Detroit and the Police and Fire System End Battle Over a U.S. Bankruptcy Court Ruling
The Police and Fire Retirement System of the City of Detroit and the city have reached a stipulated agreement ending a years-long court battle over a U.S. Bankruptcy Court ruling that set a 30-year period for the city to pay the unfunded liability of its pension obligations.
The stipulated agreement between the PFRS and the City allows for a 30-year amortization instead of 20 years as sought by the PFRS investment committee and board. The argument was that a 20-year amortization would increase and accelerate the amount paid into the pension system.
In what has been described as a win-win for the parties, the settlement has language incorporated that will increase city funding levels higher than a 20-year amortization by using a 30-year "level-principal amortization formula."
In addition, the city will look to make quarterly payments to the PFRS for a number of years rather than annual payments, thereby accelerating payments into the $2.8 billion pension fund.
"The main purpose of the appeal litigation was to secure City funding of the pension system as much as possible and as fast as possible," says Jeffrey Pegg, chairman of PFRS. "The stipulated agreement requiring a level principal amortization funding does, in the near term, provide more funding to the system than a 20-year level dollar formula, and the quarterly payments helps as well. The goal for both the PFRS and the City is to put as much money into the retirement system as quickly as possible for the benefit of our members."
Pegg adds that in many legal settlements there are pros and cons for each party, but the move secures more funding for PFRS and provides certainty with a court ordered resolution. "The board and the investment committee will continue to be focused on our portfolio investments and maximizing returns for our system and first responder beneficiaries," he says.
The stipulated agreement requires: "For each of the fiscal years 2025 through and including fiscal year 2029, the ADEC shall be calculated by the PFRSâ€TMs actuary based on the assumption the City will make equal quarterly installment payments rather than making a one-time full payment of the ADEC on the last day of the fiscal year."
The agreement also requires that "For each of the fiscal years 2030 through and including 2034, the city shall make each annual contribution, after taking into account and deducting the Detroit Institute of Arts contribution for the fiscal year, inequal bi-annual installments, which are due on the last day of the second quarter and the last day of the fiscal year, so long as the amount of the first bi-annual installment does not exceed the PFRS/RPF Budget for that fiscal year."
For three decades prior to the city filing for bankruptcy in 2013, the PFRS board set the funding policy, including the amortization period, and determined the annual contributions owed by the city for police and fire pension contributions.
Under the Plan of Adjustment approved when the city of Detroit exited its historic bankruptcy in 2014, the PFRS board and its investment committee were to set the annual contribution owed by city and to determine the actuarial assumptions used to calculate that payment. The PFRS board and investment committee each voted to adopt a funding policy that calls for amortizing the unfunded liability owed to the PFRS over a 20-year period.
The city challenged this action by the PFRS board and investment committee claiming that the Plan of Adjustment called for the amortization period to be 30 years. The difference between these two positions is that under a 20-year amortization period, money from the city comes into the PFRS system sooner. The bankruptcy court, in a November 2023 ruling, sided with the city. From there, PFRS went through the appellate process until reaching a stipulated agreement on Oct. 31, 2024.
The PFRS Board is comprised of a 16-member board of trustees. The board includes six elected active-duty police and fire personnel (3 each); and two elected retired personnel (one each police and fire); one City Council designee appointed and seven ex-officio appointees of the city of Detroit, appointed by the duly elected Mayor.
The board oversees the $2.8 billion fund serving some 8,000 retired police and fire personnel, and approximately 3,000 active duty first responders.
Twice a month public meetings of the PFRS take place on Thursdays at 9 a.m.
