Retirement fund switch cost Amesbury employees thousands of dollars

Oct. 17--AMESBURY -- For decades, the city has offered employees a chance to invest in an interest-earning program overseen by a national company that is similar to 401k plans in the private sector.

But a recent city decision to switch to a state-based program cost participants $58,000 in fees, a hit that an Amesbury official now admits he didn't see coming.

In June, the city transferred its deferred compensation program from Nationwide to the Massachusetts SMART Plan. While the state acts as administrator by choosing plans, deciding provisions and picking investment products, a private company, Empowerment Retirement, acts as record keeper.

The Massachusetts SMART Plan also now administers the city's Omnibus Budget Reconciliation Act plan, with about 1,200 accounts. The OBRA plan is a mandated retirement account for various part-time employees who aren't eligible for the pension system.

The city does not match or contribute funds to the deferred compensation program, which is not mandatory but offers a low-risk investment tool for employees. The latest records show there is roughly $8 million in the program, which is used by 140 employees.

James Lynch, Amesbury's chief financial officer, said the decision to switch was based on lower fund fees offered by the state plan, which in turn would save participants thousands of dollars. Each fund imposes fees, but the fee offered by the Massachusetts SMART Plan was about 1.2 percent less than Nationwide's fee.

"We were seeing a remarkable difference in the fund fee structure," Lynch said. "It was just ridiculous."

But unbeknownst to Lynch, Nationwide imposed a $58,000 market value adjustment that cost investors money.

Lynch said he didn't know Nationwide would impose the 2.28 percent fee until the last minute. Most people didn't experience a significant hit, but among those hit the hardest was former Amesbury Police Chief Mark Gagnon, who lost more than $2,700 and said he had no warning.

Gagnon joined the department in 1982 and invested heavily into the plan over the years. So by the time he retired as chief in 2013, he said his portfolio was very valuable.

Lynch said the decision to switch will eventually pay off based on the SMART Plan's lower fund fees but he admitted Nationwide's MVA fee caught him flat-footed.

"I was trying to do my due diligence and make sure people aren't paying too much," Lynch said, adding that either way, investors would have had to pay a fee.

Lynch said he felt bad that Gagnon lost money and was unaware of the fee. In retrospect, Lynch said he could have sent a letter to investors regarding Nationwide's fee but didn't.

"It's bothered me," Lynch said.

Upon learning of the monetary loss, Gagnon began investigating by sending emails to Nationwide and Empowerment Retirement, Lynch, city councilors, former co-workers and finally Mayor Ken Gray.

"It is unfortunate that I must forward you this letter but I would be remiss in making the assumption that you have been made totally aware of the situation that has developed in regards to the deferred compensation program transfer and the city's apparent decision to offer/retirees no assistance in the matter," Gagnon wrote as part of his Aug. 23 letter to Gray.

While Gray never personally responded to the letter, Chief of Staff Evan Kenney replied in an email Sept. 6 that the matter had been referred to Lynch.

Staff writer Dave Rogers can be reached at [email protected]. Follow him on Twitter @drogers41008.

___

(c)2018 The Daily News of Newburyport (Newburyport, Mass.)

Visit The Daily News of Newburyport (Newburyport, Mass.) at www.newburyportnews.com

Distributed by Tribune Content Agency, LLC.