News Story

Wayne County Pensions Underwater; Union Sues To Preserve ‘13th Check’

‘A ridiculous practice’; pension fund is 43 percent short of amount needed to pay regular benefits

The Michigan Court of Appeals has ordered Wayne County and the American Federation of State, County and Municipal Employees to enter arbitration over an extra benefit given to county pensioners called a “13th check.” The union had sued to retain the benefit, which the county halted in 2015.

The county began paying the “13th check,” a pension boost to retirees, back in the in the 1980s, in the name of compensating them for inflation. Pensioners ordinarily get one check a month, or 12 checks a year. The 13th check is a bonus.

The county says the extra payments are discretionary and can be terminated at any time. The union says the benefit is not discretionary because subsequent collective bargaining agreements essentially made it a permanent obligation of the county.

In its decision handed down on Sept. 20, 2018, the Court of Appeals held that the county must enter into arbitration over whether the benefit was actually retained under the terms of those past union contracts.

Wayne County’s pension fund from which this and other retiree benefits are paid has 57 percent of the assets its own actuaries indicate are needed to meet the county’s pension promises.

Derk Wilcox, senior attorney at the Mackinac Center Legal Foundation, said that if Wayne County does not appeal the lower court decision to the Michigan Supreme Court, and win there, it will be forced to arbitrate over “a ridiculous practice.”

“Arbitrators tend to ‘split the baby’ so that all sides can come away with something. And that’s a shame, because Wayne County’s pensions are severely underfunded,” Wilcox said. “The notion that the county should pay out ‘excess investment earnings’ to current retirees to hedge against inflation which barely exists is wrongheaded. It’s difficult to believe that there are excess earning in the system, and even if there were, these should be used to shore up and fund the system for the long term.”

AFSCME Council 25 did not immediately return a phone call requesting comment on the court proceedings.

Jim Martinez, director of communications for the Wayne County executive office also did not immediately return a phone call requesting comment.

Wayne County has a 42-day window, starting Sept. 20, to appeal the lower court decision to the Michigan Supreme Court. Wayne County isn't the only municipality with pension underfunding. 

Michigan’s 83 counties had promised to pay out $2.55 billion more in pension benefits than they had set aside for retirees as Aug. 2016. Only two counties didn’t have pension debt in 2016: Bay and Kalamazoo. Further, as of 2016, the average city in Michigan only had the assets necessary to cover 67 percent of promised pension benefits — with an underfunding total of more than $5.4 billion.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.