Our AFM-EPF vs. Musicians' Pension Fund of Canada
While researching the dramatic deterioration of our pension fund, Musicians for Pension Security (MPS) continues to be deeply troubled by how, compared to other pension funds in our industry, ours is performing so poorly. Our trustees cite declining demographics, unsatisfactory industry dynamics and changing mortality tables. But a peer AFM musicians’ pension fund, Musicians' Pension Fund of Canada (MPF Canada), is quite healthy, despite the fact that it is subject to the exact same factors cited by AFM-EPF trustees.
Just like our pension fund, MPF Canada contributions are negotiated with employers by the AFM and written into collective-bargaining agreements. So why are they over 100% funded (MPFC's 2016 report), and we continue to slide into deeper despair each year? Currently the AFM-EPF is 69% funded (Annual Funding Notice). Is it possible that the Canadian trustees are simply more competent than our U.S. counterparts? The numbers speak for themselves: MPF Canada's investment performance is far better than ours with 11.3% average returns over 5 years, vs. 6.9% for the AFM-EPF. In addition, MPF Canada's expenses are less than half of the AFM-EPF’s with .62% of assets under management vs. 1.37% for AFM-EPF. The Canadians are paying half as much to generate twice the return of investment.
Looking back to a pivotal year for all funds, during the financial crisis of 2008, the Canadians performed far better than the AFM-EPF. Our plan lost 29.3% in the single fiscal year ending March 31, 2009 while the Canadian plan lost only 1.77% during the same period. This raises the question – are there variables to explain why MPF Canada has continually outperformed the AFM-EPF, like benefit levels, mortality rates, retirement age, demographics, or industry dynamics? In short, the answer is no. The benefit multiplier* for MPF Canada has been $3.25 since January '11, while the benefit multiplier of the AFM-EPF has been $1.00 since January '10. Additionally, demographics for the Canadian plan face worse conditions: only 32% of plan participants are active union members in Canada, vs. 42% of AFM-EPF members in the USA. Furthermore, employer contributions are far less in the Canadian fund, and mortality rates in Canada are less favorable financially to beneficiaries because Canadians simply live longer than Americans.
It appears that the trustees' judgment and experience are significant determining factors between the two funds. It's clear that when compared to MPF Canada, the AFM-EPF's performance over the last decade has failed. In fact, the Executive Director of MPF Canada released a public statement distancing themselves from the AFM-EPF's performance (referring to President Hair's article in the May edition of International Musician) stating "this article is not relevant to the Musicians' Pension Fund of Canada" (read Ms. Versteeg-Lytwyn's full letter here). The AFM really has two parallel pension funds – one in the US, and the other in Canada. They are operated similarly, face the same declining demographics and other variables, but still they produce completely different results. Why? This is the question the AFM-EPF trustees need to answer.
*In a defined pension plan the method for arriving at guaranteed monthly benefits includes years of service, average salary and a benefit multiplier. The multiplier is applied to years of service and the average salary to determine the size of the benefit amount.