July 10, 2012 at 1:00 am

Ficano's pension buyout deals may violate IRS rules

Early retirement, purchase of service time draw Wayne Co. scrutiny

Robert Ficano (File photo)

Detroit — Wayne County pension officials are investigating whether Executive Robert Ficano's lucrative pension plans violated federal rules and if some retirees will have to repay the system.

Pension officials have retained a law firm to investigate whether some deals violated Internal Revenue Service rules limiting annual payouts, contributions to pensions and the purchase of service time.

The investigation is probing several years of pensions, including an early retirement plan Ficano offered to employees last year.

It waived an age limit of 55 for retirees and allowed them to buy — at a discount — as many as six of 20 years to qualify for a pension. IRS rules appear to limit purchasing time to five years, said pension board members Patrick Melton and Hugh MacDonald.

"We may have people blowing the (IRS) limits," MacDonald said. "The light went on when these 2011 offers went out, and we've been scratching with it ever since.

"The problem is there are too many unanswered questions. It's a complicated piece of federal rules."

The Detroit News reported Monday on several appointee buyouts, including that of Nancy Olind, a 37-year-old human resources executive, who left after 15 years with the county. She purchased five years and five months and will make $42,500 for the rest of her life.

Other appointees purchased more than a dozen years with other municipalities and qualify for separate pensions.

Ficano opened a defined benefit pension plan to county employees that guaranteed a monthly payout based on years of service and pay in late 2008 in exchange for wage and health care concessions. Many employees used their county-matched 401(k) funds to buy into the guaranteed pension.

The pension board hired tax attorneys from Dickinson Wright to investigate in March. Ficano spokeswoman June West said it's "totally premature" to discuss possible outcomes.

"They have not identified any violations to date," West said. "It's a very, very complex regulation.

"Everybody's intention is making sure there is compliance with regulations and at this point it appears there is."

It was unclear Monday what would happen if IRS violations are found. Among the options: The system may try to recoup money from retirees; or some whose deals violated rules could still get pensions but they would be paid by the county rather than the retirement system, Melton said.

"We are only following the law," Melton said. "If we have to do it, we have to do it."

If the IRS finds violations, the agency could also take away the system's tax-exempt status, MacDonald said.

He blamed some of the problem on software used by the system to calculate pensions. It didn't flag potential IRS violations before system officials approved the deals, MacDonald said.

Robert Grden, the pension fund's director, said Monday he began to investigate shortly after he took over in 2010. A former member of the retirement board, Grden said he was unaware of potential problems until he was appointed director.

Without offering specifics, Grden said he expects more information to be available at the end of the month.

"We are trying to get a handle on these benefits," Melton said. "It's a long process.

"We are trying to create good practices and follow the law to the tee."

Gerald Murawski, a nonappointed employee who worked in the county roads division for 25 years, said the retirement of Olind and others using unearned time is unfair.

"I'll avoid using street language," said Murawski, who makes $38,000 a year from his pension. "It doesn't make me a happy camper.

"I think the whole process should be scrutinized. I can't see a person with 15 years walking out of there."

The county offers some of the most lucrative pensions in Michigan's public sector.

Average county retirees make $22,737 per year, but 40 make more than $100,000 per year. Most of those have left since 2008 through a series of early retirement incentives from Ficano. Detroit, whose system is four times as big as Wayne County, has 23 retirees making six-figure annual pensions.

IRS spokesman Luis Garcia declined comment Monday.

Municipalities nationwide have had varying approaches when running afoul of IRS rules.

In California, several public pensions avoided caps by paying retirees more money from government operating funds.

In Connecticut, five state retirement systems doled out pensions that exceeded payment caps in 2011 and the state is now seeking a remedy to keep its tax-exempt status, according to published reports.

cmacdonald@detnews.com

(313) 222-2396