Detroit To Hire Consultant for Advice on Looming Pension Payment


Earlier this month, Detroit was surprised to learn that an upcoming lump-sum pension contribution could be much larger than expected.

Under its bankruptcy plan, Detroit pays nothing into its pension system for most of the next decade. But in 2024, the city will make one big payment.

That payment is projected to be $80 million – or 71 percent – larger than the city initially anticipated. Now, Detroit is hiring an expert to weigh its options.

From the Detroit News:

The city of Detroit plans to hire a consultant to examine massive legacy costs that come due when its recovery plan winds down, a report to Gov. Rick Snyder says.

In the Nov. 24 biannual report publicly released Monday, Detroit’s Financial Review Commission writes that the city is implementing programs in accordance with its bankruptcy plan and anticipates a larger than expected surplus for the 2015 fiscal year.

The amount projected in fiscal year 2024 was contemplated at $113.9 million. But this month, the actuarial firm for Detroit’s retirement systems issued a report that suggests the city’s general fund contribution in 2024 would increase to about $196 million, says Detroit’s Finance Director John Naglick.

Among the factors cited in the study by Southfield-based Gabriel Roeder Smith & Company is mortality data used in the city’s bankruptcy plan projections. Initially, the assumptions had been based on 2000 mortality tables. Gabriel Roeder performed a mortality study for each pension system for years 2008 to 2013, which concluded in early 2015. The pension systems changed mortality tables from year 2000 to fully generational 2014 mortality tables, wrote Ronald L. Rose, executive director of the Financial Review Commission.

[Finance Director John] Naglick said findings from the pension fund actuaries have prompted the city to seek an expert to examine how the plans could potentially be funded sooner or what other options Detroit might have. The city hopes to have the consultant on board early next year.

“Now that you look at these early numbers, they are higher than what the plan assumed,” he said. “It’s suggests that the retiree cuts could have been substantially more if these numbers would have been fully known.”

Before its bankruptcy, Detroit’s pension obligations totaled $3.5 billion.


Photo credit: “DavidStottsitsamongDetroittowers” by Mikerussell – Own work. Licensed under Creative Commons Attribution-Share Alike 3.0 via Wikimedia Commons

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