Union leaders strategize before meeting with the mayor: Fire union prez Frank Ricci, union attorney Marshall Segar, financial adviser Tom Cama, Police union prez Cotto, Fire union pension board rep Patrick Cannon, and Fire union exec board member Greg Boivin.
• Move aims to help government workers earn more on extra money they put towards retirement.
• Issues aired at tense City Hall confab.
A dozen public union presidents, reps, and financial advisers met with Mayor Toni Harp and City Controller Daryl Jones to learn about the upcoming change in a half-hour meeting held in the mayor’s conference room on the second floor of City Hall.
Union leaders meet with the mayor’s team at City Hall.
The retirement plan in question is called a 457 Deferred Compensation Plan, which, per federal Internal Revenue Service (IRS) code, allows governmental employees to set aside a certain amount of income pre-tax every year into a fund that they can then invest to build up their retirement savings. The 457 plans are separate from the city employees’ defined contribution pension plans, and serve as an extra, optional retirement savings plan for public employees, many of whom are not eligible for Social Security.
Employees under 50 years old can set aside up to $18,000 per year into these deferred compensation plans, while employees over 50 years old can set aside up to $25,000 per year.
Jones explained during the meeting that several weeks ago city signed on with a new company, ICMA-RC, to be the sole “carrier,” or investment manager, for money that city employees have set aside and will set aside into their deferred compensation accounts. ICMA-RC will replace the six different vendors that employees can currently pick between when deciding how they want to invest their 457 dollars.
Police Union Prez Florencio Cotto and firefighter union pension rep Patrick Cannon.
The decision to contract with ICMA-RC, Jones said, came after three years of intensive city investigations into employee participation rates and investment fees charged by the current carriers. What the city found, he said, was that very few employees outside of the police and fire departments participate in the 457 plans, and that employees had to pay on average 88 basis points to take advantage of the current vendors’ services. The new provider, he said, will charge employees ten times less than that.
Over the past 20 years, he said, city employees have paid $2.7 million combined in investment fees to use the six different existing vendors. Under the new ICMA-RC contract, he said, employees would have only had to pay $400,000 over that same time period.
At the same time that the city was looking into the current deferred compensation plans, he said, several universities, including Yale and NYU, were sued by employees who alleged that they had paid millions of dollars more than they had to to employer-hired retirement advisers.
“As fiduciary for these plans,” Jones said, the most important question the city has asked itself when deciding on which vendor to go with is, “How do we benefit the employees.” This change is simply about finding a provider that charges employees the least administrative fees while still providing ample investment opportunities.
So the city put out a request for proposal (RFP) for new vendors, he said, and decided to go with ICMA-RC based on their investment fees, commitment to increasing employee participation, and investment options. The city received 10 responses to the RFP, he said, and spent six months vetting the proposal.
Roughly $45 million in existing 457 deferred compensation plan investments will be moved over from the current carriers to the new one over the next several months, Jones said. That’s also when ICMA-RC will start its education campaign to update employees on how to manage their retirement investments. Jones said the city will be closely monitoring how ICMA-RC performs to ensure that it lives up to its contract.
Union leaders strategize before meeting with the mayor: Fire union prez Frank Ricci, union attorney Marshall Segar, financial adviser Tom Cama, Police union prez Cotto, Fire union pension board rep Patrick Cannon, and Fire union exec board member Greg Boivin.
The city union presidents and reps in the meeting didn’t have a chance to weigh in on the vendor change — because the mayor and Jones asked them to write down any questions they have and submit them to the mayor’s office in writing.
But before the meeting, a host of union presidents and reps expressed concern that the switch from six vendors to just one in ICMA-RC would limit employee investment choices and may actually result in higher adviser fees.
Fire union executive board member Greg Boivin.
“It’s basically a bait and switch,” said fire union executive board member Greg Boivin. In his 22 years with the department, he said, employees have always had six or seven different 457 vendors to pick between. With this new vendor, he said, union employees don’t know how much they will be paying to contribute into their plans, and the city is no longer giving them any choices to pick between.
Jones countered that city employees will actually have more investment opportunities through the new vendor, will will allow city workers to put their money into target funds and index funds, which are currently not offered by any of the six providers.
Furthermore, Boivin said, the city is opening itself up to new liabilities by getting rid of its current third party plan administrator (TPA), U.S. Omni, and choosing to be the direct point of contact with the new investment vendor, ICMA-RC. Now, if an employee is unhappy with how his or her 457 money has been invested, he said, the city will have to defend itself from a potential lawsuit, rather than the TPA bearing the liability for that legal defense.
Jones said this concern is also off base. ICMA-RC has its own internal bookkeeper responsible for administering the deferred compensation plans, he said. That ICMA-RC service will replace any need for additional TPA’s without adding any liability to the city.
Union financial adviser Tom Cama.
Tom Cama, a financial adviser hired by Local 3144, came armed with a two-dozen-page analysis he had written outlining the dangers of moving from the current 457 set up to the new one from his perspective.
“By moving forward with ICMA-RC,” Cama wrote, “the City of New Haven will be solely responsible for determining eligibility for a transaction and processing all transactions, as well as tracking maximum allowable contribution limits of its employees. This relationship will substantially increase the City of New Haven’s liability concerning its 457 plan. Not to mention increased workload at the payroll department.”
Jones said he understands why the unions are skeptical of change. But the old system was just charging city employees too much to manage their retirements, he said. He added that the city met with the unions three or four times over the past year to talk through these planned changes.
Fire union President Frank Ricci nevertheless left the meeting with the mayor and the city controller with one question still lingering in his mind about the deferred compensation plan switch.
“If it’s such a great deal for city employees,” he said, “why would you force employees to participate and not let them choose?”
Jones stressed that the new vendor will actually provide more investment fund opportunities than the current six, and at lower administrative fees. The State of Connecticut and the City of Danbury have already moved to having ICMA-RC handle their deferred compensation plans. The city, he said, is just looking out for the best interests of its employees.
Every time I think working for the police department has reached a new low, something like this happens. Past union contracts gutted our pensions because the city said they were too expensive. Ok, fair enough, as a resident and taxpayer of New Haven, I agree that the city can't afford exorbitant pensions. The alternative was reduced and capped pensions, combined with a 457 plan. I transferred here after 5 years in another town knowing that would be the benefits package, I accepted it, chose a provider from a list and carefully selected a combination of funds to invest in. Since I got here in 2014, I've almost maxed out my 457 plan on an annual basis. That's $336 a week from my paycheck that the city does not match in any way. Now, after having faithfully invested for 5 plus years, the city is unilaterally saying that I can no longer use that provider. I just called ICMA-RC and learned that they don't carry any American Funds investments, which account for 79.9% of my current portfolio. If this goes through, I'm losing my ability to continue to contribute to those funds and starting from scratch with a new company.
Meanwhile, still no contract after how many years? We're among the lowest paid in the state with no end in sight. As a city resident, my taxes went up 11% last year, which equates to a net decrease in my pay. I read and hear constantly on the Independent of people wanting police officers to be from and/or live in the city. Between the low salary, high taxes and lack of a contract, who in their right mind would?? I'm starting to think I'm crazy for doing so.
City of New Haven: what are you doing to keep your officers?? In stark terms: You. Are. Losing. Us.
Taxpayers of New Haven: Welcome to Flint.