MPS Responds to "AFM Pension Perspectives" Article

On April 4, MPS presented its Action Plan to an overflow audience of over 300 musicians, with thousands more watching online. At the conclusion of the meeting, we took an anonymous online poll to determine what support we had for the plan. The support was overwhelming – over 97% -- and was re-confirmed in subsequent weeks when we crowdfunded another $15,000 to help support future MPS projects. 
 
Within the musician community, there have been a few naysayers and cynics, none more so than Scott Ballantyne and Tom Calderaro, who have put out a piece entitled “MPS Action Plan and Analysis.” (Scott is a cellist in New York City and Tom is an orchestrator* in Los Angeles.) We have gotten some questions about some of the assertions Scott & Tom make in their piece. We are happy to answer those questions with full transparency and supporting data.
 
We read Scott & Tom’s piece with amazement because it takes an even harder line than the trustees themselves. This piece, together with their earlier piece from August 2017, entitled “The AFM Crisis – A View from the Membership,” showcase Scott & Tom’s extreme views on the AFM-EPF crisis, putting them firmly in a group by themselves. Here are some of the opinions they hold:
 

  • The trustees should cut our pensions immediately, the sooner the better.[1]
  • The actuary for the Plan has adopted overly optimistic assumptions which if corrected would put our “true” liability at 47% higher than the one stated. (Note: if this “correction” were made, musicians would be facing cuts of over 40% today.[2])
  • MPS is wasting its money hiring Tom Lowman because actuaries tailor their professional opinions to whoever hires them.[3]
  • The class action lawsuit is a waste of time and money.
  • We don’t need better technical skills on the board of trustees because there is already too much “expertise”. Instead of expertise, we need “judgment.”[4]

 
 
But most of all, Scott & Tom believe we should all go home and wait for our pensions to be cut. Get out of the trustees’ way and let them do their work. That is the creed of fatalism, defeatism, and passivity. MPS doesn’t share these values.

Scott & Tom’s passivity should be viewed against the backdrop of the trustees’ decision to update the Rehabilitation Plan contribution schedule to require a one-time 10% increase in the rate of contributions to the AFM-EPF. MPS believes that its activism and its advocacy helped persuade the trustees to take this action.

 
Not surprisingly Scott & Tom don’t like the MPS Action Plan. But what they say about it is flat out wrong.
 
Scott & Tom: A three-year delay doesn’t add much.
 
Scott & Tom wonder “why MPS is making such a fuss” about getting a three-year delay in cuts. The short answer is that Tom Lowman has said that a three-year delay on a present value basis would produce cuts of 13% vs. trustees’ planned cuts of 23.3%. That’s a 56.7% difference. (Yes, that’s right.[5])
 
We have been in touch with AFM musicians across the country, and nearly all of them say that 56.7% less cuts would mean a great deal to them. For some, it means three more years of security and a roof over their heads. For others, it means not having to move out of New York City. For others on the brink of retirement, it means three more years of being able to prepare for cuts. That’s why we’re making a fuss. 
 
Scott & Tom: The AFM-EPF is already getting nearly 6% contribution increases per year.
 
Scott & Tom have concluded, wrongly, that AFM-EPF is achieving 5.2% yearly increases in employer contributions. They solemnly trot out figures and then proceed to bungle both the math and the analysis. Mathematically the correct rate of employer contribution growth is 2.66%, not 5.2%.[6]But even more important is that Scott & Tom didn’t bother to read documents from the trustees’ files which analyze in great detail what the growth rates were. Instead, Scott & Tom aimlessly say: “It would be a great help if we knew the source of these increases since we could then have some idea of how sustainable they might be.”
 
If they had bothered to read the documents from the trustees’ files, they wouldn’t have asked this question. In those documents, Milliman presented the real sustainable employer contributions, factoring out what they called “noise.”[7]The numbers Milliman presented to the trustees are as follows:[8]
 
Employer Contributions ($ million)
 
2010  51.1
2011  51.7
2012  54.2
2013  54.2
2014  55.2
2015  55.9
2016  58.5
 
This is an increase of 14.4%,[9]which translates to an average annual increase of 2.2%. And because of this meager 2.2% number, the Plan actuary, Milliman, recommended last year that the Plan reduce its projection of 2.75% annual growth in employer contributions to 2.25% growth over the next 20 years. Indeed, in 2016, according to Milliman, the actual growth in employer contributions was 1.7% vs. expected growth of 2.75%.[10]After debating the matter, the trustees’ growth expectations in employer contributions was lowered to 2.5% per year over the next 20 years.[11]This is well below the current wage inflation rate, which is 2.9%.[12]This is a startling admission of failure.
 
 
Scott & Tom: We shouldn’t ask that employers be part of the solution. 
 
Scott & Tom assert that MPS’ request for higher employer contributions only hurts musicians because employer contributions come out of wages. “Historically musicians have given up wages or accepted reduced benefits in other areas in return for higher employer contributions.”
 
We need to remember that employers have contributed far less than they should have over the past ten years. Consider the following:
 

  • According to recent Congressional testimony, aggregate contributions to multiemployer pension plans from 2009 to 2014 increased by 6.9 percent per year, significantly outpacing the average inflation rate of 2.1 percent over this period.[13]
  • MPS actuary Tom Lowman cited numerous instances where pension plans in trouble obtained 6% increases in employer contributions for multiple years. These included the Baltimore Teamsters and the Central States Teamsters fund. 
  • Mr. Lowman also cited the fact that the AFM-EPF itself obtained 6% increases in employer contributions for multiple years in the middle part of the last decade.

The facts are clear. Our Union leaders have done a poor job of negotiating with the employers, falling far short of industry benchmarks. It is only fair that we ask employers to be part of the solution now that the pension plan is in crisis.
What Scott & Tom are saying is that the musicians should be taking 25-30% reductions, with employers taking no pain whatsoever, even after those employers got away with under-contributing for the last decade. Scott & Tom think that employers should not take a little pain (very little) so that musicians can get much lighter cuts and a three-year reprieve. They think that the books should be balanced on the backs of only the musicians. 

The trustees have implicitly recognized the validity of MPS’ position in their recent decision to update The Rehabilitation Plan contribution schedule to require a one-time 10% increase in the rate of contributions to the AFM-EPF. While the trustees’ action falls far short of what should be required of the employers, it represents progress. This is progress that would not have taken place without MPS’ tireless advocacy. 

 
Scott & Tom: Board reform will accomplish nothing
 
Here’s what they say: “Merely replacing trustees is not going to fix governance problems with our fund or any other” and “MPS also wants more ‘expertise’ at the fund. We tend to the opinion that there is already a surfeit of expertise at the fund. We would be much happier with less ‘expertise’ and better judgment.”
 
To which we say: how about more expertise AND better judgment?
 
The trustees have produced the worst investment returns in their peer group of large pension plans, have the highest expenses of any fund in the entertainment industry, and cannot raise employer contributions even to the rate of wage inflation. The root problem with the AFM-EPF is bad governance. We have an entrenched, unaccountable and unqualified Board, and if this is permitted to continue, so will the mismanagement of our pension plan. The only way to prevent more mismanagement is to bring onto the Board competent, experienced and accountable trustees who are experts in their fields, particularly the investment and the actuarial fields. Without Board reform, there is every likelihood that the problems will continue.   
 
Conclusion: MPS Will Continue to Be a Strong Voice For Constructive Change
 
MPS believes that fatalism, defeatism, and passivity are not the answers to our pension crisis. MPS’ strategy is to push for better solutions, better governance and a better future for all of us. We will continue to scrutinize everything the trustees do and to hire the best expertise we can find to double check their work. We will continue to call for transparency even though the trustees are determined to remain as opaque as possible. And we will work in Washington to get reform legislation that will truly help us as Plan beneficiaries. 
 
 

[1]“We believe the numbers show that we have reached the point where, as each year passes, more and more will have to be done to fix the fund. Each year benefit cuts are delayed will only make them larger. Each year capital sources of greater size will have to be found. If we wait too long all will be lost.” The AFM Pension Crisis, page 23.
 

[2]Scott & Tom say that “The only discount rate that makes any sense is one which is free of risk,” and using anything higher is “insanity.” (The AFM Pension Crisis, page 12) If the discount rate were lowered from the current  7.5% to the risk free rate, our current liabilities would be adjusted to $4.62 billion from $2.86 billion. AFM-EPF 2016 Form 5500, Schedule MB, line 1(d)(2)(a). 
 
 

[3]“Actuaries serve their employers. If you spend the money to hire one, you might get an answer more to your liking.”Scott & Tom add that hiring an actuary is “a waste of the important resources of time and money,” because it is only “a rehash of the past.” The AFM Pension Crisis, page 27.
 

[4]“MPS also wants more ‘expertise’ at the fund. We tend to the opinion that there is already a surfeit of expertise at the fund. We would be much happier with less ‘expertise’ and better judgment.” MPS Action Plan and Analysis page 5.
 

[5]The planned cuts of 23.3% could end up being higher (the trustees have a range that goes up to 30%); or it could be somewhat lower, due to the 10% one-time increase in employer contributions just announced. We arrived at the 56.7% through a percentage difference calculation. (The percentage difference between two values is calculated by dividing the absolute value of the difference between two numbers by the average of those two numbers.)
  

[6]One problem with the analysis is that it omits the percentage change for 2010. That year the percentage change was -9.15%. But even with this error corrected, their numbers don’t tally.
 

[7]One example of “noise” might be the employer contribution increases under the Rehabilitation Plan. Beginning in 2011 large increases were mandated under the law. Under Federal labor law, once a plan goes into critical status, employer contributions are automatically raised by 9%. AFM-EPF went into critical status in 2011, and the statutory increases mainly occurred after 2012. 
 

[8]Milliman, Presentation to AFM-EPF Trustees, May 16, 2017, page 6.

[9]We arrived at the 14.4% through a percentage change calculation.(Percentage increase is calculated by computing the difference between two values and comparing that difference to the initial value.)

 

[10]Milliman Presentation to AFM-EPF Trustees, May 16, 2017, page 9.

[11]AFM-EPF Form 5500, 2016, Schedule MB, Summary of Actuarial Assumptions and Methods.

[12]Bureau of Labor Statistics, U.S. Department of Labor, Employment Cost Index for 12 Months ended December 31, 2017, service sector. Wage inflation rate includes pension contributions.

[13]The study referred to in the testimony of Ted Goldman before the Joint Select Committee on Multiemployer Pensions is Lisa A. Schilling and Patrick Wiese, Multiemployer Pension Plan Contribution Analysis, Society of Actuaries, March 10, 2016,www.soa.org/Files/Research/research-2016-03-multiemployer-analysis.pdf.
 


*In our original article published on 6/23, we wrote incorrectly that Tom is a guitarist in Los Angeles. Tom is, in fact, an orchestrator in Los Angeles.