Detroit Pension Sue Over Michigan Financial Manager Law

(April 20, 2011) — Two Detroit city pension boards are suing over a new emergency financial manager law, labeling it unconstitutional and a threat to the pension system.

The complaint was filed by the $2.4 billion Detroit General Retirement System, the $3.4 billion Detroit Police and Fire Retirement System, as well as four individuals, including the chairs of both boards. Opponents to the law say it represents a threat to local collective bargaining agreements and voters’ control of local governments.

The lawsuit, filed in US District Court in Detroit, claims that the law gives Michigan Gov. Rick Snyder and the state treasurer “czar-like” powers to appoint emergency managers, the Detroit Free Press reported. The suit represents the first challenge to the law, which has encountered controversy as a result of the broad powers it gives state-appointed managers to run financially struggling cities and school districts.

“A fundamental tenet of our democratic society is the system of checks and balances that allows for the constitutionality of statutes to be reviewed by the judicial branch of government,” said Ron King, special counsel for the Retirement Systems, in a statement. “In an effort to protect the constitutional rights of their members, the Retirement Systems have initiated this lawsuit…”

Gov. Rick Snyder and state treasurer Andy Dillon — who assert that the new law is needed to prevent financial collapse — are named as defendants in the suit.

“Over 70 years ago, the citizens of the City of Detroit expressed their will and adopted amendments to the Detroit City Charter requiring that the pensions of city employees be held in trust, separate and apart from the assets of the City of Detroit, and that the funds be managed by independent boards of trustees, all of which is consistent with the Michigan Constitution and well settled law. Many other communities throughout the State of Michigan have adopted similar structures for their public pension funds,” the Retirement Systems of the City of Detroit stated in a release.

In recent years, the Detroit pension funds have performed in the top 20% of municipal pension funds nationwide.