The AFM-EPF and the Multiemployer Pension Crisis

By Hair, Ray | International Musician, May 2018 | Go to article overview

The AFM-EPF and the Multiemployer Pension Crisis


Hair, Ray, International Musician


The United States currently faces a worsening multiemployer pension crisis. One recent report estimated that 114 multiemployer pension plans across the country will become insolvent over the next two decades. These plans cover nearly 1.3 million people and they are underfunded by more than $36 billion. The American Federation of Musicians and Employers' Pension Fund (AFM-EPF, "the Fund") is not immune to the forces driving this crisis.

The AFM-EPF, like many other multiemployer funds, was a robust, healthy pension fund through the late 1990s. In fact, our fund was actually overfunded, meaning that assets exceeded liabilities (promised benefits to participants for service already performed). Simply put, the Fund had more money on hand than it was projected to need to pay out as benefits in the future. In 1999, the AFMEPF was 139% funded.

Because of this overfunding, the Fund's actuaries at the time advised the trustees that the Fund could afford to increase the benefit multiplier. Based on this advice, the trustees approved several multiplier increases. By January 1, 2000, these increases resulted in a $4.65 multiplier for retirements at age 65, the plan's normal retirement age. As was the case for multiplier increases going back at least to 1981, these increases applied not only to benefits that would be earned in the future, they also applied to benefits that all participants had earned in the past, including for retirees.

At the time these decisions were made, the trustees were advised by their experts that the Fund could afford the benefits that it was promising. But the Fund, like so many others, was hit by a combination of negative developments in the first decade of the 2000s. First, there was the dot-com bubble burst; then, just as it had recovered from those investment losses, the 2008-2009 international financial crisis hit. By the end of that crisis, the fund had a huge gap between its liabilities and its assets.

Following the dot-com crash, the trustees lowered the multiplier in 2004 and again in 2007. And after the financial crisis, the trustees lowered the multiplier twice more to its current level of $1.00 in 2010. However, under the law at the time, the trustees were not allowed to reduce benefits that participants already earned. Therefore, the $4.65 multiplier could only be reduced for benefits earned going forward. Thus, these reductions had a relatively small impact, given that the multiplier increases in the 1990s had been applied to all past service. The Fund is still obligated, by law, to pay benefits earned under the higher multipliers, including the $4.65 multiplier that is applied to all credited service prior to 2004.

There has been some positive news since the financial crisis. This includes annual employer contributions to the Fund increasing from $51 million in 2010 to $67 million in 2017. It also includes strong investment returns overall since 2009. However, because the Fund experienced a significant loss from the financial crisis, those returns were based on a much smaller amount of assets.

Unfortunately, the AFM-EPF doesn't get the full value out of strong investment returns because, despite the increase in employer contributions, annual benefit payments continue to far exceed those annual contributions. Annual benefit payments have increased as more participants retire. At the same time, there has been a decline in the number of musicians working under contracts requiring employer contributions, including those who choose nonunion employment.

Thus, for the fiscal year ending March 2017, while the Fund paid out $158 million in benefits (an increase of $77 million over 2004), it received only $67 million in contributions (an increase of only $22 million over 2004), creating a negative cash flow of $91 million for that fiscal year. As a result, the Fund needed a 6.25% return that fiscal year just for assets to stay flat.

This negative cash flow is projected to continue-and worsen. …

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