CHICAGO — Detroit emergency manager Kevyn Orr Thursday ordered an inspection of all city employee benefit programs for possible corruption or mismanagement.

Orr had hinted previously that he may order a review of the city's two pension funds, which he has said are dramatically less well funded than previously thought.

The Detroit auditor and inspector generals will conduct the joint investigation. They will have 60 days for a preliminary investigation. They will also look into the city's insurance and disability programs for abuse.

The order, Orr's eighth since he took office in late March, says the probe will examine "administrative misfeasance or other impropriety with respect to the administration, operation, or implementation of benefit programs."

The move comes as members of Orr's office met with labor leaders Thursday to discuss his restructuring plan, which proposes deep cuts to retiree health care benefits. Orr wants to move all city employees onto the exchange-based system under the new federal health care law, or to Medicare.

The city's two pension funds have been considered among its healthiest assets, with funding levels around 90%, in part because of the city's 2005 and 2006 issuance of pension certificates.

But Orr said now that the general employee fund may be underfunded by 30% to 40%, while the police and fire fund may be underfunded by 20%.

The emergency manager puts the total unfunded pension liability at $3.5 billion. That's up from the $640 million liability assumption that the city has reported for years.

The final liability figure will help determine how much of the city's limited amount of money the pensioners will get under Orr's restructuring plan or a Chapter 9 filing.

Funding levels below 80% or a finding of corruption would also allow Orr to remove the trustees and request that state Treasurer Andy Dillon appoint a sole trustee.

Pension trustees told local reporters they have nothing to hide and welcome the investigation.

The pension funds have been targets of investigations before. In March, the general counsel of the funds and a former police and fire trustee were charged with taking bribes and kickbacks totaling more than $200 million in pension investments.

The Securities and Exchange Commission in mid-June charged a now-defunct Detroit-based investment advisory firm and its former top officials for stealing $3.1 million from the police and fire pension fund and covering it up.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.