CHICAGO — Michigan's emergency loan board Monday approved a move by Pontiac emergency manager to suspend the city's retiree health care payments for up to two years.

The city will increase monthly pension payments to retirees by $400 to offset the loss.

The plan should protect most of the city's 1,200 retirees, and could even be a benefit for some, Michigan budget director John Nixon, who's a member of the loan board, said.

"I don't really see any other option at this point without throwing the city into a major financial meltdown," Nixon was quoted as saying in local reports.

The proposal comes from Pontiac manager Louis Schimmel, who said the city's $150 million retiree health care debt is the last obstacle to the city's future fiscal stability.

Schimmel asked voters in November 2012 to approve a property tax increase that would be dedicated solely to paying off the other post-employment benefit liability, which costs about $6 million a year. Voters rejected the measure. He then proposed dissolving the pension fund, which is funded at 150%, and moving the $300 million of assets to the state. That would allow the city access to the additional $150 million in the pension fund to pay off the OPEB tab.

But the city pension board blocked the move and retirees worried about dipping into the pension fund to finance the OPEB debt.

Schimmel asked the state board to approve his Plan C, to eliminate the city's OPEB payments but raise pension payments by $400 a month to offset the loss. Schimmel said the retirees and new employees would eventually be moved to the federal health care exchanges under the federal law.

An association representing retirees told the Bond Buyer last month they intend to sue if the loan board approved Schimmel's plan.

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