CHICAGO — The judge overseeing a retiree lawsuit challenging Pontiac, Michigan's effort to cut retiree health care benefits has ordered the parties into mediation headed by one of the mediators in the Detroit bankruptcy case.

Pontiac, a Detroit suburb that was until last year under state control, has also hired Conway MacKenzie, Detroit's top restructuring firm, to consider various options for the retiree health care liability, according to the Oakland Press.

Pontiac officials said recently that the city would be forced to file for bankruptcy if it is not allowed to make cuts in its retiree health care benefits tab.

The City of Pontiac Retired Employees Association filed the lawsuit in 2012 after former emergency manager Louis "Bud" Schimmel suspended retiree health care payments for two years. To offset the loss for retirees, he increased pension payments to retirees by $400 a month. A Michigan board approved the move.

Schimmel said at the time that the city's $150 million retiree health care debt is the last obstacle to the city's future fiscal stability. Voters in 2012 rejected a property tax increase that would have made the annual payments, estimated at $6 million a year. His proposal to dissolve the pension fund, which is overfunded at 150%, and using some of the assets to pay off the tab, was also blocked.

The federal lawsuit last week was assigned to US District Judge Avern Cohn. The parties are also in mediation with attorney Eugene Driker. Driker worked with US Chief District Judge Gerald Rosen to craft the so-called grand bargain that holds together Detroit's bankruptcy plan of confirmation.

The next hearing is set for Nov. 17.

Gov. Rick Snyder declared Pontiac had resolved its financial emergency in August 2013 after five years of state oversight.

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.