Drawing by Drew Owen

The Pension Fix is In?

I have been interested in financial issues all of my adult life, and in the state of the American Federation of Musicians and Employers’ Pension Fund (AFM-EPF, or the Fund) ever since I became a participant. I have been concerned about the latter ever since it entered critical status in the aftermath of the Great Recession. My second column as editor (back in December 2014) was about the state of the Fund, and what I saw as every participant’s responsibility to be planning for their own future in light of its problems.

Of course, I have not been alone. There has been a great deal of discussion of the issue—around the proverbial water cooler, on Orchestra-L, and in main and breakout sessions at several ICSOM conferences. And some Fund participants have organized themselves into groups to raise awareness and push for change, such as the Musicians for Pension Security (MPS).

MPS recently announced to great fanfare that they and the independent experts they have hired—funded by generous contributions from their members—have crafted a recovery plan to rescue the AFM-EPF, one that would not involve cuts to benefits under the Multiemployer Pension Reform Act (MPRA) (Note: See “MPRA Demystified” in the October 2017 issue). They revealed this plan at their national meeting, held on April 4 in New York and live-streamed on Facebook.

I observed with great interest the Facebook live-streaming, and have carefully re-listened to the presentation, and read the accompanying slides, as well as the summary contained in an open letter to AFM President Ray Hair (in his capacity as co-chair of the Fund’s Board of Trustees).

While there are certainly aspects of the recovery plan I can fully support, what I thought of as the central plank of the plan left me bemused.

MPS has shared the entire presentation on its website, and you should by all means read through it yourself. But they seem to be pinning the recovery of the Fund on the idea of increased contributions.

First some background: the AFM-EPF currently receives approximately $60 million per year in employer contributions, and these contributions, in aggregate, have been growing at approximately 2.5% per year (which is also the rate at which the Fund’s actuaries project that contributions will keep growing). According to Tom Lowman (the actuary hired by MPS), only 15% of those contributions go to new benefits, while 85% go to whittling down the $1.1 billion deficit between the present value of accrued benefits and the market value of the Fund’s assets.

If nothing happens to contribution rates, and everyone working for signatory employers gets a 2.5% raise (and does the same amount of work), then the total contributions will increase by 2.5%.

Of course, life is not that simple. Many employers might not agree to 2.5% wage increases (even if, as Lowman pointed out, the overall level of wage inflation in the economy is currently 2.9%), or the amount of covered employment might shrink (if recording projects are moved overseas, for example). It’s also possible that the projection might be off in the other direction—if the AFM negotiates even more unallocated contributions, say, or if more employment is covered.

The MPS recovery plan calls for 6% increases in these aggregate contributions per year for five years. Sounds great, right? But look closer, and there are a number of problems with this proposal. First, the Fund trustees have no role in contract negotiations, except perhaps as individuals representing managements or Locals at the table. Increasing contributions is certainly not something that the trustees can control.

Second, President Hair has indeed called for increased Fund contributions in our CBAs, most notably at the 2017 ICSOM conference in Buffalo. But our contracts are negotiated locally, by our orchestra committees working together with our Locals. Achieving that was the single most important reason that ICSOM was created 56 years ago. I don’t think anyone at ICSOM is going to advocate a return to more Federation control over local negotiations.

Third, the Fund does not enjoy a reputation as a wise place to put one’s money, in part as the result of the efforts of groups such as MPS. There have been only a few instances of ICSOM orchestras raising their AFM-EPF contribution level since the multiplier was lowered to $1, and most of those were to restore the contribution rate to its previous level. And that exhortation last August by President Hair to increase contributions? My recollection is that it got a frosty reception by delegates.

Fourth, our employers also know about the condition of the Fund, and I would bet that they would resist an increase in the contribution rate much harder than they resist increasing wages. In bargaining, we might have to “pay” for such contribution increases with much greater reductions on the wage side of the ledger.

Let’s look more closely at what it would take to achieve 6% increases in contributions for one orchestra. I’m going to use my orchestra’s finances to illustrate. We have an average AFM-EPF contribution rate of 13% (between our two CBAs). But this year we didn’t even come close to a salary increase of the prevailing wage inflation of 2.9% that MPS emphasizes. No, we got an increase of 1.4% (and speaking as the chair of our orchestra committee, that was hard won). How could we have achieved 6% growth in our orchestra’s total Fund contributions? We would have needed to increase the contribution rate to about 13.6%, a bump of 0.6%, to go along with that modest wage increase.

I hear you say, “That’s not such a big a deal.” But now MPS would have us do this again for each of the next four years. Assuming that we can only get that same 1.4% salary increase, we’d have to get our AFM-EPF contribution rate up to 16.2% by the fifth year. What if our managements told us we would have to pay for those increases by reducing our wage increase, or even by cutting our wages? Then the pension rate increases would have to be even greater. If we had to take wage freezes, the contribution rate would have to go up to 17.2%.

Even if by some miracle I were able to persuade my colleagues in the bargaining unit of the importance of these contribution increases, and to actually negotiate them with our managements, for the aggregate contributions to rise by 6% a year for five years, this would have to happen in all the bargaining units—including all 37 ICSOM orchestras that contribute to the Fund. Failure to achieve this in any one unit would mean reaching an even higher contribution rate in the others.

And here’s the kicker. Even if we achieve these enormous contribution increases, and cut the administrative expenses by 10%, according to Lowman’s projection we would only push back the insolvency of the Fund by six years. Benefit cuts would still be necessary.

Mr. Lowman did briefly outline a scenario in which benefit cuts might not be needed, but it involved 5% per year increases in aggregate contributions forever. In light of what I’ve already described, I consider that idea as realistic as persuading Warren Buffett to give us $1.1 billion to plug the funding gap.

As for the other elements of the MPS recovery plan, I certainly endorse lobbying to obtain legislative relief for multi-employer pension plans. Indeed, the Fund trustees appear to be actively involved in these efforts, urging a letter-writing campaign by Fund participants to demonstrate popular support for such legislation. I think having all AFM-EPF trustees be financially literate is eminently sensible, but what evidence is there that the current trustees are not? (Trustees undergo extensive training and education, several times each year.)

The principle of solidarity is paramount for a labor union. Sometimes, a few make sacrifices for the good of the whole. But our younger colleagues are already making large sacrifices for the good of the Fund—they are enduring the $1 multiplier, and probably will endure it for their entire careers. Asking them now to give up wage increases (or decent health care) for such a paltry improvement in the condition of the Fund is stretching solidarity to the breaking point.

The situation of the Fund is very bad, and it will require sacrifice. But that sacrifice should be borne equitably. Achieving the most equitable sharing of that sacrifice is not aided by marketing fantasies as solutions.