Joel R. Glucksman
Partner
201-896-7095 jglucksman@sh-law.comFirm Insights
Pensions Could Be Saved in Detroit Bankruptcy
Author: Joel R. Glucksman
Date: January 24, 2014
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In July 2013, the city of Detroit filed the largest case under Chapter 9 of the bankruptcy laws in the history of the United States. The case didn’t sit well with everyone. The administrators of the city’s pension funds have been steadfastly opposed to the bankruptcy, asserting that it put at risk the money of hard-working employees.
However, in a recent three-and-a-half hour discussion led by U.S. Chief District Judge Gerald Rosen, it appears as though a bargain has been reached to make all sides happy. According to the Detroit Free Press, Rosen announced that nine foundations had pledged $330 million which the debtor will be able to use to help keep the city’s pension funds liquid. This will be a positive step in Detroit’s struggle to restructure its municipal debt.
The funds are coming from supporters of the Detroit Institute of Arts, who are pledging the money so that the city can avoid having to put its extensive holdings, including Picassos and Van Goghs, up for auction to pay its debts. The plan is to have the money go to help retiree pensions, which otherwise might be underfunded by as much as $3.5 billion, according to Bloomberg.
“Today’s announcement offers hope that by working collaboratively, the city, its creditors and labor stakeholders can reach a negotiated solution that will resolve all claims and improve the services that are admittedly and critically necessary,” Kevyn Orr, the city’s emergency financial manager, told Bloomberg.
Orr added that the $330 million raised by donors is less than the $500 million he had hoped would be received, but it should be a step in the right direction to help reduce opposition to Detroit’s bankruptcy, and keep the proceedings moving forward. After the proposal was first reported, more donations came in, which could help reach the $500 million goal.
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