WASHINGTON (AP) — The District of Columbia government is taking a portion of workers' retirement contributions for "administrative expenses" without telling them, and part of the cut goes to the accounting firm of embattled businessman Jeffrey Thompson.
The company that runs the plan, ING, takes a small portion of the balance and returns it to the city — $212,000 in the most recent fiscal year. The money is supposed to cover the cost to the city of overseeing the plan.
Among the expenses paid from that amount is a fee to Washington-based Bazilio Cobb Associates for an annual audit. The accounting firm — formerly known as Thompson, Cobb, Bazilio and Associates, or TCBA — changed its name in July after Thompson, who's at the center of a wide-ranging federal probe of corruption in district government, left the firm and sold his ownership stake. Authorities raided the firm earlier this year in connection with the investigation.
None of that information is provided to workers when they agree to contribute part of their paychecks to the plan.
Experts said it is troubling that the city failed to tell employees about the arrangement with the firm. If a city fails to disclose a payment it receives, it is flouting its legal obligation to act in the best interest of the plan's investors, said Keith Brainerd, research director for the National Association of State Retirement Administrators.
"Plan participants have a right to know how much they're paying, and for what," he said. "The problem, it would seem to me, is the lack of disclosure and transparency."
Kathleen Clark, a city employee until March who invested money in the plan, said the contract with Thompson's former accounting firm "is troubling and raises questions about the CFO's judgment." She said the arrangement "may raise not just questions of judgment but whether or not the legal requirements are being met."
Chief Financial Officer Natwar Gandhi declined to comment, referring all questions to his spokesman, who said there was nothing illegal or unusual about the arrangement. Pedro Ribeiro, a spokesman for D.C. Mayor Vincent Gray, said the mayor's office had not been aware of the money taken from the plan before The Associated Press asked about it. He declined any further comment.
Federal prosecutors are investigating Thompson in connection with the suspected use of $650,000 in off-the-books funds to help elect Gray in 2010. Although Thompson has not been charged with a crime and is not identified by name in court documents, two people familiar with the probe said Thompson is the businessman who funded what federal prosecutors called a "shadow campaign" on Gray's behalf. The individuals spoke on condition of anonymity because they were not authorized to disclose the information.
Prosecutors say the illicit funds were used to pay for consultants, supplies and other expenses in support of Gray's 2010 campaign against then-Democratic incumbent Adrian Fenty. U.S. Attorney Ronald Machen said Gray's victory was tainted because voters did not know about the money.
Earlier this year, authorities raided Thompson's home and TCBA's offices. Federal prosecutors have issued subpoenas to numerous elected officials in the city seeking details of campaign contributions from Thompson, who has been a major bundler for local and federal elected officials.
Thompson also owns a managed-care provider that has the single largest contract in city government, worth more than $300 million annually.
The accounting contract is small by comparison. The firm was paid a flat fee of $39,000 to audit the district's 457(b) deferred compensation plan for the most recent fiscal year, according to the Office of the Chief Financial Officer. The CFO's office received the rest of the money, an amount that varies from year to year based on the total balance of the plan.
TCBA was awarded the five-year auditing contract in 2010. The city has no plans to change the contract because the federal investigation "is not related to the performance or competency of the firm," said David Umansky, a spokesman for Gandhi, the CFO.
Umansky acknowledged that the money shifted from the fund balance and the contract with Thompson's firm are not disclosed to workers, but said the details are "readily available to any participant who seeks the information."
More than 13,000 district employees participate in the plan, which is valued at more than $400 million.
Many city governments have similar arrangements with the companies that run their retirement plans, according to a recent survey by the National Association of Government Defined Contribution Administrators. About one-third of them cover administrative expenses this way, the survey found.
Clark, the former city employee, said she became concerned after ING, a subsidiary of the Dutch megabank ING Group, provided her with inaccurate and incomplete information. When she first approached the CFO's office about the issue, she said, they gave her a single annual report. When she asked for more information, she was told to file an official public-records request, a process that can take weeks.
At the time, Clark was special counsel to the city's attorney general, advising officials on ethics and transparency issues. The CFO's office said it's standard procedure to treat requests for city documents as public-records requests, regardless of who is making them.
The CFO's office eventually provided Clark with more details about the contract and the city's arrangement with the accounting firm, she said. She said the deal wasn't disclosed in anything provided by ING or the city when she was signing up for the plan.
That may violate the city's obligation to provide adequate information to investors, its so-called fiduciary duty, said Clark, a professor at the Washington University School of Law.
"As a legal matter, I was really shocked — I was amazed that the chief financial officer, as a fiduciary, hadn't disclosed this," she said.
Thompson's former firm also has the contract to audit the district's defined-contribution pension plan, but those expenses are paid by ING. The company was paid $40,000 for its most recent audit.
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