Dispute over aid for some Detroit retirees emerges as new judge holds bankruptcy hearing

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DETROIT — A judge inheriting what's left of Detroit's bankruptcy case was confronted with a new dispute Wednesday as attorneys argued about whether some city retirees should qualify for financial aid from the state.

Judge Thomas Tucker held a hearing to get a status report from parties in the largest public bankruptcy in U.S. history. Detroit emerged from Chapter 9 in December, and the judge who steered the case retired.

"The plan really has been substantially implemented," attorney Jeffrey Ellman, who is representing the city, told the judge.

Detroit erased or restructured $7 billion in debt and pledged to spend $1.7 billion over a decade to improve city services. The sacrifices include a 4.5 percent pension cut for roughly 12,000 non-public safety retirees, which kicked in this month, and the elimination of their annual cost-of-living payment.

Retirees whose income falls below a certain level can apply for aid from a special $20 million fund administered by the state. But the state is opposing efforts to extend that aid to retirees whose returns from an annuity program harmed the city's pension fund.

Those retirees now are being forced to repay the generous returns as part of the bankruptcy case. Detroit's general pension fund paid at least 7.9 percent a year on annuities no matter how Wall Street performed. The amount over a 10-year period was pegged at $387 million.

Rewarding retirees would run contrary to the goal of the special fund, said Steven Howell, an attorney for the state.

Pension fund attorney Robert Gordon said it would likely cost $192,000 a year.

"There are sufficient funds. ... We're looking for guidance," Gordon told the judge, who didn't make a decision.

Although Detroit is out of bankruptcy, the case technically isn't over. The city still is sorting through hundreds of claims, especially personal injury cases, and can try to recover millions of dollars paid to vendors and others immediately before the 2013 filing.

"There are always loose ends. This is the norm," said Anthony Sabino, a bankruptcy expert who teaches business law at St. John's University in New York. "No one is going to let this slip away."


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