Musicians Union’s Pension Plan Asks Treasury Department For Permission To Reduce Benefits In 2021

American Federation of Musicians and Employers’ Pension Fund

Trustees of the American Federation of Musicians’ troubled Pension Plan have asked the U.S. Treasury Department for permission to reduce thousands of musicians’ monthly pension benefits in order to keep the “critical and declining” Fund from becoming insolvent within the next 20 years.

The Plan is in trouble because as of March, its $3 billion in liabilities exceeded its $1.8 billion in assets, meaning that the Plan is underfunded by about $1.2 billion. Ironically, many musicians facing pension cuts were once employed on films executive produced by Treasury Secretary Steven Mnuchin, who was a prolific movie producer and investor before joining President Donald Trump’s Cabinet in February 2017.

See the trustees’ FAQ here.

U.S. Department of the Treasury

The trusties, who determined that the Plan — known as the American Federation of Musicians and Employers’ Pension Plan — had entered “critical and declining status” last April, told their participants today that “This means that the Plan is projected to run out of money to pay benefits – or become ‘insolvent’ – within 20 years under the Multiemployer Pension Reform Act (MPRA), a law enacted in December 2014. Under MPRA, if a fund enters critical and declining status, the trustees can apply to the U.S. Department of the Treasury for approval to reduce participants’ benefits by an amount sufficient to avoid insolvency.

“Although reducing earned benefits will be painful, the trustees have submitted an application to do so because the alternative of running out of money would leave participants with a much greater benefit reduction in the future. The trustees have no other viable way to save the Plan for the long term – that is to say, realistic investment returns and contribution increases will not avoid insolvency.”

According to the trustees, nearly half the Plan’s 50,782 participants are expected to see some reduction of benefits beginning early next year, and some will be harder hit than others. 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 trustees estimate that 22,753 participants (44.8%) are expected to see reductions of 20% or less, with 930 (1.8%) seeing reductions of 20-40%. They estimate that 27,099 participants (53.4%) won’t see any reductions at all.

If approved by Treasury and by the participants, the benefit reductions, which will kick on Jan. 1, 2021, will affect a broad mix of musicians who work or have worked in the film and television industry under the union’s contract with management’s AMPTP; on sound recordings; at symphonies and operas; on Broadway, and in regional and traveling musical productions.

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The decision to apply to the Treasury Dept. for benefit reductions “was painful, but it is essential that we do everything possible to put the Plan on stronger financial footing,” the trustees told participants today in personalized statements telling each participant how much, if any, their benefits will need to be reduced to keep the Plan solvent.

“Doing nothing also results in benefit reductions,” they said. “This isn’t a choice between reducing benefits and not reducing benefits. It is a choice between reducing benefits now, or reducing benefits later, but to a greater extent. No one wants to reduce benefits. But, if we don’t reduce benefits now, at some point in the future, the Plan won’t have enough money to pay benefits.”

The Pension Benefit Guaranty Corporation (PBGC), which was created by an act of Congress in 1974, is supposed to protect multiemployer pension funds like the AFM’s, but facing a record-breaking deficit of more than $65 billion itself, has said that it could run out of money by 2025.

“The PBGC’s multiemployer program is projected to become insolvent by 2025,” the trustees noted. “If that happens, then there will be little to no PBGC guarantee to fall back on. In this scenario, if the Plan became insolvent, then participants’ benefits would be reduced dramatically. That’s why it’s so important for us to ensure that the Plan avoids insolvency. While there is no doubt that benefit reductions for participants will be difficult, they cannot be worse than the catastrophic reductions that would take place for participants if the Plan and the PBGC both ran out of money.”

And even though the PBGC’s own financial problems make it an unreliable guarantor – with more than 100 multiemployer pension plans across the country currently facing insolvency – they’re required to pay into it, regardless of their funding status. For 2020, multiemployer plan have to pay $30 to the PBGC per plan participant – nearly quadrupling from $8 per plan participant in 2007. For the AFM Plan, that means that its required PBGC premiums increased from approximately $400,000 a year in 2007 to $1,450,000 last year “due to the enormous increases in the per-participant annual premium,” the trustees said.

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“Some legislative proposals in Congress have included significant increases to PBGC premiums, including a November 2019 proposal by Senators Charles Grassley and Lamar Alexander,” the trustees said. “If passed, such increases would drain the assets of troubled plans like the AFM Plan even faster, thereby hastening possible insolvency. The trustees oppose these increases.”

“We have a real opportunity to save the Plan,” the trustees said. “There are a number of other financially troubled plans that are too far gone to even apply” to the Treasury Dept. for benefit reductions. “We believe that our proposed reduction will reposition the Plan to be around to pay benefits to current and future retirees for decades to come.”

But that will require the Plan’s participants to approve the reductions if Treasury gives the okay. And if everything goes according to plan, Treasury will post the AFM’s application on its website on Jan. 29, and will have completed its review of the application by Aug. 11, approving or denying it. If the application is approved, the Treasury Dept. will mail ballots to all participants and beneficiaries of deceased participants within 30 days of approval. Voters will then have at least three weeks to cast ballots, with those who don’t vote being counted as “yes” votes to reduce benefits. Treasury must then announce the outcome of the vote within seven days of the voting deadline, and for a plan of benefit reductions to be voted down, a majority of eligible voters must vote against it, meaning that a low-voter turnout will guarantee approval.

It’s also possible that Treasury will identify changes that need to be made in the application before it can be approved. In that case, the Plan may withdraw the application and resubmit it, which would restart the timeline. This has occurred for many other pension funds that ultimately have had their applications approved. “To reduce the likelihood of this scenario,” the trustees said, “we have had numerous communications with Treasury about its expectations.”

“Nobody wants to see benefits reduced,” the trustees stressed. “But unless Congress steps in with a legislative solution, something it has so far refused to do, the options boil down to reduced benefits now or running out of money and having a much higher reduction in benefits later. We understand that participants don’t want to hear that we need to take away a portion of the pension they have been relying on, but that’s the awful choice we face.”

This article was printed from https://deadline.com/2020/01/musicians-union-pension-plan-asks-treasury-department-for-permission-to-reduce-benefits-1202822935/