Detroit’s General Retirement System approved a deal with the bankrupt city.

CHICAGO - One of Detroit's two pension boards approved a settlement with the city Wednesday that calls for dramatically lower pension cuts than originally proposed by the city earlier in its bankruptcy case.

The city's General Retirement System approved the deal in 7-0 vote. The Police and Fire Retirement System is expected to vote on the deal Friday, but reportedly has already agreed to the settlement.

It's the latest in a spate of settlements achieved over the last few days, and one of the most important politically for the bankrupt city.

The deal calls for 4.5% cuts for general employee retirees and the elimination of cost-of-living increases. That's down from the earlier proposal for a 26% cut -- which could have reached as high as 34% -- and the elimination of COLAs.

Police and fire retirees are expected to see no pension cuts, and reductions in their COLA increases.

Detroit Tuesday reached a deal with an association representing 80% of police and fire retirees. Last week, the city reached deals with its unlimited-tax general obligation bondholders and its interest-rate swaps counterparties.

The pension boards will also agree to the creation of advisory board that will have final say on investment decisions, local Detroit reports said.

"There has been a lot of uncertainty and anxiety among our members and retirees," general employee pension fund Tina Bassett said in a statement after the vote, according to the Detroit News. "It is our responsibility to bring to our members and retirees the best possible deal with the best possible outcome for their consideration. The motion we passed today represents progress that allows us to move forward to continue to negotiate other details toward a final settlement agreement."

Both deals are contingent on the so-called grand bargain, an $816 million mix of state and private funds that would go toward the pensions over 20 years in exchange for protecting the art collection in the city owned Detroit Institute of Arts museum.

The state of Michigan is considering giving the pension funds $350 million in a lump sum if the deal is approved, according to the Detroit News.

Before the settlements, the city's most recent offers featured 6% cuts in police and fire pensions and up to 34% cuts for civilian employees, with total elimination of COLA benefits for both groups.

Detroit last week agreed to raise its expected rate of annual investment returns to 6.75%. Emergency Manager Kevyn Orr said improved performance in the two pension funds in the last six months, due in part to improved oversight, has helped offset proposed cuts.

If all the settlements are approved, the city will have more than enough accepting impaired creditors to impose a cramdown plan on the rest of its creditors.

Major creditors who have not yet cut deals with the city include the city's unions, limited-tax general obligation bondholders, pension certificate holders, and Detroit water and sewer bondholders.

Syncora Guarantee Inc. and Financial Guaranty Insurance Co., which insure pension certificates of participation, are also still challenging the city.

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