MPS responds to President Ray Hair's July 2017 International Musician article
Ray Hair attempts to “bust the myths” related to our pension fund’s crisis in this month’s International Musician, which was copied verbatim from the AFM-EPF June newsletter (that message can be found here and here). President Hair’s message actually raises more questions than it answers.
President Hair’s Myth #1:
The Fund is not critical and declining so we’re “safe.”
MPS Question #1: Why the dramatic deterioration in the past 12 months?
President Hair states that avoiding critical and declining status this year doesn’t mean that our fund is healthy. We agree with that. But he doesn’t address the key issue. The recent Annual Funding Notice shows the funded percentage of our plan (view here) has declined from 81.6% to 69% in just one year. That is a decrease of 12.6 points, which is our largest decrease since the financial crisis of 2008-9 (funded percentages since 2009 are 75%, 94.5%, 91.8%, 88.5%, 86.9%, 85.6%, and 81.6%.). So while that percentage has been trending down moderately, this past year it took a dramatic fall. Why? President Hair does not say.
President Hair's Myth #2:
The Keep Our Pension Promises Act (KOPPA) proposed by Senator Bernie Sanders is good for participants.
MPS Question #2: Why is President Hair so enamored with a law that numerous Senators and Congressmen want repealed or revised (read about MPRA)?
Mr. Hair asserts that he met with staffers of Democratic senators in Washington, D.C., on June 6, and discovered that with the current Republican senate in place, KOPPA would likely not be enacted into law. If this was news to Mr. Hair and Mr. Gagliardi at their meeting, it certainly isn’t to anyone else. MPS stated back in May that it is unlikely this legislation would be passed in today’s current political climate, but it could be passed after the 2018 and 2020 elections. It also shouldn’t stop our trustees from seeking improvements to already existing laws, or lobbying for a new piece of legislation altogether that would be better suited to the needs of all plan participants.
Mr. Hair and our trustees only seem interested in one piece of legislation: the Multiemployer Pension Reform Act of 2014 (MPRA), which allows the trustees of financially-troubled multi employer pension plans to apply to the US Treasury for reduced benefits to retirees and their widows/widowers. Numerous senators and congressmen on both sides of the aisle have expressed extreme dissatisfaction with MPRA. In fact, a number of them have stated that they want it substantially revised, or repealed altogether. Several Republican senators have joined with Senator Rob Portman, R-Ohio, to revise MPRA (Pension Accountability Act). Portman’s proposal would disallow any benefit cuts without a majority of the votes cast by the plan participants. Despite these proposals for substantial revision to MPRA, our trustees have not engaged with these efforts, choosing to enforce MPRA as written, allowing benefit cuts over the objections of plan participants.
Regarding the possibility of our plan falling into MPRA in the next year or two, President Hair has clearly overlooked one very important scenario – in the event that MPRA is revised to benefit the plan participants after the 2018 or 2020 elections, those who already had cuts enacted may very well be denied the new favorable benefits of the revised law.
It has become clear over the past several months that the trustees view MPRA as the only legislative tool in their toolbox. A question MPS still wants answered is whether the trustees used plan money to help draft and lobby for the passage of MPRA in 2014. We asked the trustees this question in our information request last month (read here), and they refused to answer.
President Hair's Myth #3: The plan lost 40% in investment returns when other plans lost 25%.
MPS Question #3: Why won’t the trustees answer our questions regarding the losses of 2008-9?
Mr. Hair would like us to know that the plan lost 29% in investment returns for the 12 months ending March 31, 2009, not 40% as some have alleged. There have been numerous conflicting communications from the trustees on this subject. MPS formally requested detailed information regarding the Fund’s realized losses in 2008-09 (read items 6-8), but the trustees refused to answer those questions. Executive Director, Maureen Kilkelly, informed us that they would provide only the documents required by law, and that they “… are not responding to the remaining requests.* "
MPS also asked trustees for detailed information regarding the performance of the alternative investment portfolio. It’s clear that the trustees have revised their investment strategy since 2014, and shifted to a more aggressive investment mix. Currently, approximately 32% of plan assets are allocated to alternative investments, including private equity. Our questions regarding the private equity portfolio, including the nature of the fees and investment returns, were not answered by the trustees.
We also asked whether they received any legal advice that the plan had a viable lawsuit against any of its investment advisors for the poor performance during not only in the 2008 financial crisis, but also the past 10 years – a lost decade from an investment point of view. The trustees refused to answer us on this critical point as well.
President Hair's Myth #4: The Fund office received huge staff pay increases in 2009.
MPS Question #4: Why won’t the trustees answer our questions about expenses?
President Hair indicates that plan participants misunderstand why expenses seem to have gone up abruptly in 2009, and continued to increase since. It is precisely this reason that MPS asked numerous questions regarding expenses (see items 11-16). The trustees refused all requests. We again ask that the trustees respond fully to our information request so we may understand exactly what went wrong with our fund, and what can be done in the future to repair it.
President Hair, who has been the AFM trustee co-chair since 2010, isn’t busting any myths – he is using carefully curated facts in order to make his case. When asked questions that are uncomfortable or inconvenient, AFM-EPF refuses to answer.
This is not transparency.
President Hair focuses on “busting myths” because he and the other trustees choose to dodge the facts – over the past decade, our fund has endured poor performance with an average 3.2% return net of investment fees, spent $250 million in fees, and left us with serious questions about how our plan money has been spent. One thing is obviously missing when it comes to the communications from Mr. Hair and the other trustees – what is the trustees’ strategic long-term plan moving forward to deal with the continual problems at the AFM-EPF? President Hair, is the plan to fix the AFM-EPF fund a myth as well?
Musicians for Pension Security, Inc.
*Ms. Kilkelly included a disclaimer on her email that prevents us from sharing it publicly.