What happened to our pension fund?
As you may have heard, our hard-earned pension benefits could be slashed to a negligible monthly payout once we retire. Our Fund Trustees say this is due to a series of unfortunate events, but it seems more and more clear that the true unfortunate event is that they are responsible for a decade of poor performance, and have been less than transparent about the health of the Fund.
It's true that in 2008 we incurred catastrophic losses to our pension fund. That was a terrible year in the market for all, and during that crash almost every multiemployer fund suffered substantial losses. But our pension fund performed much worse … AFM-EPF lost nearly 40% (AFM website) of assets spanning the 18 months surrounding the crash, while other funds suffered an average of 25%. After that difficult period, the majority of multiemployer pension funds bounced back, and 60% of those plans were back in the Green Zone by 2011 (PBGC). Not ours, however. The AFM-EPF fund continued to underperform every single year.
Let's talk numbers here for a minute…
- Over the past decade, our fund yielded a 3.2% net average return. That's 1.0% below our already low custom benchmarks (estimated returns on investments which are calculated by Trustees and Fund Administration) and drastically below the industry-wide yield of 6.8% (according to Pension and Investments magazine). Compared to our peers, we are underperforming.
- Our pension administration spent over $248 million dollars in administrative expenses and investment fees over the past decade, while returning only 3.2% (5500s). Last year, for example, the Fund admitted to losing $10 million in value (AFM-EPF website), but paid $25 million in administrative costs and investment fees. Additionally, our Fund's expenses have been unnecessarily exorbitant for years. We spend $190K/month on rent in one of the most expensive real estate markets in the country, pay excessively high salaries to fund administration, high fees to investment managers (5500s), and are unnecessarily overstaffed in comparison to similar funds. Not only are we paying employees high salaries, but we are giving them raises almost every year in the past decade. We are rewarding them for bad performance.
We spent a lot of money to lose money.
We can make a comparative analysis to a peer pension fund, AFTRA Retirement Fund. AFTRA is similar to AFM-EPF in size, value of assets, and personnel (for example, the consultant, accountant, lawyers, and investment managers are all the same professionals). Although we utilize many of the same resources, AFTRA is under-spending us dramatically. Using Form 5500s for the years available to us, 2009-2014, we created a comparative fee and expense analysis between AFTRA Retirement Fund and AFM-EPF. For those six years, AFTRA paid $103 million in investment fees and administrative costs, while AFM-EPF paid $153 million in fees and expenses. The AFM-EPF paid an extra 50 plus million dollars in fees and expenses more than AFTRA paid for the same six year period. Despite the fact that these 2 funds are so similar in size and personnel, the AFM-EPF paid a third more in expenses and fees than AFTRA for 2009-2014.
"The Fund will be solvent until 2047."
Many AFM members didn't realize how bad things were until we received a December 2016 letter from the trustees (found here), stating the fund spent $25 million in fees and expenses in 2016, and lost $11 million. In addition, the trustees made it very clear the fund is in trouble and could possibly be moving into critical and declining status in the near future, as soon as the coming summer. They informed us if we move into critical and declining status, the pension law of 2014, the Kline-Miller Multiemployer Pension Reform Act, (MPRA), would apply to our fund. MPRA is a law that allows trustees to cut existing benefits and gives workers little to no say in the process.
This was surprising news to participants after a series of articles bolstering the health of our fund from our very own trustees were published just one year prior. These articles state that MPRA doesn't apply us, and our fund is projected to be solvent until 2047:
- AFM President and co-Chair Trustee, Ray Hair, said in International Musician in January 2015, "the AFM-EPF… is not projected to become insolvent, and the new law [MPRA} does not authorize benefit reductions to the AFM-EPF."
- A month later, Local 802 President Tino Gagliardi wrote In Allegro, "The new spending bill from Congress ... includes a provision that applies to deeply-troubled pension plans that are near insolvency. As we have stated before … our pension fund is projected to be solvent until at least 2047, which is the longest period for which the actuaries have made projections."
- In the same publication, Local 802's lawyer Harvey Mars also stated the fund would be solvent through 2047 and members should "rest secure".
- Tino Gagliardi then agreed with a statement given by four Union Trustees -- Laura Ross, Brian Rood, Bill Moriarity and Phil Yao -- stating again that they believe the fund with be "solvent through at least 2047".
So what changed in that one year? Why are trustees who wrote these reassuring words in 2015 now telling us we could be eligible for cuts in the very near future? We deserve an answer.
Underperformance and High Expenses
Christopher Brockmeyer, Co-Chair of the AFM-EPF, is also the Director of Employee Benefit Funds for The Broadway League. He was actively involved with the development and passage of MPRA. In Markets Media in 2014, he said, "I spend a lot more time on investment issues … than do a lot of the other trustees." He went on to say, "Every fund … is primarily motivated by trying to get its best return, which is typically 7.5%." It's troubling that Brockmeyer, a Trustee of 11 pension plans in the entertainment industry, and AFM-EPF Trustee since 2007, believes our return should be much higher than our 3.2%. Where is the accountability for the fund's poor performance, after Brockmeyer claims to be the authority on "investment issues"? And when our investment performance is failing, shouldn't Mr. Brockmeyer and other Trustees, including Co-Chair Ray Hair, attempt to cut costs?
The Trustees vote each year on potential salary increases. Our Fund Administrator and Executive Director, Maureen Kilkelly, is now paid $422K a year (5500s). Kilkelly has gotten a raise every year during the past decade, despite the fund's poor performance. To add insult to injury, in 2009, the year that New York's Broadway musicians took a salary freeze, Maureen Kilkelly received a 25.1% raise. Why did the Trustees vote to raise Ms.Kilkelly's salary every year, regardless of the fund's performance? Where is the accountability?
Has the Board of Trustees breached their fiduciary duties by allowing for excessive fees, poor returns and little to no transparency for many years? Our current trustees seem incapable of or unwilling to rein in exorbitant costs. Why, after a decade of poor performance, has there been no change from the fund's leadership?
The Trustees must explain the mistakes with full transparency, improve the administrative performance, and drastically reduce the high overhead.