Money saved on Prudential investment accounts
Bloomfield Township Treasurer Brian Kepes reported to the board of trustees that the township had negotiated an amended agreement and settlement with Prudential Retirement Insurance and Annuity Company, which holds the township's defined benefit pension plan, and trustees unanimously approved it.
Kepes explained that the township has had a contract with Prudential since 1961. “The township has about $215 million in assets,” he said. “Prudential has about $150 million in a guaranteed deposit account yielding 2.5 percent. The rest, about $65 million, is with And Co., yielding 18 percent, invested in equities.”
In December 2014, trustees became aware the township's Prudential Retirement defined benefit pension plan was drastically underperforming, and had been since at least 2004-2005, forcing the township to contribute millions to the fund annually out of township operating funds to keep it fully-funded and available to retirees. From 2010 until 2014, Bloomfield Township was budgeting $10.3 million each year to add to the Prudential plan; they then took the opportunity to issue an $80 million pension obligation bond, which they invested in equities which provided a higher rate of return. The township had been paying Prudential from the equity account to maintain the defined benefit account at its necessary level, lowering its level to $65 million in four years.
Kepes said that last year the township deferred paying its $5 million in fees to Prudential, and it grew to about $15 million. Another problem the township had, he said, “the township has never been able to verify Prudential's investments.”
He said after working on it over the last year, including with trustee Neal Barnett as a mediator and outside attorney Scott Lites from Plunkett Cooney, they decreased the fees from $15 million to $6 million. “We found a way to verify the interest rate cushion independently,” Kepes reported.
Further, they entered into mediation with Prudential earlier this year, with Barnett, an attorney, acting as the mediator for the township, and “ultimately this increased the defined benefit plan by about $10 million,” Kepes said.
“We really strengthened the where-with-all of the plan and got it confirmed in writing,” Lites said. “A lot of the money we have to pay is deferred without any interest payments. It really worked out – it's a great deal for the township.”