On November 7, U.S. bankruptcy judge Steven Rhodes, 65, approved Detroit’s financial restructuring plan, putting an end to the largest municipal bankruptcy case in U.S. history. The deal prunes $7 billion of debt from the cash-strapped city’s balance sheet over the next decade while protecting public pension obligations from deep cuts — an area of contention for public sector unions since Detroit filed for Chapter 9 bankruptcy protection on July 18, 2013. Rising pension costs played a significant role in the bankruptcy filing. According to Rhodes’s November ruling, the Detroit retirement system will not receive payments from the city until 2024 and instead will rely on contributions from other parties, including nonprofit foundations and the state of Michigan. General beneficiaries will suffer 4.5 percent benefit cuts and will no longer receive annual cost-of-living adjustment, and police and fire pensioners will face reduced COLA increases. Rhodes, who earned a JD from the University of Michigan Law School in 1973 and became a federal bankruptcy judge in 1985, lauds the outcome: “It is a vast understatement to say that the pension settlement is reasonable. It borders on the miraculous.” He admits the pension reductions will cause hardships for creditors and pensioners alike. Detroit officially emerged from bankruptcy on December 10.
24
Steven Rhodes
U.S. Bankruptcy Judge
Eastern District of Michigan
PNR
The 2014 Pension 40