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Council approves option for affected retirees to pay off ASF clawback without interest
Summary
The Detroit City Council approved reopening a window allowing retirees and beneficiaries subject to the Annuitant Savings Fund clawback to pay off remaining principal without interest in a lump sum.
The Detroit City Council approved a resolution to permit retirees and vested employees affected by the Annuitant Savings Fund (ASF) clawback to repay remaining principal in a lump sum without interest.
John Nagelitt, speaking for the administration and retirement-system advisers, told the council that during Detroit’s bankruptcy the plan required recovery of what the court deemed “excess payments” totaling about $190 million. He said a portion of that amount remains scheduled for recovery through lifetime deductions from retirees’ pension checks and that approximately $75 million remains to be recouped. Nagelitt described the effect for some retirees as “a mortgage over a person's lifetime.”
Under the resolution the retirement systems will send personalized letters to eligible retirees and beneficiaries with the actuarially determined payoff amount (principal only). If a retiree elects the lump-sum payoff, the retirement system will accept the payment and stop ongoing deductions. If the retiree declines, the existing deduction schedule continues.
Nagelitt said roughly 3,400 retirees and active employees are subject to the clawback arrangement; the retirement systems expect to send letters in advance of Oct. 1 and to give recipients a roughly three-month decision window, during which they may consult a financial advisor. The retirement systems and the council said the lump-sum option does not change the total recovery target for the systems; it gives some individuals a way to eliminate the recurring deduction by paying the principal now.
Council members framed the measure as relief short of full forgiveness; members noted that full forgiveness would require the city to contribute an estimated $75 million in a single appropriation, which the administration said would be difficult to fund. The resolution passed with no objections. Council member Benson said the change offered “a level of relief” but reiterated concerns that retirees bore disproportionate burdens during the bankruptcy.
The resolution also stated the retirement systems would calculate each payoff amount through its actuary and that implementation steps will be coordinated by retirement system staff and the city. The administration said the retirement systems will attempt to invest lump-sum receipts at rates that support actuarial expectations.
