The AFM-EPF is most likely a few months away from entering critical and declining status.The Trustees’ own projections say this. If and when this is announced – probably in April or May of this year -- the Trustees then have the ability, if they so choose, to apply to the US Treasury for permission to cut our pension benefits.
It is worth remembering that of the 1400 multiemployer plans in this country, only 25 have applied to have their benefits cut: about 1.7%. The AFM-EPF may soon join that 1.7%. According to a recent study by Milliman, the funded percentage of all multiemployer plans stands at 83%. Ours is at 63% and dropping as we approach the end of the fiscal year, March 31, 2019.
The Butch Lewis Act has unfortunately collapsed for now. Two bills have been introduced in the House to bring it back to life. MPS will stay engaged in Washington to get the help we need. But as long as the Republicans control the Senate, the path forward in Washington remains murky.
Our main task now is to push our Trustees to do the right thing. There are still things they can do to improve the situation.
Improve Investment Returns:
The AFM-EPF’s investment performance this fiscal year is 2.2% (through 9/30/18), while the median performance in our peer group is 3.8%. The new investment manager, Cambridge Associates, hired in October 2017, has added negative value in this fiscal year. You read that right: they have added negative value. According to the Trustees’ own actuary, Milliman, “the primary driver of multiemployer health continues to be asset performance.” It is exactly in this area that our Trustees continue to fail us.
Increase Employer Contributions:
A significant reason for the crisis at AFM-EPF is the low level of employer contributions to the pension fund. According to recent Congressional testimony before the Joint Select Committee in Congress, aggregate contributions to multiemployer pension plans for 2009 to 2014 increased by 6.9% per year. Compare that to what our trustees project as the growth rate in employer contributions over the next 20 years: 2.5%. This is soon to be raised to 3%, but that is still a far cry from what is necessary. This plan is not just a little behind in employer contributions but vastly underperforming the industry standard of 6.9%. The Trustees’ own documents show how increasing the level of employer contributions can postpone our pension cuts.
It is unacceptable that as the AFM-EPF heads into critical and declining status, there have still been no expense cuts. The Executive Director still makes over $425,000 per year, and there are still about 20 people on staff who earn six-figure salaries. There are two outside investment managers. There are two law firms. And there is a Washington DC polling firm on retainer.
Appoint Qualified Trustees:
MPS has argued that we have an entrenched, unaccountable and unqualified Board, and if this is permitted to continue, so will the mismanagement of our pension plan. To avoid this scenario, MPS proposed replacing 5 of the 8 Union Trustees with investment, pension, and actuarial experts. We believe these simple steps that would make this board of Trustees more capable, more dynamic and more accountable.
That’s what the Trustees can and should do. Here’s what AFM musicians across the country can do.
Raise Your Voices:
The next AFM convention is coming up quickly in June. Your local presidents will be attending and their attitudes and agenda should be shaped by you, the membership. Now is the time to let your local presidents and elected officials know that they must help influence our lead Trustee Ray Hair to improve investment returns, increase employer contributions, control expenses and appoint qualified trustees as detailed above.
If your local union leadership is not representing your wishes as members, it may be time for a change. Last month, the Musicians for Change party of Local 802 in New York City (led by several MPS organizers) swept the elections and thus ousting an entrenched administration that refused to address the pension crisis in a strategic way. (Read about it here in the New York Times). Musicians for Change has shown that grassroots activism works. It can work at your local too by voicing your concerns, demanding accountability, and by making leadership changes where necessary.
We are entering uncharted territory for this pension plan, for the AFM and personally for each of us. This is not the time to be passive. The Trustees are about to make decisions that will alter the lives of thousands of AFM musicians across the country. It is time to let the Trustees know that musicians are organized and speaking with one voice. We are demanding accountable leadership and a cohesive strategy to address the issues facing the pension fund. Since this crisis began in December of 2016, we have yet to see either of those things.
“Projections show critical and a declining status for April 1, 2019 (does not reflect market downturn through October).” November 8, 2018 Actuarial Valuation, page 17.
We continue to be amazed that anyone calls Butch Lewis a bailout. Of course, Butch Lewis is not a bailout. It’s a loan guarantee program. There are currently over 100 federal loan and loan guarantee programs, assisting small businesses, homebuyers, veterans, students, farmers, disaster recovery, export-import transactions, and infrastructure projects. There is currently $4.34 trillion of federal loans outstanding under these programs. No one calls these federal loan programs bailouts. No one should call Butch Lewis a bailout either. But those arguments are on hold for now.
September 30, 2018 Investment Report to AFM-EPF, Cambridge Associates.