It's not company's money, and the company needs to keep good relations with the city, even if the city government is full of crooks and thieves.
The company that I work for is in WV. They used to use a warehouse there but when they did an audit and found out how much they were getting screwed, they emptied the warehouse, cancelled the contract and moved on.
It doesn’t matter who the money belongs to. Municipalities do not have the authority to tax 401k money. If your company doesn’t have the guts to call the taxing entity on the carpet shame on them. I bet money they (city govt) doesn’t tax income on annuities that are in the accumulation phase say like that held by NY Life. They would get smacked down like a gnat!