The union is putting the DC 37 Annuity Fund under the microscope,
because administrative expenses are eating up investment gains, which were already
low due to the stock market downturn.
DC 37 leaders expressed disappointment
over the loss during an Aug. 21 meeting of local union presidents.
"This
year, the administrative expenses have been two times what has been earned,"
said Local 2627 Treasurer Bruce Heigh, at the meeting. "That's not right."
Committee to study problems
Responding
to members' concerns, DC 37 Executive Director Lillian Roberts announced Sept.
18 at an Executive Board meeting that she would appoint a committee of local presidents
to study the annuity and explore the available options.
The committee
members are Walthene Primus of Local 957, James Tucciarelli of Sewage Treatment
Workers Local 1320, Maf Misbah Uddin of Accountants Local 1407, Joan Reed of College
Assistants Local 2504 and DC 37 Secretary Edward W. Hysyk of Electronic Date Processing
Personnel Local 2627.
Amalgamated Bank is the investment manager, custodian
and record keeper of the DC 37 AFSCME Annuity Fund.
Bank, actuarial,
auditing and legal fees, account for half of the administrative expenses, according
to the DC 37 Health and Security Plan, which acts as the administrator of the
annuity. The balance includes three Plan full-time employees and other support
services, including data processing costs.
The union won the annuity
in negotiations for the 1995-2000 economic agreement. The hope was to provide
a nice nest egg for members after their city service. Eligible workers received
up to $522 in city contributions toward personal annuity accounts, which they
can only withdraw when they leave city employment.
The 1995-2000 pact
did not include continuing contributions. But under that agreement and the 2000-2002
contract, locals had the option of using additional compensation funds to provide
recurring contributions.
Today, less than 10,000 account holders have
recurring annuities. While their balances have grown, administrative fees have
nevertheless cut into the principal.
This summer, the Annuity Fund sent
statements to its 80,000 account holders.
An account holder who originally
received the $522 contribution had an opening balance, on July 1, 2001, of $547.58,
according to the statement. The investment gain was $5.87, administrative expenses
were $13.84, and the closing balance, on June 30, 2002, was $539.61.
The bottom line: the account holder lost $8 in the fiscal year as the 2.5 percent
administrative expense outstripped earnings, which were just over 1 percent.
When DC 37 shopped around for an investment manager, Amalgamated Bank, which
was founded years ago by a garment workers union, was the only financial institution
willing to customize the program to meet DC 37's needs while keeping costs down.
Many accounts, high costs
Rosaria
R. Esperon, administrator of the DC 37 Health and Security Fund, said that the
cost of managing the fund is relatively high because there are so many individual
accounts and virtually no money coming in. Without an infusion of new funds, the
fixed overhead costs will remain a problem, she said.
"We bill on
the average market value of the fund," said Nicholas Carpinelli, 1st vice
president at Amalgamated Bank. "There is an inherent cost that you can't
get away from."
"The annuity was negotiated with the best of
intentions when the stock market was healthy," said Local 1320 President
Tucciarelli, who heads the DC 37 Pension Committee.
"Unfortunately,
the market has plummeted since then and the fund has not received much new money
to reduce the impact of the fixed costs," Mr. Tucciarelli said.
He noted that when the annuity was negotiated, union leaders hoped locals would
use available funds to pour regular contributions into the annuity. But only a
few locals have exercised that option, he said.
"You don't just dump
one-shot cash into an annuity and expect it to grow," Mr. Tucciarelli said.
"The idea is to make regular contributions. Sooner or later, the money you
put in is going to override any overhead costs."
Sewage Treatment
Workers Local 1320 set up recurring contributions with the additional compensation
funds provided by the 1995-2000 contract.
Under the latest contract,
Local 1320 decided to add another $2.76 a day in contributions to its annuity
accounts. "We are growing," Mr. Tucciarelli said.
"While
investors have lost trillions of dollars in the stock market lately, the conservative
investment philosophy of our Annuity Fund has proved to be prudent," said
DC 37 Secretary Edward W. Hysyk, president of Electronic Data Processing Personnel
Local 2627.
He pointed out that in contrast to most 401(k) plans, the
DC 37 AFSCME Annuity Fund - which invests about 75 percent of its assets in bonds
and 25 percent in equities - has actually made money.
"If you had
taken the original $522 for the annuity and allowed people to invest on their
own, the experience with 401(k) plans suggests that they could have easily lost
a third of their money," Mr. Hysyk said. "While the fund itself hasn't
lost money, it is still true that fees are eating into principal.
At least
for our peace of mind, I believe the union is doing the right thing by setting
up a committee to evaluate the annuity."
GHN