President’s Report

Pension Fund Arbitration Produced a Classic Split Decision

Volume CII, No. 3March, 2002

Bill Moriarity

The decision of the arbitrator in the AFM & EP Fund deadlock arbitration (see the President’s Report in the July/August 2001 Allegro and the article in the September 2001 issue) is in – and, unhappily, it is a classic arbitration split decision. The union side prevailed on the issue of the vesting eligibility threshold, and the employer trustees won on the Pre-and-Post Retirement Death Benefit modification.

In deciding that the current vesting eligibility (of at least $375 in covered earnings for a quarter year’s vesting service, $750 for a half year’s service, $1,125 for three-quarters of a year and $1,500 for a full year’s service) remains in place, arbitrator Norman Brand rejected all three employer trustee arguments. In doing so, he accepted the union trustees’ position that covered earnings – earnings on which pension contributions are made – cannot be taken as a true barometer of “attachment to the industry,” pointing to the number of prominent musicians, especially in the chamber music and jazz fields, who are obviously attached to the industry yet receive low pension contributions.

He rejected the employer trustees’ arguments that the current earnings threshold is low by general and industry standards when compared to other entertainment plans, noting that “[T]he only statement that can be made with assurance is that each plan reflects the realities of work in the craft or profession it covers.”

He also found no validity in the employer trustees’ argument that the purpose of the Pension Plan is to provide complete income substitution, saying that “testimony shows that many professional musicians work a multiplicity of jobs in order to piece together a living. One of the witnesses described the life of a professional musician in his area as ‘driving for dollars.’ They drive between regional orchestras to play or substitute in order to get enough services to make a living. For many, the pension earned by their ‘covered earnings’ is only a portion of what they are trying to put together for retirement.”

Finally, he stated that the employer trustees’ position that the administrative cost of supporting small pensions is “excessive” is not supported by any direct data, observing that “[i]f the vesting threshold were raised, much of the administrative cost would remain the same, since all of the contributions have to be recorded and tracked over the years. The only direct difference would be that half the musicians for whom contributions were made would get nothing.”

While this was very good news, especially for a local such as 802 that attempts to organize new workplaces, the decision on the death benefit motions was sadly different.

The employer trustees had argued that both the pre- and post-retirement death benefits were inappropriately generous and represented a “windfall” to beneficiaries. As a remedy they proposed, and Brand agreed, that the current provisions providing for a multiple of the age 65 benefit regardless of the deceased’s age at time of death be changed. The pre-retirement benefit would provide a payment equal to 100 times the monthly benefit either at the time of death or at age 55, if death occurs earlier. The post-retirement benefit would provide a payment of 100 times the monthly benefit at the time the pension started.

Brand found that under the Plan as currently structured, these benefits are a little more than three times the value of an individual’s total contributions for someone 55 years of age or under. The changes will lower that to 2.3 times the contribution, a diminution of approximately 25 to 30 percent.

In his opinion, Brand states, “The change to the pre-retirement death benefit proposed by the motion would still provide a more generous benefit than the qualified pre-retirement survivor annuity required by ERISA or any pre-retirement death benefit in the industry.” Later he says, “The number of vested participants is known. They will all be better served by having the pre-retirement death benefit made more consonant with industry standards and the savings made available for Fund stabilization or benefit improvement.” Throughout his opinion, it is obvious that he accepted the employer trustees’ argument that “The purpose of the Fund is to provide pensions, not life insurance.”

The implementation of these changes – when they become effective and whom they may affect – will, no doubt, be a subject of discussion at the trustees’ meetings on Feb. 19 and 20. In his final point in the Award, Brand says, “The Trustees will determine when the changes in death benefits can be made, taking into account administrative practicability. In accordance with the stipulation of the parties, if the Trustees are unable to agree on the implementation date of the changes, I retain jurisdiction to issue a supplemental Award.”


Many of you have inquired about the Pension Fund’s financial status, in light of the recent economic downturn. Fund Executive Director Maureen Kilkelly has sent me documentation showing that, as of March 31, 2001, the Fund’s investments at fair (market) value were worth $1,576,067,625; on Sept. 30, 2001, at the approximate low point of the market, they were valued at $1,463,560,370, a loss of about $110 million. However by Dec. 31, 2001, the latest date for which numbers are available, the investments were valued at $1,647,324, 428. Even in a generally falling market, the Fund’s investment strategies have paid off, leading to a continued long-term increase in its market value.