The two funds, one for police and firefighters and another for general city employees, are haunted by bad investments and City Hall corruption in the past.
In fact, the funds lost hundreds of millions of dollars from real estate deals, business loans and other risky "alternative" investments, according to pension fund financial reports.
Significant investment losses can be chalked up to the recession that ravaged the portfolios of most investors.
But some losses are the result of questionable and risky investment decisions, such as the funds' $30 million loan to a cargo airline that filed for bankruptcy months later, according to court records.
And in some cases, outright fraud was at play. FBI investigations led to the conviction this year of former Mayor Kwame Kilpatrick on a variety of charges, including some related to the pensions. In addition, $84 million of the funds' losses have been tied to a corruption scheme.
According to FBI and court documents, city and pension fund officials allegedly accepted bribes and kickbacks -- ranging from cash payments to lavish trips, entertainment and private plane flights -- in exchange for steering more than $200 million in pension fund investments.
For example, one former trustee of the police and fire fund allegedly accepted thousands of dollars in cash, a $5,000 casino chip, and trips to Florida and the Bahamas for he and his "mistress," according to the criminal indictment. He has entered a not guilty plea and is awaiting trial, scheduled for next year.
And just this month, a former chief of staff to a Detroit City Council member pleaded guilty to accepting $15,000 in cash bribes in 2007 in exchange for pushing for a $15 million investment in speculative real estate in the Turks and Caicos Islands. He faces up to ten years in prison and a fine of up to $250,000, according to an FBI release.
Detroit’s municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits, costing the struggling city billions of dollars and helping push it into bankruptcy, according to people who have reviewed the payments.
The payments, which were not publicly disclosed, included bonuses to retirees, supplements to workers not yet retired and cash to the families of workers who died before becoming eligible to collect a pension, according to reports by an outside actuary and other people with knowledge of the matter.
Gee, I wonder why they were not publicly disclosed!
Federal Funds For Detroit Announced, Broke City To Receive $100 Million In Grants
The U.S. government directed more than $100 million in grants Thursday to help bankrupt Detroit tear down vacant buildings and spur job growth, but the help falls far short of the wider bailout some city leaders had sought.
Gene Sperling, chief economic adviser to President Barack Obama, said the administration scrounged through the federal budget and found untapped money that "either had not flowed or had not gotten out or not directed to the top priorities for Detroit."
"Untapped money" that's fresh.
Last edited by brbubba; 09-27-2013 at 06:03 AM..
Reading comprehension isn't just for school children!
In a letter sent with their audit report, Detroit’s auditor general and inspector general, Mark Lockridge and James Heath, said that they had started by looking at real estate investments because federal authorities were already investigating accusations of fraud in that area. That investigation has already produced indictments. They said they still planned to look at other investment classes. So far, they noted that both of the city’s pension funds had exceeded the levels of real estate investment allowed under state law and had lost $144.8 million on them as of 2010.
Other areas where the investigators saw signs of trouble included the way overtime and other data were being factored into retirees’ pension calculations, high-yielding bonuses that were added to current workers’ individual accounts, and less-than-rigorous handling of health care billings. They said that nearly half of all the city’s unemployment compensation claims over the last three years were either “likely fraudulent” or “highly questionable” and said they were escalating their review of those claims to a forensic investigation.
Some of the records Mr. Orr demanded in his latest order seemed likely to support the two investigators’ work. The order calls for the pension trustees to provide records showing how the city’s two pension funds calculated “excess earnings” — a term they applied to investment gains in a given year that were greater than the average the trustees estimated the investments would earn over the long term. The trustees have said they put these “excess earnings” into a special reserve and used them to pay for year-end bonuses for retired city workers, called “13th checks.”
The proposed pension freeze for Detroit would halt payments of nonpension benefits to both active workers and retirees. Nor would current retirees continue to receive yearly cost-of-living adjustments. Current city workers would be shifted into new defined-contribution plans, similar to 401(k) plans, which would comply with the requirements of the Internal Revenue Code, according to the memo.
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