America is facing a pension crisis of epidemic proportions. At the very moment when our population is rapidly aging, the fabric of our pension system is collapsing. By the year 2030, one in five Americans will be over 65. Plan assets for private pensions are grossly inadequate—underfunded by billions of dollars according to the Pension Benefit Guarantee Corporation (PBGC). Many employers are “freezing” their pension obligations—others have been forced into bankruptcy. So many pensions have gone belly up that the federal agency that insures pensions, the PBGC, is itself in trouble. Even worse, public pensions promised to millions of present and future retired policemen, teachers, state employees, and others, are underfunded by hundreds of billions of dollars at the state level.
So, the AFM-EPF is not the only pension fund that is experiencing difficulty. As for how the Fund got to the place it is in now, it is the Fund’s responsibility to provide that information; ICSOM can’t speak for the Fund. But I would like to discuss ICSOM’s historical involvement with the Fund and the Governing Board’s current view of the situation.
In the early 1990’s a number of our ICSOM orchestras began to make the Fund their primary pension vehicle by “freezing” their internal defined-benefit single-employer pension plans and choosing the multiemployer AFM-EPF instead. At that time, joining the AFM-EPF often cost less than shoring up those orchestras’ internal plans. In addition, with a multiplier that ultimately rose as high as $4.65, the Fund offered a future pension benefit that was often far more lucrative than what musicians would have received under their orchestras’ internal plans.
ICSOM’s political involvement with the AFM-EPF began in 2002, after the retirement of the lone rank-and-file Trustee, Dave Schwartz, of the Recording Musicians Association (RMA). Back then, AFM Bylaws required that the AFM President appoint only one rank-and-file musician Trustee out of sixteen (eight on the union side and eight on the employer side). With the exception of the lone rank-and-file member, the eight AFM Trustees had typically been Local Presidents and members of the International Executive Board. Because orchestral musicians believed they deserved to have a stronger voice on the Fund, ICSOM began lobbying the AFM for greater representation. ICSOM pushed very hard to increase the number of rank-and-file trustees from one to three, and finally to change the definition of rank-and-file in the bylaws. That perhaps was the most significant change, as Local presidents and other officers could no longer be appointed to a rank-and-file position. ICSOM was largely responsible for those changes made to the AFM Bylaws, Article 22 Section 6, over the course of three AFM Conventions.
In 2003, AFM President Tom Lee appointed Phil Yao, from the RMA, to fill Schwartz’s vacant position. Lee also appointed Bill Foster, a violist with the National Symphony, as an alternate Trustee who, in 2005 became a full-time Trustee. In 2007, another resolution was adopted that required the AFM President to contact the Player Conferences immediately upon learning of an AFM Trustee vacancy.
Shortly after Bruce Ridge was elected ICSOM Chairperson in 2006, the ICSOM Governing Board lobbied President Lee to try to persuade the Employer Trustees to appoint a Trustee from the orchestral field. (At that time, all the Employer Trustees were from television, film, the recording industries, and Broadway.) That started a discussion between our orchestra managers and the Employer Trustees. In 2010, just prior to Ray Hair’s election as AFM President, Bill Thomas, then CFO of the New York Philharmonic, was appointed to represent orchestra managers as an Employer Trustee.
In 2010, Ridge, in consultation with the other Player Conferences, successfully lobbied for the appointment of then-ICSOM President Brian Rood, from the Kansas City Symphony, and ICSOM Secretary Laura Ross, from the Nashville Symphony, to fill the two unassigned rank and file positions. In 2012, Mike DeMartini, then-CFO of the Los Angeles Philharmonic, was appointed as another Employer Trustee.
All Fund Trustees undergo extensive training in the fundamentals of pension governance and investment skills, and are expected to attend continuing education programs. Both Rood and Ross also had previous governance experience: Rood has served as a trustee of the AFM Strike Fund since 2003, and Ross is in charge of live performance pension fund contributions for the Nashville Local 257.
The ICSOM Governing Board has been following the AFM-EPF situation closely. As I stated at the conference, it is the position of the Governing Board that we do not believe that there was any fraud, malfeasance or incompetence on the part of the Fund Trustees. ICSOM is well represented on the Fund by Rood and Ross, and they have our full faith, trust, and confidence. In the view of the Governing Board, legal actions against our Fund are a waste of money and resources that would be better spent fixing rather than attacking the Fund.
So where do we go from here?
The biggest expenditure of the Fund is in outgoing benefits to its participants. In fiscal year 2015, the Fund owed $152 million in benefits. It took in a total of $63 million in employer contributions. That is a huge gap, and it will only get wider—by FY 2024, the Fund is projected to owe $228 million in benefits annually. Although recent years have seen an increase in the dollar amount of contributions (with fewer employers making those contributions), the number of participants drawing benefits is rising, and that rise is projected to accelerate. The number of active participants per retiree has dropped from almost 3 to 1 in 2004 to about 1.5 to 1 in 2016. The percentage of benefit payments covered by contributions has been steadily declining for the past 24 years. Given that decline, the Fund has been forced to rely more and more on investment returns—which are unpredictable and never guaranteed.
Unfortunately, but realistically, it appears that the primary path to solvency may be through benefit reductions, which would be possible under the 2014 Multi-Employer Pension Reform Act if the Fund enters critical and declining status. (Please see the accompanying article on MPRA by ICSOM Counsel Kevin Case.)
In addition, the health of the Fund will be improved if there are more sources of unallocated income—i.e., contributions to the Fund that are not attached to future benefits. For example, President Hair was able to obtain $20 million in unallocated contributions over three years from the Sound Recording and Motion Picture Fund. The RMA should also be praised for giving 1% of their special payments, unallocated, to the Fund. Another avenue to explore is whether our ICSOM orchestras can schedule pension benefit concerts that will generate additional income to the Fund.
Finally, it is incumbent upon every member of our union to renew our commitment to each other, to work under union contracts that pay union wages and generate pension income. If we pull together, make the necessary sacrifices and work towards a stronger union, we can right the ship before it runs aground.
Note: Data cited here come from the AFM-EPF’s audited financials and 5500 filings with the Department of Labor, and the AFM-EPF’s “Roadshow” presentations, which are available on the AFM-EPF website. For another perspective on the AFM-EPF situation, also see “AFM Pension Crisis: A View from the Membership” in “AFM Pension Perspectives” by Scott Ballantyne and Tom Calderaro.