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