Mikael Elsila  

Our Pension Pain: AFM Pension Fund announces a recovery plan. But what does it mean for musicians?

Mikael Elsila
April 2, 2019

Editor's Abstract (Click to Hide)

The April issue of Allegro, New York City local 802's monthly newspaper, focuses on the state of the AFM pension. Mikael Elsila, editor of Allegro, describes how the current economic situation impacts pension benefits for individual AFM members. He also explains how the fund works in terms of vesting, multipliers, employer responsibilities and how to get a pension forecast from the fund.

See the companion article by Harvey Mars, 802 member counsel, where he describes in detail but plain language the legal ramifications of the AFM-EP fund being in the red zone.

- Ann Drinan

The following article first appeared in the April 2010 issue of Allegro, the newspaper of the New York City musicians’ union (AFM Local 802). It is reprinted with permission. Email the author at Allegro@Local802afm.org, or for more background, see www.Local802afm.org.

Musicians are hurting right now, perhaps more so than at any other time in recent history. The Great Recession is affecting almost every aspect of the lives of our members. Unfortunately, this includes our pension fund as well.

First, the good news – or, we should say, the not-so-bad news.

The first thing to know is that everyone’s pension is legally protected. Anyone who is drawing an AFM pension now will not see their pension cut – that’s guaranteed by law. The only exception to this would be if the fund actually went insolvent. But the AFM Pension Fund is not on the road to insolvency. In fact, the fund’s actuaries have predicted that the fund should remain solvent for at least the next 40 years, and, when the economy recovers, the fund should regain its health.

That’s the extent of the good news for the moment. The bad news is that the AFM Pension Fund is in red, or critical, status, according to a benchmark that Congress established in the Pension Protection Act of 2006. This means that the fund is required to create a “rehabilitation plan” to strengthen itself.

The plan includes two major provisions.

First, for those who retire in the future, certain benefits will be less than they used to be. Secondly, the pension fund will require employers to inject some money into the fund.

Let’s talk about both of these separately.

But before we do, it’s important to stress that the reason for this pension crisis has to do with the overall crash of the stock market. Everyone’s investments have tanked. From April 1, 2019 to April 1, 2019, the AFM Pension Fund lost about $800 million. To put it another way, in one year’s time, the fund lost almost a billion dollars.

There was no financial mismanagement and no “Bernie Madoff” lurking behind the wings. Our fund is in the same boat as thousands of other pension funds all over the country, and indeed the world.

As to what caused the stock market crash in the first place, that’s beyond the scope of this article, but members should know that we support greater financial oversight of banks and the trading market. Risky investments like “derivatives” and bundled mortgages must be better regulated. Taxpayers shouldn’t have to pay for Wall Street’s gambling. We must do our best to prevent a crash like this from occurring again, if it’s in our power as a society. It affects everyone’s bottom line.

Lower payout

As stated above, musicians who are already drawing a pension will not see any cuts at all.

For those who want to retire in the future, the news is a bit harsh. As of Jan. 1, 2010, the pension “multiplier” was cut to $1. The multiplier determines pension payout. A $1 pension multiplier means that for every $100 you earn in pension credits after Jan. 1, 2010, the pension fund will pay you $1 per month if you retire at age 65.

Let’s say you’re a 20-year-old musician who just started playing union gigs this year. Over the next 45 years, you occasionally sub on Broadway, perform with some freelance union orchestras, and do a smattering of other union music work. You eventually build up total pension credits of $100,000, which might be considered a middle-of-the-road pension figure. That $100,000 will earn you a monthly pension payment of $1,000 per month, or $12,000 per year, starting at age 65. Now consider that in 2003, before the pension plan started reducing the multiplier, your pension would have been $55,800 annually. The difference between a $12,000 annual pension and a $55,800 annual pension is quite stark. That’s the effect of this crisis.

Of course, when the economy recovers, the union will vigorously push the pension fund to raise the pension multiplier again, so the future remains an open book.

Early retirement cuts

Another cut is that early retirement benefits earned before 2004 are being reduced. (In our pension fund, “early retirement” means if you retire between 55 and 64.)

Let’s say you retire early, at 55. Previously, for the pension contributions you earned prior to 2004, you would have actually earned more money between age 55 and your death than if you had retired at age 65. That is, the total amount of money you received was greater because the pension fund actually subsidized early retirees.

So why didn’t everyone retire early? The catch is that if you retire early, you have to give up any tenured chair you may currently hold. And of course, your monthly check is lower at age 55 than it would be at age 65. But over time, you earned more pension.

Not anymore. Effective Feb. 24, the pension fund completely stopped subsidizing early retirement. Now if you retire early at age 55, all other things being equal, you will receive the same amount of money over time as if you retired at age 65. The incentive to retire early has ended.

For those members who were at the Feb. 17 membership meeting at Local 802, you may have thought that there was still time to retire early under the old subsidies. The pension fund closed that door almost immediately. There is no way to retire early now under the old subsidies.

Those are the big cuts that the pension fund is making to members. There are a few other reductions in benefits that were sent in an official email from the pension fund dated March 1. (We’ve posted a copy at www.Local802afm.org and you can also find it at the pension fund’s Web site at www.afm-epf.org.)

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