Wayne County pensions: Taxpayer-guaranteed safe harbor was created as market crashed [Detroit Free Press]

June 21--September 2008 was one of the bleakest months in American financial history.

The U.S. government seized mortgage giants Fannie Mae and Freddie Mac. The investment bank Lehman Brothers collapsed into bankruptcy, and the Federal Reserve pumped $85 billion into insurance giant AIG to keep it afloat.

Thirty-eight percent of Americans polled that month considered the economy in recession. Another 28% considered it a depression.

As investors sought a safe harbor for their money, Wayne County government was preparing one.

Beginning Oct. 1 of that year, what is known as Plan 6 allowed county employees, including numerous elected officials and their appointees, to transfer their retirement savings from a 401(k)-style account, which generally rises and falls with the market, to a classic defined-benefit pension plan guaranteed by county taxpayers.

The result?

The unpaid bill for the plan exploded, growing by more than $10 million a month in the two years after it was created. By September 2010, the unfunded bill stood at $601 million -- all of it guaranteed by county taxpayers.

Among those who took advantage were nine current commissioners as well as the former commission chairman, County Clerk Cathy Garrett and three employees who serve on the pension board.

"Everybody who was supposed to be watching the system was too busy saying, 'Me, too,' " said the county's former auditor general, Brendan Dunleavy.

Ficano, who earns about $154,000 yearly, didn't enroll himself. Instead he gets a $5 county match for every dollar he contributes to a 401(k)-style plan. The most he can contribute for matching purposes is 3% of his salary.

Ficano spokeswoman June West said the plan first was negotiated with members of the Sheriff's Office. The county traded higher pension costs for other wage and health care concessions that she said save $24 million annually.

After the union had the deal, Ficano offered it to his appointees. One high-ranking appointee who enrolled was Timothy Taylor, Ficano's former personnel director, who retired last year after 27 years with an annual pension of $117,000, according to data provided by the retirement system.

Former county Commission Chairman Edward Boike, D-Taylor, opened the plan up to commissioners and their appointees after Ficano offered it to his appointees.

"Why should we have anything less than the county executive had at the time?" Boike said Wednesday. "I was just looking at being equal with the county executive."

Boike retired in 2010 under Plan 6 but said it was no sweetheart deal. He put about $160,000 into the plan and must collect it for at least four years to get his money back.

"I'm about 2 1/2 years into it, so I'm hoping to live at least another two years," said Boike, 69.

Current commission Chairman Gary Woronchak also took the deal, but said it wasn't a sweetheart package.

"From my standpoint, I bought into a plan that was available," Woronchak said. "There was an advantage to buying into the plan, but it certainly wasn't a golden parachute by any stretch of the imagination."

Woronchak said he estimates he put $160,000 of 401(k) savings into the plan and is likely on track to receive a $30,000 annual pension.

Dunleavy, who now works as a personal financial adviser, said it's absolutely a sweetheart deal, noting Boike's four-year payback period.

"I'd have clients lined up a mile out my door if I could promise that," he said.

Plan 6 provides a benefit twice as large as some earlier plans did. Members contribute 4% of their salary and get a pension benefit equal to 2.5% of their annual pay for each year of work. Previous plans paid between 1% and 2% per year.

Under Plan 6, an employee who works 30 years could retire with a maximum benefit of 75% of final average pay. The final average pay sometimes is inflated with overtime and sick and vacation days that are cashed in close to retirement to maximize the lifetime pension benefit.

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