CHICAGO -- Detroit's police and fire retirees would not see their pensions cut under a settlement reached with the bankrupt city.

The deal -- in which the retirees accept reduced cost-of-living increases -- is Detroit's first settlement with a group of retirees.

It comes as the historic Chapter 9 case is picking up speed, with settlements with various creditors reached last week and new ones coming as soon as this week. The city is reportedly close to striking a deal with one or possibly both of its pension funds.

The latest agreement, announced by the federal mediators working on the bankruptcy case, was with the Retired Detroit Police and Fire Fighters Association, which represents more than 80% of the city's eligible retired public safety workers.

"Nobody is happy," association president Donald Taylor was quoted as saying by local reporters after the announcement. "Obviously, everyone deserved all of their benefits. But sooner or later reality sinks in. The city's in bankruptcy, so you have to do the best you can for the majority of your members."

The association's 11-member board approved the settlement in a unanimous vote Tuesday morning.

It is contingent upon full funding of the so-called grand bargain, an $816 million deal that features a mix of state and private funds that would go toward the pensions in exchange for protecting the city owned art collection at the Detroit Institute of Arts museum.

Under the settlement, the retired police and firefighters would suffer no cuts to their current pension benefits, and would receive almost half of their cost-of-living benefits going forward. The city had originally proposed pension cuts of around 6% -- higher without the grand bargain -- and total elimination of future COLA benefits.

There is also the possibility of the full restoration of COLA benefits depending on the performance of the police and firefighters' pension system, the mediators said.

The city has also agreed to set up a separate police and fire Voluntary Employee Beneficiary Association, or VEBA, plan, for retiree health care.

The retirees will also be able to maintain a "meaningful voice and retain a vote" on the new pension board.

"This settlement was reached after intensive negotiating sessions over the past several months," the mediators said in a statement. "As the mediation process accelerates, the mediators hope that this settlement will encourage all of the remaining parties to the bankruptcy to re-double their mediation efforts to reach meaningful agreements which can be incorporate into a fair and balanced agreed-up Plan of Adjustment to be presented to the bankruptcy court for confirmation."

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