10% Increase in Employer Contributions: Less Than Meets the Eye

Over the past 18 months, MPS has been tirelessly arguing that employers need to be part of the solution now that our pension plan is in crisis. The idea that musicians should take draconian, life-altering cuts to their pensions, while employers got away with under-contributing for the last decade, struck us as very unfair. Now the trustees have decided to require a one-time 10% increase in the rate of employer contributions to the AFM-EPF. Unfortunately, this increase does little to address the unfairness of the situation. 
 
Employers have been notified of the one-time increase. (See notice here. Complete June 2018 Rehabilitation Plan here.) 
 
We have received many questions about this development, and below we provide answers.
 
Question: What does the 10% increase mean? 10% of what?
 
Answer: Employers contribute to the pension based on a percentage of annual wages they pay the musicians. Let’s take an employer who pays 10% of annual wages to the AFM-EPF as a pension contribution. That employer will now pay 11% of annual wages into the AFM-EPF.
 
Question: Is this 10% increase per year, or is it a one-time increase?
 
Answer: It’s a one-time increase.
 
Question: Does this mean the pension plan is no longer in critical status?
 
Answer: The plan remains in critical status and is likely to go into critical and declining status in the next year or two. Documents from the trustees’ files contain projections showing that even with this 10% increase, the Plan goes into critical and declining status either next year or the year after.[1]
 
Question: Why are the trustees doing this now?
 
Answer: Documents from the trustees’ files show that they are doing this because if they don’t do it, they probably won’t be able to get U.S. Treasury to approve their application for cuts to our pensions.[2]
Under the law, the trustees must apply to the U.S. Treasury to get any cuts. The trustees have been in dialogue with the U.S. Treasury about the best way to frame their cut application.
 
Question: Why didn’t the trustees do this a long time ago? 
 
Answer: The trustees did this in 2010 when they placed the Plan in critical status. Under the law, they had to raise the employer contribution by 9%. Ever since then, the trustees have stubbornly refused to exercise their powers to raise employer contributions any further, claiming that if they did so, employers might leave the Plan, leaving it in worse shape than before. As far as MPS can tell, there is no basis for this fear. The number of employers who left the AFM-EPF after the 9% increase in 2010 has been minuscule. The bottom line is that the trustees should have aggressively raised employer contributions years ago but refused to do it until now and are only doing so to pursue their agenda to cut our pensions.
 
Question: With this 10% increase, are the employers finally paying their fair share into the Plan?
 
Answer: This one-time increase leaves the AFM-EPF falling far short of national averages for employer contributions. According to recent Congressional testimony, aggregate contributions to multiemployer pension plans from 2009 to 2014 increased by 6.9 percent per year.[3] The trustees have calculated that between 2010 and 2016, sustainable employer contributions at AFM-EPF, factoring out what they called “noise,” has been increasing annually at 2.2%.[4] Our Union leaders have done a poor job of negotiating with the employers, falling far short of industry benchmarks. And the employers have gotten away paying far less than they should have. This one time 10% increase hardly makes up for that.
 
Question: How does this 10% increase compare with other pension plans in crisis?
 
Answer: This 10% increase is far less than what other plans have asked of their employers. 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. 6% for multiple years of course far exceeds a one-time increase of 10%.
 
Question: How does the 10% increase compare with the MPS proposal?

Answer: It falls far short of what MPS proposed, which was 6% increases in employer contributions, for five years, then reverting to 2.9% per year over the next 25 years.[5] The MPS proposal would result in a three-year delay in cuts and cuts that on a present value basis that would be 56.7% less than what the trustees were contemplating.
 
Question: Won’t the 10% increase make the cuts lighter when they do come?
 
Answer: Not by much. Before the 10% increase was announced, the range of cuts contemplated by the trustees was from 23.3% to 30%. The 10% increase will bring this range down somewhat, but the cuts will still be draconian.
 
Question: Are the musicians being treated fairly by the trustees?
 
Answer: The books are being balanced on the backs of the musicians. Far from equitably sharing the sacrifices, the employers have been under-contributing for the past decade. This one time 10% move does not compensate for that. Our trustees can and must require more of the employers.  
 


[1]Milliman, Presentation to AFM-EPF Trustees, December 18, 2017, page 6 (read complete presentation here)

[2]Milliman, Presentation to AFM-EPF Trustees, December 18, 2017, page 1 

[3]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. (read it here)

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

[5]Note that MPS’ 6% per year includes the 2.5% inflation in employer contributions due to wage increases. Apples to apples, the trustees are increasing employer contributions by 10% (assuming it applies to all employers) vs. MPS’ 17.5%. Added to MPS’ 17.5% is the 2.9% increases per year for 25 years.