Detroit — The Wayne County Retirement System has only half the cash it needs to cover future pensions after a worse year than officials expected, according to a preliminary report released Monday.
The system, which covers about 5,600 retirees, needs another $800 million to be considered fully funded. That grew by $200 million from last year, when the system was 60 percent funded. Most systems nationwide are about 75 percent funded.
"We knew the numbers were bad but I don't think we knew the percentage would be that low," said Commission Chairman Gary Woronchak, D-Dearborn, who serves on the pension board. "We can't risk going any lower. We are going to have to consider borrowing at some point."
The bad news came during a pension board meeting Monday and prompted finger-pointing among officials.
Wayne County Executive Robert Ficano called for an analysis of pension investments and questioned decisions by board members. Some board members blame Ficano for being too generous with early retirement buyouts.
The losses mean the county will have to contribute an estimated $60 million out of its already strapped budget over the next year, a 50 percent jump from last year's contribution.
Some board members expressed optimism the system would rebound in coming years, but it wasn't immediately clear Monday how the system could dig out of the hole.
Ficano spokeswoman June West wouldn't say whether the executive is considering borrowing to make the pension fund whole. She said the board — not Ficano — makes investment decisions and he only appoints one of eight members to the board.
"The audit report very clearly points out the investment performance is major cause of the fund loss," West said.
"The county can't afford to cover bad investment decisions by the retirement board."
During a presentation Monday to the system, Judith Kermans of Gabriel, Roeder, Smith and Co., an actuary firm, said investment losses caused the "majority" of the losses, nearly $110 million during the fiscal year that ended Sept. 30. But she said Ficano's early buyout plans also were a factor.
Pension board President Patrick Melton placed "a huge chunk" of the blame on the incentives. Ficano controls the pension benefits offered and the board administers them.
"We had poor performance but that was exasperated by the incentives," Melton said.
Ficano is under scrutiny for re-opening the county's defined benefit plan to more than 700 employees in 2008, a time when many others in the private and public sector were being moved toward 401(k) defined contribution plans.
Ficano offered a series of early retirement buyouts, including the most recent in 2011 that allowed appointees to retire under that plan with 20 years service regardless of age. They could also buy up to six years at discounted prices.
Ficano staffers said the buyouts and opening the benefit plan saved the county cash on payroll and in concessions, $24 million in health care alone since 2008.
"I don't know how much it contributed to it but obviously any strain is not going to be good for the system," Woronchak said. "But obviously the incentives could not happen again."
Melton, a former president of the Wayne County Sheriff's American Federation of State and County Municipal Employees Local 3317, had many of his members move into the defined benefit plan. But he said the benefit was offered at a time when members went without raises and paid 15 percent more in health care costs.
West said the pension woes can be tracked to the so-called 13th check policy — an annual bonus the system pays to pensioners that have totaled $391 million since 1986. She cited a memo from a pension board consultant that found in 2010 the system would be 90 percent funded if there had never been a 13th check payout.
Last year Ficano used $32 million from that 13th check fund to make part of the county's annual contribution to the system. The pension board sued and the case is on appeal before the Michigan Court of Appeals.
The Center for State and Local Government Excellence, a Washington-based organization that studies public pensions, reported in 2011 that just one in six public pensions is funded as poorly as Wayne County.
Michigan's public sector retirement plans are funded at between 75 percent and 78 percent, like the majority of state and local retirement plans throughout the nation, according to the group. Detroit's systems are healthier at 87 percent and 97 percent funded, but the city borrowed to fund them.
Melton said he hopes the Wayne County system can recover soon. The numbers look particularly bad because the system applies losses over four years, including 2008 when the stock market collapsed and cost the system nearly $58 million.
"The plan is going to be in a good position going forward," Melton said.
Retirees like Bobby Hawkins are worried. The retired Sheriff's sergeant said he's shocked by the numbers.
"Everything seems to have broken down here," said Hawkins, who attended Monday's meeting.