As those members who subscribe to 802 Notes are already aware, I am working to schedule a meeting with representatives of our pension fund (AFM-EPF) for our membership. This would be a follow-up to the meeting which was held in April of last year, and I hope will become an annual or biennial event, improving communication between the Fund and its participants. (By the way, if you are not yet receiving 802 Notes, send an e-mail to 802notes@Local802afm.org and you will be added to the list).
Sure to be among the questions asked at this meeting will be at least one concerning the “Guide for Receiving Benefits before Normal Retirement Age,” which appeared in the Winter 2008 issue of Pension Fund Notes. This article outlined procedures the pension fund will follow to verify a participant’s eligibility for early retirement benefits and the extent to which participants may return to covered employment after taking early retirement without jeopardizing their early retirement benefits.
The AFM-EPF summary plan description has always required a participant to “retire” in order to begin a pension before reaching age 65. At the time that former president Bill Moriarity was a trustee, the Spring 1998 issue of Pension Fund Notes reminded participants about this longstanding rule and the fact that it was a violation of federal law to distribute benefits before age 65 to participants who had not in fact retired. That article set forth new AFM-EPF rules which stated that “a participant will generally be considered to have retired if he or she has no covered employment during the two months immediately following the commencement of early retirement benefits.”
It warned, however, that the two-month rule would not be sufficient to establish actual retirement if the time period (two months without covered employment) fell during the employer’s seasonal hiatus, if the participant did not fully terminate services with the employer, or if the participant did not intend to retire (for example, future engagements were scheduled at the time that benefits began.)
The most recent issue of Pension Fund Notes (Winter 2008) described in detail the way the AFM-EPF will enforce the rules for determining early retirement described in the 1998 Pension Fund Notes, but did not change those rules.
The reason for these rules is important. Making distributions earlier than the earliest date permitted under the Internal Revenue Code threatens the tax-qualification of the AFM-EPF with potentially dire consequences for the Fund.
In spite of these facts, the Pension Protection Act of 2006 (PPA 2006) appeared to offer some hope to participants who wanted to take early retirement and continue working in an existing job, because it allows a pension fund to make payments as early as age 62 even if no retirement has occurred. The AFM-EPF has not made this change, however.
Although I was not an officer in October 2006 when the trustees discussed PPA 2006, I believe that they made a wise decision by not adopting the lower age requirement for beginning a pension where there has been no retirement. I also trust that, when the facts are understood, the vast majority of our participants will agree.
The first and most important fact to consider when evaluating any decision about lowering the age requirement for beginning a pension is that, for all contributions earned before Jan. 1, 2004, early retirement benefits are subsidized.
That is, if you elect early retirement benefits, your benefits will be worth more during your expected lifetime than if you begin your benefit at 65 and, for that reason, more expensive for the Fund to provide than benefits that begin at age 65. This feature was provided by the trustees some time ago because, for many, employment in the music industry wanes before one reaches 65.
The actuaries compute the expected cost of providing these subsidized benefits to future early retirees based upon the relative numbers of participants in each age group who had previously taken a pension. Any decision made now which would encourage those relative numbers to change has an economic effect on the Fund and therefore a potential effect on the multiplier for future benefits. Obviously, if benefits are worth more at age 62 than 65 and the trustees allow participants to collect benefits and work at either age, everyone will choose to begin their benefits at 62 with a resulting negative effect on the economic health of the Fund.
Next one must consider the elephant in the room. At the same time the trustees were receiving information about the changes permitted by PPA 2006, they were also considering how much they would need to cut the monthly multiplier to meet the IRS’s funding rules. At that moment, the union trustees had to choose between advocating to keep the multiplier as high as possible or to lower the earliest age at which benefits can begin without retirement coupled with a resultant steeper reduction in the multiplier.
All of the trustees had an important responsibility — to run the Fund in a responsible manner that benefits the largest number of participants possible; that meant opting for the former choice. I continue to think that putting the focus on the multiplier was the right alternative. I hope that members reading this information will agree.