More From The Pension Front
by David Schoenbrun, Local 6 President
Published in the March / April 2017 Musical News
Our Pension Fund continues to be first and foremost in many AFM members’ minds, especially among those of us who have been counting on receiving a certain retirement benefit after 30 or 40 (or more!) years of contributions by employers on our behalves. The Fund trustees have seen fit, after some cajoling from officers of the larger Locals, to “go on the road” and hold meetings with Local memberships in order to present in person a picture of the current state of the Fund and the prospects for its future. Perhaps the most important focus will be the very real possibility that a reduction of benefits might be instituted in order to maintain the Fund’s solvency through the years of our retirements and those of generations of participant musicians to come.
Unfortunately, we were only recently able to confirm the date of the San Francisco meeting with the Fund, so for those of you reading this, that meeting date (March 23rd) has already passed. Hopefully the many notifications that went out found their way into our members’ already-cluttered minds and schedules, and the meeting enjoyed a good turnout and even proved useful to those attending.
For those of you who did not attend, I’d like to present a nutshell version of what happened to bring the Fund to this unhappy place, what’s going on now, and what we might expect. As you can imagine, I’ve been on the receiving end of many anxious and angry questions, so maybe I can anticipate what is most pressing among your needs to know. Also, please understand that the AFM-EPF is a wholly separate entity from Union, so my understanding of much of this is only slightly more current and informed than any other Fund participant.
How did we get here? By “here” I mean having a pension fund with $1.7B in assets, $2.9B in liabilities, a funding percentage of 59%, and the dubious official label of “critical” and perhaps soon “critical and declining.” And by “we” I mean all of us: Fund participants, trustees and the experts that are hired to serve the Fund.
Those of us who don’t mince words regard the depression of 2007-2009 as the main catalyst, with the real culprit being Wall St. investor/manipulators who took advantage of human frailties, hopes, dreams, greed, and lack of sufficient regulatory oversight to steal a full 60% of the total value of this nation’s pension funds. Our pension fund was fortunate, if you can call only a 29.3% loss of asset value between 2008-2009 “fortunate.” And this was the 2nd of a 1-2 punch, the first being losses of investment assets as a result of the bursting of the dot.com bubble in 2002, from which the Fund had just recovered.
But there were also pre-existing structural problems with the Fund that have only recently come to light. In the mid to late 1990s the “multiplier,” the number used to compute pension benefits, was raised by the trustees to what the experts now know to be an unreasonable and unsustainable level of $4.65 (per $100 of contributions, paid monthly). To add insult to injury, it was applied retroactively to all earnings since the inception of the Fund in the late 1950s. It was a very popular decision at the time, as you might imagine. But the participants who earned money during this period are now starting to retire, and they are the “baby boomers,” so there are great numbers of them. So, a very large bill has come due, and for an already weakened fund that was (and is) especially bad news, especially as the Fund looks actuarily into the future and determines how much money it needs to continue to pay all those obligations.
On top of that we have the demographics of an aging fund – more and more retirees receiving benefits, and fewer and fewer participants whose employers are contributing to the Fund. And they are all living longer. Damn modern medicine, exercise, healthy eating and reduced drinking and drug use among our members! I recommend at least taking up a dangerous hobby… for all of our sakes.
Then there are the variables that are open for what will no doubt be some lengthy debate: How were the Fund’s assets invested before, during and since the depression? Were they adequately diversified? Too risky? Not risky enough? Did our trustees get bad advice, or exercised poor judgment, or both? Were the costs of our asset investment management way too high? Ditto other Fund expenses, like staff salaries, rent and other costs of operation.
Of these criticisms, which qualify as reasonable, cautionary tales from which the Fund can learn and, in so doing, avoid repeating. And which are simply a reflection of plain angry and frustrated Monday morning quarterbacking?
Now that you have a sense of the large, steaming pot of “how did we get here,” a few mentions of what has been done to rectify the matter, albeit probably not sufficiently. For starters, soon after the dot.com bust the multiplier began to drop, pausing at various levels until it reached $1.00 – as low as it can go – on January 1, 2010. Also during that time many of the previously installed benefit enhancements, like inflated early retirement, surviving spouse and working retiree benefits, were eliminated. The Rehabilitation Plan was put into effect, requiring employers to pay 1% extra into the fund on top of their negotiated rates. The Fund changed its investment managers and its investment advisor, and redistributed asset allocations in order to take advantage of previously unexplored but potentially lucrative markets. It also sought to reduce its expenses via a physical move to reduce rent substantially and other belt-tightening measures.
All of these things helped, but still our pension fund finds itself, by the very nature of its demographics, too close for comfort from the edge of the abyss.
So, what happens now? At least for a few months, we wait. At the end of March the Fund will take a snapshot of its financial position, and the actuaries employed by the Fund will crunch those numbers in accordance with the law and standard actuarial assumptions. Then, sometime in June, a report will be issued which will tell us a lot more about what has happened in the past year – has the health of the Fund improved, or does its outlook continue to deteriorate, with the key question being: might the Fund face insolvency in fewer than 20 years if no serious steps are taken to shore it up. If it improves, then we’ve all dodged a bullet for the time being. If not and the 20-year test is not met, then the trustees will likely seriously consider applying to the US Department of the Treasury for permission to reduce benefits — an action that all participants will be able to vote upon if approved by the DOT.
And with that I’ve reached a point in this update where I could delve into my new and extremely limited understanding of MPRA (Multiemployer Pension Reform Act), the federal law of 2014 that governs how such benefit reductions can be made, and the PBGC (Pension Benefit Guaranty Corporation), the federal pension guarantee fund that is itself in danger of failing and unlikely to be bailed out by the current Congress and administration. Or, perhaps more wisely, save that for the next installment, as this very anxious issue continues to unfold.
Until then, let’s remember to be kind and patient with each other. We’re all in this together, and there is every reason to continue to maintain hope that a workable solution to this problem will be found.