The American Federation of Musicians and Employers’ Pension Fund again has applied to the U.S. Treasury Department for permission to reduce benefits for nearly half of its 51,521 participants. The Plan is currently in “critical and declining” status, and is projected to run out of money to pay benefits within 20 years.
Under the Multiemployer Pension Reform Act, pension plans that are “critical and declining” can apply to Treasury for approval to reduce participants’ benefits by an amount sufficient to avoid insolvency. The Fund is in trouble because as of March 2019, its $3 billion in liabilities exceeded its $1.8 billion in assets, meaning that it’s underfunded by about $1.2 billion.
Back in August, Treasury denied the Fund trustees’ first request to reduce benefits, saying 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.” If approved this time, the benefit reductions would go into effect on January 1, 2022.
If Treasury approves the plan, 55% of participants won’t receive any benefit cuts, while some will be harder hit than others. According to the trustees, pensioners who are 80 years old and older 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 chart below shows how many participants will be affected, and by how much, if Treasury approves the Fund’s new plan.
Documents that have now been unsealed following the $26.85 million settlement of a class-action lawsuit last March suggest that the Fund may have downplayed the severity of the problem for years.
In a 2018 deposition, a former consultant to the Fund said that he “was alone among the trustees who had been going out and talking to various musical groups, and in talking to those musical groups, I had tried to walk a fine line between telling them the exact status of the fund and give them the message that we were working on some of these issues and that we were not immediately going insolvent, but we had time to work on these kinds of issues. But yes, we did need to give some kind of a positive message to the participants to keep them basically from running towards the exits.”
He insisted, however, that he “always told them that we were in very serious condition.”
And in another deposition, a former attorney for the Fund was asked about a 2017 email in which he wrote: “We shouldn’t give them information that makes us look bad.”
A spokesperson for the Fund said: “The depositions in question are from litigation that was settled in March 2020 and the settlement agreement approved by the Court in October 2020, without any admission of fault by the Trustees. We cannot comment on isolated excerpts taken without context from thousands of pages of testimony.
“The Trustees have always taken their fiduciary responsibility seriously and acted prudently in the best interests of all Plan participants. They will continue to maintain a singular focus on the vital mission of preserving the Plan’s solvency for all participants, retirees and beneficiaries, now and in the future.”
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