What Was that Solution Again?
Updated: Feb 1, 2019
More selective reporting
In April, 2018, a plan to save the AFM-EPF was floated by an outside actuary based on experience he had with the Local 355 Teamsters pension fund in Baltimore, a small, local fund he advises. The actuary’s name is Tom Lowman, a well-respected professional in his field and highly placed in the Society of Actuaries, but clearly unfamiliar with our industry and fund, though an inspection of our fund’s public records would have helped him know it better. He made it very clear he was hired by the group sponsoring the presentation and said several times he was was representing them. Perhaps because of that, his presentation to a large gathering of musicians on April 4, 2018 left out a number of relevant facts. Here is what he suggested:
Delay cuts for three years
Change the employer contribution yearly increase assumption from 2.5% to 6%.
Make the 6% a year happen across the board through bargaining with all of the over 5,500 employers for five years, or 6% a year for three years and 2.9% thereafter. (There has been a claim that “according to Congressional testimony, 6% is a typical increase.” This is more selective reporting to be analyzed in a different article).
Cut administrative expenses from $15 million to $13.5 million. This would reduce the admin as a percentage of the fund from 0.88% of assets to 0.8756%.
This is what Lowman told the gathering of musicians on April 4 about the small, Local 355 fund.He makes similar statements in a signed letter:
The Local 355 pension “was down to 49% funded after 2008.”
They “cut future accruals and other steps like AFM” “benefit changes, such as, what your plan went through...”
The Local 355 fund also got 6.6% contribution increases “almost right away,” with a combination of higher contributions and “good returns” they are now “at 89% and on their way to 100% funded.”
Here is data from the Local 355 fund’s IRS 5500 forms that was left out of Lowman’s presentation:
The accrual rate was reduced to zero from March, 2008 to March, 2009. This means that workers earned no benefits for the work they did for an entire year. The liability on the fund fell that year, something only happens when no one earns benefits. The AFM-EPF has never taken this extreme step.
The increases in employer contributions did not come “right away,” they got above 4% after four years. There was a spike in 2014 of 14%. The average works out to 6% because that spike brings it up.
Administrative costs rose and fell but overall they achieved a decrease from 2009 to 2016 of 0.5%. (He’s recommending a 10% cut in admin for the AFM-EPF).
“Good returns.” They averaged 8.4% returns since the financial meltdown. Better than AFTRA (8.1%),worse than the AFM-EPF (9.3%). Not a huge difference, not much of a factor.
None of the 5500 forms from 2009-2016 show a 89% funded level. The highest level was 81.8% funded in 2010, immediately after the year of zero accruals. Since then, the fund has hovered between 74.4% and 79.3% and is classified as “endangered” or “yellow zone,” according to the latest 5500 which is for 2016. It’s not likely the fund leaped from 79.3% in 2016 to 89% in 2017. Except for the calendar years 2008 and 2009 which included the “frozen accrual” year, the percentage has gone up and down by no more than about 4 points year to year.
For the record, the steps AFM-EPF took after the meltdown were reducing or eliminating “adjustable benefits”—such as early retirement subsidies or lump-sum payments. They also reduced the benefit multiplier to $1. The AFM-EPF has never reduced accruals to zero.
There also are key differences between our fund and theirs:
Theirs is a local fund which means Local 355 in Baltimore likely bargains all the contributions. Our fund is a national fund and bargaining happens at hundreds of locals. The AFM-EPF has struggled to get contribution increases from ICSOM orchestras which collectively comprise 40% of contributions but whose contracts are bargained at the local level.
As of 2016 the Local 355 fund had 4,180 participants. Our fund has over 50,000 participants
As of 2014 they have 67 contributing employers. Our fund has 5,572
Besides all the information left out of the presentation, there are problems with the solution.
Bargaining a large increase in pension contributions each year likely means a sacrifice in wages.
Younger players who are earning benefits at the rate of $1 will likely not agree to a wage freeze or cut so that older players on a $4.65 rate don’t have to take any cuts.
Broadway, a huge contributor (15%) has pension contributions determined by an arbitration award. The contributions have been as high as 22% when compared with wages. Opening that up to bargaining a 6% increase is not practical.
Lowman made a revealing statement at the end of his presentation that was mumbled so badly, many folks probably missed it.
“I can do the math, someone else has to do the bargaining, my priority is to protect the retirees.” This sounds like one-way thinking about retirees. In many Teamsters funds, retirees are collecting a very modest benefit. But we have a situation in our fund where the contributions of one generation are worth a lot more than the next, not because they worked harder, but because of when those contributions were made and what the multipliers were. Sacrificing the interests of one generation in favor of another is likely to lead to divisiveness.
A better approach is to find a way to get income into our fund that is not tied to benefits. The fund needs hundreds of millions of such income so the solution won’t be easy. The solution offered by Tom Lowman looks very unlikely to provide that solution.
Sources:
IRS 5500s for Local 355 Teamsters 2009-2016
Tom Lowman letter dated April 4, 2018
Audio recording of the April 4, 2018 meeting
http://www.tdu.org/news_baltimore-local-355-members-organize-pension-rights
http://www.tdu.org/news_baltimore-fund-cuts-early-retirement
http://www.horizonactuarial.com/blog/irs-releases-election-and-notice-procedures-for-wrera