CHICAGO -- Detroit Emergency Manager Kevyn Orr Monday reversed an earlier decision to close the bankrupt city's pension system for non-public safety employees and shift it into a 401(k)-style defined contribution retirement plan.

The reversal came after Orr's original decision to close, made in late December, was reported by the Detroit News early Monday.

Orr said he would postpone the pension freeze to give court-ordered mediation talks between the city and its two pension funds time to bear fruit.

"The city remains in a financial emergency, and to the extent that mediation can assist in finding a way to improve services for all of its 700,000 residents, then it is worth continuing," Orr said in a statement. "But time is running short, and the city's financial status remains dire. An additional delay without the prospect of a mediated solution threatens to further erode essential services and public safety." Orr's original decision, issued as an executive order that is allowed because the city is under state control, closed the General Retirement System to all new employees and freezes pension benefits for the existing 5,600 employees, according to the Detroit News.

The system has an additional 12,000 retirees.

The order created a new 401(k)-style defined contribution retirement plan for existing and incoming workers, and eliminated any cost-of-living increases for retired employees.

It did not affect the city's Police and Fire Retirement System, which is better funded.

The city estimates that the two pension funds together have a $3.5 billion unfunded liability, a figure that the pension systems dispute. Pension officials put the unfunded liability at around $700 million.

A spokesman for the general retirement system called the original decision to freeze the pension "outrageous," as it came in the middle of mediation.

"We are not responsible for Detroit's financial woes," the system said in a statement released before Orr reversed his decision. "We entered into the mediation process with an open mind and willingness to work toward solutions that are in the best interest of our members, retirees, and Detroit," the system's statement said. "We thought mediation was supposed to help resolve these issues. Where is the credibility?"

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