Big Changes in Pension Rules
Volume CIII, No. 12December, 2003
Printed at right is the notification distributed by the American Federation of Musicians and Employers’ Pension Fund regarding pension benefits cuts that will become effective Jan. 1, 2004.
The trustees of the fund took these actions, at the recommendation of the fund’s actuarial firm, the Segal Company, in response to three years of significant investment losses mirroring those losses experienced by the entire economy. In doing so they acted in accordance with their fiduciary responsibilities. As Mary Landolfi states in her article on page 6, “Although in other contexts the trustees may be adversaries, in regard to the administration of the fund they are bound by their fiduciary responsibility to the fund and its beneficiaries. There are severe penalties under federal law for any trustee who violates his/her fiduciary responsibility.”
One of the trustees’ primary fiduciary responsibilities is to protect the long-term financial health of the fund. During the three-year period from April 1, 2000 to April 1, 2003, the market value of the fund’s assets fell from $1.7 billion to $1.3 billion (it has since rebounded to about $1.5 billion) while benefits obligations for the same period increased to $1.9 billion.
These combined factors caused a potential “minimum finding requirement” shortfall beginning in April of 2006 that needed to be addressed.
In making the resultant cuts the trustees protected all current contributions and attempted to maintain the benefits multiplier at the highest possible rate. (Through Dec. 31 the multiplier remains at $4.65 per $100 of contribution; after Jan. 1 it changes to $3.50 per $100 of contributions.)
So all contributions for work done prior to the end of 2003 will result in pension benefits at the current rates while, for work done after Jan. 1, 2004, benefits will be based on the $3.50 rate and the new, reduced provisions described at right will be in effect. Remember, current pensions are unaffected by these changes!