Detroit Pensions Sue Michigan Officials Over Emergency Law

CHICAGO — Detroit’s two pension funds late Monday filed a lawsuit against Michigan Gov. Rick Snyder and Treasurer Andy Dillon over the state’s controversial emergency financial management law.

The new law gives the state broad new powers to intervene in and govern fiscally stressed cities, including the ability to replace all pension fund trustees.

The complaint, filed by the Detroit General Retirement System and the Police and Fire Retirement System, argues that the law is unconstitutional, in part because it would modify collective bargaining agreements and the Detroit City Charter. The law allows an emergency manager to replace all pension trustees and take over as sole trustee if a retirement system if funded at less than 80%. The measure invests the state with “czar-like powers” to take over a pension fund “for any reason or no reason at all,” the complaint alleges.

The lawsuit argues that pension funds “bear no rational relationship to the asserted purpose of the act — to address financial emergencies within local governments and school districts.”

The lawsuit also suggests that a provision in the law restricting retirement systems from including the “net value of pension bonds or evidence of indebtedness” in determining its actuarial funding level directly targets Detroit, which issued $1.4 billion of pension obligation certificates to fund its system in 2005.

“The fact that a municipality/employer may have utilized the proceeds from pension bonds or other indebtedness, including POCs, to pay its statutorily required employer contributions bears no rational relationship to whether a retirement system is financially healthy or well managed, and certainly does not justify the removal of trustees or the seizure of control of a retirement system,” the complaint said.

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