How Did Those Trustees Get There?
Updated: Feb 1, 2019
A closer look at who serves on multi-employer funds reveals nonsalaried trustees, who are from the the industries that actually contribute to the fund. Half of the trustees are from employers who contribute to the fund and half are from the union. A closer look also reveals a number of expert professionals in the actuarial, legal and financial fields who advise the trustees.
The actuary or actuarial consultant. This person comes from a firm that is hired by the trustees. Actuaries crunch numbers. They make predictions about funding levels based on the demographics of the population, the expected contribution income and the expected return on investments. Sometimes they are asked to run mathematical models to see what the result might be if different assumptions are made or if a policy is changed. The actuary certifies the funding status (green, yellow, red, critical and declining). The actuaries are the math people.
The attorneys. Generally there are two legal firms representing the fund, one hired by the union trustees and one hired by the employer trustees. These folks keep the trustees informed of current law, regulations, changes in regulations and what the required communications with participants must say. They defend the fund in the event of a lawsuit. They are the rules people.
The investment advisers. These folks give the trustees advice on how to invest the money in the trust fund, based on what the goals are. Depending on the goals, they might advise more or less risky investments and they will evaluate all the different financial instruments available. They keep an eye on the asset allocation and notify the trustees if the target allocation is not where it should be. They are the predictions people.
The administrators and staff. These folks carry on the day-to-day business of the fund. They process payroll reports, match them with musician information, check the contributions to the fund, send out mailings and much more. They also work with the auditors and accountants. They are the front-lines people.
There are also outside auditors who check the fund’s financial records and statements regularly and sign off on the IRS 5500 forms filed with the Department of Labor.
These professionals bring an array of skill sets and expertise. The one thing they all lack, however, is direct experience in the industries that are paying into the fund. This is where the trustees come in. Both the employer and union side comprise folks who have direct industry knowledge and experience, whether as a producer of movies, an owner of a chain of grocery stores, a truck driver, pipefitter or recording musician. Because they are attached to the industries, both the employer and union trustees are stakeholders; the employers because they are contributing to the fund on behalf of their employees and carry liability for their vested benefits and the union members because they are vested participants in the fund. None of the trustees are salaried.
Specifically in the case of the AFM-EPF, three out of eight seats on the union side are required to be filled by rank-and-file musicians who are not international or local top officers. The AFM player committees are consulted about who will fill those seats and the individuals who are most likely to be selected will have demonstrated their standing among their peers by having been elected officers of the player committees or by having been elected to negotiating committees, or otherwise chosen by their peers to be representatives.
The governance structure of a fund such as this goes back to Section 302 of the 1947 Taft-Hartley labor law. Most of Section 302 lists all the ways employers are forbidden to give money to labor unions. Subsection (c)5 lays out the exception to those rules. Employers in the industry that the union covers can contribute to a trust fund for pension, health or welfare, for their employees, as long as “employees and employers are equally represented in the administration of such fund.”
The governance structure is also covered in the 1974 Employee Retirement Income Security Act (ERISA):
“2) For purposes of this subchapter, the term "named fiduciary" means a fiduciary who is named in the plan instrument, or who, pursuant to a procedure specified in the plan, is identified as a fiduciary (A) by a person who is an employer or employee organization with respect to the plan or (B) by such an employer and such an employee organization acting jointly.”
In other words, the folks making the decisions on construction worker funds are construction companies and construction workers. On our fund it’s the entertainment employers and the musicians. The “expert” advisors do not have a direct interest in the fund and therefore do not make the decisions.
Text of the AFM bylaw:
Article 22, SECTION 7(a) As a matter of policy, at least three rank-and-file musicians, selected in consultation with the Player Conferences Council and the Freelance Musicians representative(s), shall be included among the Trustees appointed by the President to the Board of the American Federation of Musicians and Employers’ Pension Fund (U.S.). SECTION 7(b). To give effect to and fulfill the requirements of this Section, the President, upon learning of a Trustee vacancy or Trustee resignation among the three rank and file musician Trustees shall, at Federation expense, convene as soon as practicable a conference call with the principal officer (or his/her designee) of each Player Conference and Freelance Musicians to initiate the above consultation and selection process. This consultation process shall be repeated for each succeeding vacancy until the number of rank-and-file board members required in subsection (i), above, is satisfied.SECTION 7(c). For purposes of this Section only, rank-and-file musicians are defined as individuals who, at the time of their respective appointments, (1) are vested in the American Federation of Musicians and Employers’ Pension fund (U.S.); (2) received AFM-EP-covered wages for the rendering of musical services in each of the three years immediately preceding in an amount at least equal to that required by the Fund to accrue one year’s vesting credit for each of the three years; and (3) are neither Federation officers nor hold major elected or appointed union office in an AFM Local (i.e., President, Secretary, Treasurer, Executive Assistant).
Full text of Taft-Hartley:
ERISA Section 3(37), 29 U.S.C.