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Detroit’s police officers have agreed to major pension changes that will save the beleaguered city millions of dollars and could signal a national turning point in public pension reform.The agreement, approved earlier this week, reduces the rate at which current workers accrue their pension benefits, eliminates cost-of-living increases, and establishes a 401(k)-style defined-contribution plan for new police department hire, according to Crain’s Detroit.
The changes could save Detroit up to $100 million over the next five years, city officials told the Wall Street Journal.
With twice as many retirees as active workers, Detroit spent 25% of its $1.2 billion general fund on pension contributions this year. Pension and healthcare costs have risen 40% over the past four years, despite a 10% reduction in the city’s workforce,
The union’s overwhelming approval of the pension overhaul is a tacit recognition of Detroit’s dire fiscal straits — less than 1% of members voted against the agreement, according to the union’s website. It is the first time in 30 years the city and the police union have successfully negotiated a contract.
Until now, state and local pension reforms have focused on cuts for future workers, leaving current employee benefits largely untouched. Detroit’s landmark decision to scale back current worker pensions could pave the way for other strapped cities and states to start immediately reducing their pension contributions.
“This is a historic agreement,” Detroit Mayor Dave Bing said in a statement. “It shows that we are executing our plan to return the city to fiscal stability by reducing pension costs and doing so through hard work and tough negotiations.”
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