(DETROIT, MI) – A plan to more rapidly reduce the county retirement system’s unfunded liability was introduced by Wayne County Commission Chairman Gary Woronchak and Commission Fiscal Director Mark Abbo.
In a presentation before the Commission’s Ways and Means Committee, Abbo, who developed the Commission Pension Plan Initiative, said the proposal could result in up to $50 million in additional contributions to the pension system beyond the legally required annual required contribution. The required contribution is about $55 million for fiscal year 2017-18.
“It is crucial for the county to substantially increase and accelerate the funding of the retirement system, which currently is only 54 percent funded,” said Woronchak. “This proposal would not only contribute to the county’s continuing financial recovery, but would keep faith with the county’s retirees by making the pension fund more secure.”
As described by Abbo, by voluntary agreement with the Wayne County Employees’ Retirement System, the county would utilize a portion of the county’s pooled cash reserves to fund an additional contribution in an amount to be determined. The county would retain the flexibility to use the additional payment as a credit to reduce the ARC in future years, if financial necessity requires it.
“In addition to the principal amount of the additional contribution, investment of that amount would earn the retirement system’s rate of return, which has been about 9.5 per cent over the past five years, instead of at the limited rate earned on the county’s pooled cash funds,” Abbo said. “To illustrate, a $50 million additional payment yielding even 7.25 per cent instead of the less than 1 per cent historically returned by the pooled cash investment, could earn $3,625,000 per year with WCERS, versus only $405,000, if left with the pooled cash fund.”
Commission Chairman Woronchak emphasized that additional negotiations with County Executive Warren Evans’ administration and WCERS would be necessary on a number of plan elements, including the amount of the additional payment, the maximum years a credit could be taken against future ARCs, the determination of financial necessity by the administration as approved by the County Commission triggering a credit, and the fixing of a straight-line amortization period during the period of credit.
“Fiscal Director Abbo has come up with a plan that could result in major progress in one of the county’s major financial challenges,” Woronchak said. “There is still a lot of work to be done before this can be implemented, but I believe all parties involved can see that this is worth pursuing.”
Woronchak pointed out that the pension system’s funding level, while still far below what is recommended, has improved in the past few years due to strong returns on investments and a more disciplined approach by the WCERS board, of which he is a member.
In addition, the Wayne County Commission has, in recent years, appropriated millions of dollars more to the retirement fund than the county’s legally required amount, in order to speed up the recovery process.