City retirees won't be receiving extra cash from the city pension plan this holiday season after Detroit City Council voted Tuesday to prevent the city's retirement system from distributing its excess earnings.
The ordinance targeting the so-called 13th checks was introduced by Council Member Saunteel Jenkins, who argued the extra cash put undue pressure on the city's pension funds.
"When the issue came up about distributing excess earnings in a year where city is facing a financial crisis and potentially an emergency manager, as well as at a time where our pension system is not fully funded, the fact that we were considering issuing excess earnings was to me disturbing," Jenkins told HuffPost.
But compared to many municipal pension funds, Detroit's is doing quite well. The city is currently up to date on its payments to the pension fund, according to Walt Stamper, the Retirement System City of Detroit (RSCD) secretary. And the plan is 92 percent funded, according to a 2010 pension plan report.
The Detroit General Retirement System trustees had issued bonuses in November and December from excess interest earned on the pension fund during flush years. The end-of-the-year checks included bonus interest payments to active city employees' annuity accounts, as well as additional cash in the pension payments to retirees -- the 13th checks.
Jenkins has often cited the $1.9 billion the retirement system has lost because the trustees chose to distribute excess earnings in the past, a figure that comes from a March report on the Detroit Retirement General System from the city's fiscal analysis division. That report also found DGRS paid out $623.9 million more than it "should have" since 1987, and said that if that money stayed in the fund, its investment return on that cash would have been $418.4 million.
City Council President Pro Tem Gary Brown asked during yesterday's hearing, "Is it safe to assume had these 13th checks not been paid out for the last 30 years ... then the money the city would owe would have been less, or possibly we'd have excess earnings in the system?"
"It seems like an inherent unfairness in the system that allows the city not to take advantage of the good years, but penalizes them in the bad years," Brown concluded.
But critics of the new ordinance say it's just the opposite. DGRS trustees noted retirees had chosen to set aside rainy-day funds in 2005 and that City Council had approved measures allowing the disbursement of those funds in 2008.
Cedric Cook, a pension fund trustee, spoke during public comment on the measure. "As far as excess earnings are going, the trustees are being punished there for passing out money to single moms that have children and also to folks that have retired. That's why we're being criticized," he said.
Cook also criticized the term "13th check." "The 13th check really is an urban legend," he said. "Excess earnings were included either in the November or December check. There was no 13th check."
He added that the Council's austerity measures and references to the city's financial crisis should have little standing in discussions of the pension fund. "We are the custodians for those funds. Additionally dispersing those funds has nothing to do with the city finances. Those are pension funds."
Still, concerns about the city's budget and the looming threat of a takeover by a state-appointed emergency financial manager loomed large at the hearing. Both have factored in previous discussions about the pension fund and its solvency. The DGRS trustees are currently challenging the provision of Michigan's Public Act 4 that would allow a state-appointed emergency financial manager to take control of the pensions. That provision would allow the manager to "unilaterally modify vested and constitutionally protected pension benefits and to remove or replace the trustees of public pension funds for any reason or no reason at all," according to the filing.
Council Member Brenda Jones questioned whether the ordinance would be in violation of the city's union contracts. An earlier Legal Department document submitted by Jenkins insisted the ordinance would simply align pension payments with contractual benefits.
However Al Garret, president of American Federation of State, County and Municipal Employees Michigan, who spoke yesterday during the public comment period on the issue, said the city workers' contract states that trustees were granted discretion in dispersing pension funds.
Garrett called the pension cuts a "bonehead play" by the City Council at a time when the body and Mayor Dave Bing are asking unions to come to the table and take concessions to help solve Detroit's financial woes.
"What you're doing is throwing a rock that's going to have a rippling effect in terms of desire of folks to want to resolve problems of the city of Detroit," Garret said. "I clearly don't understand it, and you ought to be ashamed."
Joseph Glanton, a member of the retiree association, accused Council members and advisers of manipulating the March report about the pension fund. "The retirees have not received one-third of the excess earnings," Glanton said. "That was a misstatement."
He added that the most retirees would receive in bonus payments this year would be $250. "When they hear they're getting $250, you'd think they won the lottery. People are very excited about that money," Glanton said. "Someone mentioned single mothers, but most of the time it's the grandmothers. This is their money to buy their grandkids Christmas presents."
The measure passed 6-3, with JoAnn Watson, Jones, Kwame Kenyatta voting against the measure. The measure will take effect immediately, meaning DGRS trustees will not be allowed to send bonus funds to retirees this year.