekly pre-tax base salary toward the cost of benefits under the new hybrid plan. The City also will contribute a match amount to the respective new funds for each employee who participates. Employees will see these deductions in their paychecks beginning July 14, Orr said.

Some employees whose individual bargaining units have ratified new collective bargaining agreements could see their pension deductions offset by salary increases intended to incrementally return employees to 2010 pay levels over the next four years.

“The City and its Labor partners have come up with what we think is the best option to strengthen employee pensions so we can continue to meet future obligations in a financially responsible and sustainable manner,” Orr said. “This new pension plan is the result of months of intense negotiation between the City, its unions and its retirees.

“The City’s intention all along was to create a sustainable retirement plan for its employees that is fiscally sound and continues to meet their needs.”

In connection with the establishment of new hybrid pension plan formulas, benefit accruals under the current GRS and PFRS benefit formulas will be frozen as of June 30 and no new employees will allowed to earn benefits under those old benefit formulas. On July 1, all current and future employees will participate in the new hybrid pension plans. Active City employees who participate in the current GRS or PFRS will receive the benefits they have earned under those Retirement Systems through June 30, 2014, plus an additional benefit under the new hybrid plan formula, as long as they satisfy vesting requirements.

All employees who are vested in their benefits under frozen GRS or PFRS as of June 30, 2014 or who work with the City long enough to become vested in those benefits in the future will receive their accrued benefits earned through June 30 when they would have been eligible to receive those benefits if accrued benefits under GRS and PFRS had not been frozen.

 Additionally, the changes to the Retirement Systems provide that:

•  Some employees may elect to have a portion of their banked sick leave included in their average final compensation for purposes of calculating their frozen accrued benefits as of June 30, 2014 and continue to work for the City after June 30.  An election form will be made available to employees in the near future.  

•  No new contributions will be made to the Annuity Savings Funds (“ASF”) under the frozen plans after June 30, 2014. Amounts held in ASF accounts under the frozen plans as of June 30 will continue to be credited with interest until distributed to members or used to increase members’ retirement allowances.  The interest rate credited to the ASF after June 30will not be less than zero (i.e., no negative adjustments to ASF accounts) or more than 5.25 percent, or the actual net investment rate of return earned by the Retirement System for the relevant fiscal year, whichever is less; and,

* Eligible employees will be able to make after-tax contributions to the new hybrid plans after July 1, 2014.  Interest will be credited under the same formula that applies to ASF accounts after June 30, 2014.

The City will hold a public hearing regarding the proposed ordinance changes necessary to freeze benefit accruals under the current General Retirement System and Police and Fire Retirement System effective as of June 30, and to enact the new hybrid pension plans effective as of July 1, at 10 a.m., June 24 in the Erma L. Henderson Auditorium on the 13th floor of the Coleman A. Young Municipal Center.

Additional information about the changes to the General Retirement System and the Police and Fire Retirement System, as well as copies of the proposed ordinance changes, can be found on the Emergency Manager’s website at .