Our Pension Pain…

Fund announces recovery plan. But what does this mean for musicians?

Volume CX, No. 4April, 2010

Mikael Elsila

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, 2008 to April 1, 2009, 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 e-mail from the pension fund dated March 1. (We’ve posted a copy up at and you can also find it at the pension fund’s Web site at

Employers feel the pain

Now let’s talk about how the pension situation will affect employers. Every employer who pays into musicians’ pension – including Broadway producers, the New York Philharmonic, all of the Lincoln Center orchestras, all of the unionized classical ensembles, club date orchestras, and film and TV studios – is bound by the pension fund’s rules and by federal law. These regulations allow the pension fund to charge employers a surcharge in the case of a fiscal emergency. That is exactly what’s about to happen.

The pension fund may charge our employers a surcharge of either 4 or 5 percent in 2010 and 9 or 10 percent in 2011. This means that if an employer makes pension payments of $100,000 per year to musicians, that employer will have to pay an additional $4,000 or $5,000 in 2010 and $9,000 or $10,000 in 2011. (The employer can choose the lower figure if it agrees to put the money directly into musicians’ pensions; otherwise the money would go straight into the pension fund without crediting musicians at all.) More surcharges to employers may be in the distant future, but it’s too soon to tell.

Why doesn’t an employer just say, “To heck with it! I’m not going to contribute anymore to musicians’ pensions; I’m pulling out of the fund!”

First of all, employers have agreed to pay pension; it’s in our contracts. Under labor law, employers must negotiate in good faith. They can’t just unilaterally stop paying pension.

Secondly, there is something called “withdrawal liability” that exists when a plan has an “unfunded liability” like ours now has. If employers want to opt out of our pension plan, they will have to pay their share of the plan’s current unfunded liability. To a large employer, this could mean millions of dollars. It’s cheaper to stay in the fund and wait out the recession.

What it all means

When it comes to financial markets, anyone who tells you they can predict the future should be treated with skepticism. Certainly, all of us dearly hope that the economy recovers soon. It is affecting all of our lives drastically. If the economy recovers soon, then the pension fund’s recovery plan can be modified and softened. If we get a strong stock market again, the pension multiplier can be increased again. Things might start to feel normal.

For the moment, the pension fund’s financial condition means a great deal to the union.

First, it means that the union has less leverage to bargain for better wage increases for musicians. If employers are forced to pay a surcharge or increased pension contributions to the pension fund, then they will cry foul if the union pushes for big wage increases.

The other result is that since our pension fund is paying so low – historically speaking – many musicians may ask, “Why have a pension fund at all? Why not just put money into our own private investments?”

This second question does have some answers.

First, we assume that the economy will recover and that the pension fund will regain its strength. Even if the fund regains just a little bit and the multiplier doubles to $2 from $1, that rate of return beats any private investment that you can think of.

Second, a pension fund is enforced savings. Let’s say that there was no pension fund at all and that union gigs gave you a little cash to invest on top of your performance wages. How many people would actually invest this money? Most of us would spend it if needed to spend it. A pension fund keeps this money safe for you.

Third, private investments are not guaranteed. You could invest in the stock market your whole life, and on the day that you plan to retire, the market could crash, leaving you with nothing. Our pension fund guarantees you a monthly pension. For those musicians who are retiring now, their pensions are protected under the old rates, which were historically high. Even for new musicians who are just starting to build up pension, those musicians will have guaranteed monthly payments when they retire.

The pension fund is not perfect, but it’s still a lifeline.

We want to hear from you. E-mail your opinions and questions to For more on the legal aspect of the Pension Protection Act, see Harvey Mars’s article in this issue.