As Contract Vote Nears, IATSE Pension Plan Takes A Hit On Investments In First Half Of 2018

EXCLUSIVE: Rosy projections that the underfunded Motion Picture Industry Pension Plan will be 100% funded by 2032 already have hit an early speed bump.

That projection, made earlier this year by the Plan’s actuary, was based in part on the $3.8 billion retirement fund achieving a 7.5% return on investments – net of investment expenses – in each of the next 15 years. But despite a rising stock market, the Plan’s return on investments for the first six months of 2018 were down 0.4% and will be lucky to be in the black by the end of the year.

“With this year’s market activity, we are hopeful to break even at the end of the year rather than take a loss,” IATSE Editors Guild Local 700 national executive director Cathy Repola – who’s also a director of the Plan – told her members in a recent communique. “Year to date at the end of June 2018, we are at net pension investments returns of -0.4%.”

“Assuming that the market return assumption of 7.5% [net of investment expenses] is achieved in each future year, the Plan is scheduled to reach 80% funding by Jan. 1, 2023, and 100% funding as of Jan. 1. 2032,” actuary Mike Kaplan wrote in a recent letter to the Plan’s board of directors.

The Plan was forced last year to lower its overly optimistic projection of an 8% return on investments to 7.5%, Repola told her members, “because we had not reached our assumptions for many years, which resulted in the Plan’s actuaries refusing to certify 8% going forward.”

But that 7.5% return on investments is still considerably higher than the 7.15%  rate of return the Directors Guild has assumed for its pension plan’s investments, and the DGA plan – which was 92.7% funded as of last year – is the best-funded of all the Hollywood unions’ multi-employer pension plans.

“Nobody is claiming the pension plan will be insolvent, nor questioning the work of the plan actuaries nor the board of directors,” Repola continued. “Collective bargaining is the mechanism for securing additional funding into the MPI Plans. Getting successfully through the next three years – the term of this new IA agreement – may be achieved; however, a long-term solution is what was and still is needed.”

One of the main issues in the IATSE’s recent contact negotiations was a rescue plan for of the pension plan, which in recent years has been approaching “critical status” fast – in part because until now it has received no residuals payments from shows airing on streaming services such as Netflix and Hulu. They and others have devastated the DVD market, which does pay residuals to the Plan.

As of January 1, 2018, the Plan was only 66.3% funded to meet its future obligations, and under federal law, a plan is said to have reached “critical status” if its funding falls below 65%. It was 80.8% funded in 2015, 76.8% funded in 2016 and 67.4% funded at the start of 2017.

The financial crisis and economic downturn of 2007-08 is one of the reasons for this steady decline in funding because the losses on the Plan’s investments back then still are being felt today. In May, the Plan told its participants – which includes members of IATSE’s 13 West Coast studio locals, Teamsters Local 399 and the Basic Crafts unions – that a “significant factor in the current funded percentage is the recognition of prior years’ investment losses.”

The Plan noted that the Pension Relief Act of 2010, which was enacted in the wake of the economic crisis, allows pension plans to spread their losses over a longer period. “The MPI Pension Plan has availed itself of these provisions and continues to take into account losses gradually over time,” the Plan said. “As a result, at this point in time MPI anticipates another small decline in the funded percentage for January 1, 2018 followed by increases thereafter.”

As predicted, the Plan’s funding level did show a decline for the year ended January 1, 2018, but through the first six months of this year, it hasn’t seen a rebound, instead posting that 0.4% decline.

In May, the Plan noted that in 2016, it had earned “6.9% [gross] on its assets, which we believe is a reasonable rate of return based on the economic conditions in effect that year. During 2017 the Plan earned 11.1% (gross). The Plan is in compliance with all legal requirements including IRS requirements for plan funding. Accordingly, we want to assure our participants that we fully expect to continue to pay all benefits when due.”

.

Steve Dayan, secretary-treasurer of Teamsters Local 399 and one of 32 of the Plan’s directors, assured his members in May that the Plan is “well-funded and your contributions and payouts are safe.” The Plan’s recent declines in funding percentages, he told them, are “the remnants of the Plan recognizing the losses incurred back in 2007-2009 in our investments, which the government allowed us to amortize over several years. We are still reporting those losses even though our investments today are showing healthy gains.” The recent decline in funding percentages, he added “will resolve itself over the years.”

Teamsters Local  399 and Basic Crafts recently negotiated their own new film and TV contact, whose pension plan provisions are believed to be in line with the new IATSE pact. Leaders of Local 399 and the Basic Crafts have unanimously recommended ratification of their new pact, and electronic voting will begin on September 24. 

The Editors Guild was the only local opposed to the new IATSE contract, which established a new media residuals formula to help revive the Plan’s sagging fortunes. The Plan now says that this new contract, if ratified, will help it to be fully funded by 2032.

The Editors Guild, however, says that this new agreement falls far short of what’s needed to revive the pension plan’s fortunes. “Everyone understood we needed to achieve new residuals from new media to offset declining DVD sales and the reuse of features on free TV,” the Editors Guild said, “but the new media deal doesn’t do it.” The guild says that because of all the caveats, the new deal only “nominally creates a new residual.”

Funding of the pension plan, Repola has told her members, “was addressed to some extent, but in a way that is short-sighted and will undoubtedly leave us fighting in the next round of negotiations and has the studios putting in very little money over the next cycle. There was no additional hourly pension contribution negotiated. A new ‘New Media Residual’ is included, but it is not what the other guilds [DGA, WGA, SAG-AFTRA] received, and it is impossible to put a value on it.”

Repola also told her members that a shortfall of pension funding could adversely affect the union’s health plan. “If we fall short of the funding needed,” she wrote, “the producers have a legal obligation to fund the pension and ensure our minimum funding requirements are met. So, if there isn’t enough money in the pension plan to do so, money would have to be diverted from the health plan to the pension plan and the financial hit would directly impact the health plan.”

Repola has been the leader of the opposition to the new IATSE contract, which will be put to a vote of the members of the 13 West Coast studio locals beginning September 21, with return ballots due no later than October 9.

Backed by her local’s board and officers, Repola and IATSE president Matt Loeb became involved in a bitter war of words over her opposition to the pact. Loeb accused her of having “violated federal labor law” by just taking part in the negotiations because she’s an appointed, and not an elected, official. But that’s true of at least two other local leaders who were part of IATSE’s negotiating committee.

Repola fired back, saying, “In spite of what the IATSE leadership is indicating, it is my core belief that speaking up on behalf of issues that adversely affect the Local 700 membership is not only a right, but my primary responsibility as the national executive director.”

And after Loeb read her the riot act at a meeting of the IATSE general executive board last month, her local’s attorney accused him violating federal law – “with sexist undertones” – by infringing “upon her freedom of speech” as guaranteed by federal law.

Loeb and Repola, however, weren’t always at odds; at last year’s IATSE convention in Hollywood, FL, he presented her with the union’s Outstanding Woman Leader Award.