Trustees of the American Federation of Musicians’ pension fund told participants today that they will submit a second application to the U.S. Treasury Department to reduce benefits to prevent the Fund’s insolvency within the next 20 years. If approved, the proposed benefit reductions would go into effect on January 1, 2022, and participants and beneficiaries of deceased participants will be notified early next month of their estimated reduced benefits — some by as much as 40%.
The Fund, which is currently in “critical and declining” status, is in trouble because as of March 2019, its $3 billion in liabilities exceeded its $1.8 billion in assets, meaning that it was underfunded by about $1.2 billion.
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Last December, the American Federation of Musicians and Employers’ Pension Fund submitted its first application to reduce benefits under the Multiemployer Pension Reform Act (MPRA), but in August, the Treasury Department denied the application for technical reasons related to assumptions used in the application. Specifically, Treasury said that two elements of the application’s actuarial assumptions – the mortality rate assumption and the new entrant assumption – “are not reasonable under the standards in the regulations.”
In seeking to reduce benefits, the Fund’s trustees said last year that nearly half of its more than 50,000 participants would have seen some reduction of benefits by early next year if its original application had been approved. The Fund has said that some participants will be harder hit than others by the proposed reductions. Pensioners who are 80 years old and older, for instance, won’t see their pensions reduced at all, nor will those who receive disability pensions. Those who receive relatively small pensions won’t be affected either, or will be affected the least. The reductions will fall mostly on younger retirees – current and future – and on those who receive the largest pensions.
The Fund said today that its new application, if approved by Treasury, “will address the technical issues that were the basis for the denial of the first application. However, the basic structure of the reduction will be the same. We estimate that the number of participants who receive no reduction at all under the second application will be about the same as it was under the first application.”
“We understand that reducing benefits will cause a significant hardship for many participants and beneficiaries,” the Fund said. “Unfortunately, these reductions remain the only way to prevent the Plan from becoming insolvent. Faced again with the difficult decision to either let the Plan become insolvent or to reduce benefits, the Trustees determined that it was far preferable to keep doing everything in their power to save the Plan. Indeed, the need to take action is even more pressing now than it was when the Trustees submitted the first MPRA application. The Covid-19 pandemic and related industry shutdowns have significantly reduced employer contributions needed to support benefit payments.”
“After many hours of consideration,” the Fund said, “the Trustees concluded that the structure of reductions proposed in the first application continues to be the most equitable way to address this no-win situation,” including “Eliminating some of the Plan’s unique benefit features that were instituted when the Plan was in excellent financial condition and could afford them, such as the early retirement subsidy.” Like the first application, they said, the new application, if approved, will have “a maximum benefit reduction of 40%. No participant can have his or her benefit reduced more than this amount.”
The trustees also said they are still holding out hope that Congress – or a new President – will come to the rescue of many of the nation’s troubled multi-employer pension plans so that the reductions they’ve proposed can be withdrawn, or rolled back.
“Since May,” they said, “the fate of multiemployer pension relief had been tied to Congressional negotiations over additional government stimulus support in response to the Covid-19 pandemic. When those negotiations broke down this fall, pension relief legislation was also put on hold. We are watching closely to see if there will be an opportunity to pass legislation during the ‘lame duck’ session of Congress this year, or if this matter will need to be taken up in 2021 under a new President and Congress. We will continue to advocate strongly for a legislative solution that protects the (Fund) and your pension benefits. As always, if Congress passes and the President signs legislation that allows us to withdraw our MPRA application or roll back benefit reductions while still avoiding insolvency, then the Trustees plan to pursue that course.”
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