Questions and Answers About Our Pension Fund

President's Report

Volume 118, No. 1January, 2018

Tino Gagliardi

Tino Gagliardi

This report is a longer version of my column in this month’s International Musician. It includes that column, since I do not know if all of our local’s members read the International Musician, but I have expanded it to include additional information to respond to a succession of communications critical of the AFM Pension Fund, its trustees and staff and, I feel, specifically me, coming largely, though not entirely, from Local 802 members. I will attempt, to the extent possible, to address the issues raised in these communications and in meetings with our members, because I think it is important for you to have the facts. To this end, it is also important that you register on the Fund’s web site at so you can receive the important information provided by the Fund and stay up to date. Please know, however, that this is my report, and mine alone. I am not speaking on behalf of the other trustees or the Fund.

First, from my IM column:

When I became a trustee in August of 2010, the Fund was beginning its efforts to rebalance its finances and repair the damage done by the 2007-2009 recession. On March 31, 2009, we had an $800 million dollar gap between the pension benefits already earned by members – that is, our liabilities – and the market value of our assets. Over the next five years, the market value of the assets increased by $500 million to $1.8 billion, but our liabilities also increased, by $300 million, to $2.4 billion, narrowing the gap between our assets and liabilities by only $200 million (from $800 million to $600 million). That is the single biggest issue facing the pension fund.

In 2014, our actuaries provided an Asset-Liability Modeling Study that showed that over a 20-year period, our liabilities were projected to increase dramatically, such that even if we achieved our 7.5 percent investment return assumption, our funded percentage would be below 50 percent by 2034 and there would be a serious risk of future insolvency. On the other hand, the study showed that an investment allocation with a higher investment return target would reduce the probability of future insolvency. After lengthy discussion, the trustees increased the allocation of investments to some with the potential for higher returns, recognizing that an investment mix with a higher return potential (albeit with accompanying higher volatility) reduced the probability of insolvency. One of the investments we hoped would give us part of the additional return did not achieve its expected results (although today, it is one of the highest performing asset classes in the portfolio). This widened the gap.

So, we have a very serious imbalance in our finances. While there are other contributing factors that exacerbate our situation – the loss in union membership (and corresponding contributions) that mirrors the decline in our participant base; the aging of our population (common among all mature pension funds) reflected in the increase in pensioners and their longer lifespans; the growing amount of work not done under union contract – the increasing size of this gap between assets and liabilities is the most critical problem we have to solve. Resolving it is essential to our survival.

As an international executive officer, I participate fully in the AFM’s legislative and political activities. Matters concerning federal legislation are overseen by AFM President Hair and his legislative aide, Alfonso Pollard. I have worked with them consistently regarding the pension bills that have already been submitted, including the Butch Lewis Act introduced by Sherrod Brown and endorsed by the Federation. The pension fund’s actuaries are currently reviewing that bill to confirm that it would help the Fund. If so, I will urge my fellow trustees to fully support the bill, and I have every reason to believe that they will enthusiastically do so.

In the meantime, absent new legislation, the only way to address the imbalance between our assets and liabilities is to reduce the liabilities in a manner consistent with current law: the Multiemployer Pension Reform Act (MPRA). If the Fund enters “critical and declining” status, the MPRA allows the trustees to apply to the Treasury Department for approval of an equitable plan of benefit reductions. Should such reductions become both necessary and legally allowable, that plan would be designed consistent with the strict requirements of the law to reduce benefits of those under 80 and those not disabled, but in no case below 110 percent of the PBGC guarantees. If a participant’s benefit is already below the PBGC guarantee, that benefit cannot be reduced further.

Since it is unlikely at the moment that investment returns alone will resolve these funding issues, the other trustees and I must consider MPRA restructuring in order to preserve the pension fund, reducing benefits for some in order to maintain the viability of the Fund for all. While once the Fund could afford to pay the high benefits it promised to some of us, it can no longer afford to do that, and recognizing and addressing that fact appears at the moment to be the only option to preserve the Fund and as much of our benefits as possible. Since benefit restructuring under the MPRA cannot reduce benefits below 110 percent the PBGC guarantees, it is clearly preferable to relying on those PBGC guarantees, particularly in light of the PBGC’s own impending insolvency in 2025.

Photo: TZIDO via

Now to respond to various issues raised about the Fund and its administration. I will first list the alleged concerns, and then provide the facts.

  1. It has been said that the Fund is bleeding $120 million per year.

This amount is incorrect (the correct amounts appear below). But you should know that the amount above our contribution income which is taken annually from the Fund’s assets is necessary to pay the Plan’s pension benefits. The pension payments are the very purpose for which the Fund was established and exists.

  1. There has been much discussion about the Fund’s administrative expenses and investment fees.

Our administrative expenses for 2017, the last year for which numbers have been released, were $14 million. This is what was needed to operate this large, complex Fund. The Fund staff currently numbers 77, including the executive director and four department directors. Sixty of the employees work in the Finance and Benefits departments.

The Finance Department employs 35, including Director Will Luebking, and processes more than 50,000 engagement remittances from more than 7,000 employers on an annual basis, an average of 1,000 a week or 200 a day. All of these, to some degree, must be verified for signatory status; even the 15 to 20 percent of electronic remittances require validation. The rest require greater or lesser degrees of individual scrutiny; about 20 percent of these contain errors that need to be corrected before they can be processed by our data entry staff. The errors include missing social security numbers, incorrect math, missing musicians, and missing checks. These all must be reconciled before a remittance can be accepted and individual participant records updated. Without such work, we would not be able to be confident about the monthly pension accruals or amounts to be paid.

The Pension Department, with 25 employees including Director Vinni LoPresti, answers approximately 9,000 requests for individual pension information. Each inquiry begins with a certification to review and verify lifetime earnings and contributions. Approximately 900 of the requests result in a new pensioner added to the monthly pensions. The department also maintains and updates the demographic and beneficiary information for the participant base. All of this is audited for accuracy within the department. We are proud of the fact that only 0.2 percent of notices and other information the Fund mails is returned for bad addresses, but it takes people performing laborious work to achieve that result.

Maureen Kilkelly, our executive director, oversees the entire process. She works with the board of trustees on all important matters affecting the Fund. However, she does not have a voice or vote in any of the Fund’s investment matters. She has been unfairly criticized, and has received threatening, obscene and defamatory messages for decisions that she did not make. All investment decisions are made by the board and its Investment Committee, or by the investment managers retained by the Fund. The directors and their staff administer the operations of the fund office based on the plan of benefits and trust agreement and implement the policies and decisions of the board. None of them make policy decisions.

Maureen has been with the Fund for almost 24 years; first as a director of finance, then, beginning in 1997, as executive director. She is a certified public accountant and a certified employee benefits specialist. The Fund office, under her management, has been extremely well run, and has come in at or under budget in every year since 1997, except for those few years where we encountered major, unforeseeable events (such as, for example, the Philadelphia Orchestra bankruptcy). Her current salary is $352,561, which the Board believes is commensurate with her seniority, job duties and performance. She also earns approximately $41,000 in health insurance, travel and meal reimbursements for Fund business, and an AFM pension fund contribution of 8.72 percent on a salary of $245,000, the Fund’s limit on salaries for which contributions will be accepted. Her salary increases over the past years have been in the range of 2.5 to 3.5 percent. The 25 percent increase repeatedly referred to by those critical of the Fund was not an increase at all, but arises from the fact that prior to 2009, IRS reporting requirements provided for only salaries (direct compensation) to be reported on the Form 5500 Schedule C. For plan years beginning after that date, total compensation, which includes both salaries and benefits as well as expense reimbursements, is now reported. The benefits added about $67,000 in reported compensation. Maureen’s actual salary increase that year was 3.16 percent.

  1. Who will be the retiree representative and how will she or he be chosen?

MPRA requires a retiree representative to be appointed by the trustees if a Fund enters “critical and declining” status and applies for permission to reduce benefits. The retiree representative may engage actuarial and legal assistance, at the Fund’s expense, to aid in his or her work. We have received suggestions, including in an article published in Allegro, on criteria we should use in the appointment. If the Fund enters “critical and declining” status and the trustees decide to apply for approval of a plan of reductions, the trustees intend to select a retiree who will be recognized by participants as a thoughtful and independent participant in the Fund to work with the trustees to assure that the plan is equitable, as required by the law.

  1. Some have said that participants should have input on any MPRA plan of reductions.

The law provides for a participant vote on the plan of benefit reductions once they are approved by the Treasury Department, before they are implemented. The Fund intends to strictly adhere to the law, no more, no less, should we submit an application to reduce benefits. To do otherwise might jeopardize any chance of success we might have.

  1. Why have the Fund’s investment returns been so bad?

The last 10 years include the two worst years in our history, and we have not yet fully recovered from those recession years. We are in a difficult situation, but the returns have not been so bad, and they are getting better. For instance, look at the last eight fiscal years (April 1 through March 31), beginning with the year ending March 31, 2010, the year we began to partially recover like other institutional investors. Our net returns were:

Year     Return

2010    31.3 percent

2011    12.2 percent

2012    1.7 percent

2013    8.3 percent

2014    7.7 percent

2015    4.8 percent

2016    -0.5 percent

2017    11.5 percent

These numbers result in an annual geometric average return of 9.3 percent over those fiscal years. However, the Fund balance did not reflect the full benefit of these increases since in each year we also paid out benefits and expenses in excess of contributions in the following amounts:

Year     Payout

2010    $78.7 million

2011    $83.5 million

2012    $87.8 million

2013    $86.3 million

2014    $91.5 million

2015    $96 million

2016    $101 million

2017    $105 million

You can see that the need to pay pensions is growing and directly affecting our attempts to resolve the imbalance in our finances that I addressed at the beginning of this article through investment return.

  1. Some say that other entertainment industry funds are in better shape than our Fund.

We actually do not know enough about those other funds to know if the comparison makes sense. This is so even though the Fund has in the past referred to other funds in the entertainment industry as part of a “peer group.” Although we share some commonality in our collective business interests because our participants work for many of the same employers, our funds differ in significant respects.

Of the funds commonly included in the so-called “peer group,” all but one is administered along with a related health fund serving generally the same participants (and possibly even other related funds). The one pension fund in the group that is administered without a health fund became one just within this past year. In combined funds, the staff salaries and other administrative expenses are allocated between the two or more funds. For that reason, the administrators’ salary comparisons people are using are inaccurate; the salaries stated in those pension funds reflect only a part of the administrator’s salary. Further, in order to make meaningful comparisons, one would need to know and consider important elements such as these funds’ current funding levels, their funding histories, their interest assumptions, benefit levels, benefit structures, and participant demographics.

I also am aware of other funds (there are approximately 1,400 multiemployer funds, of which 114 are reportedly severely troubled), among them some of the biggest funds, like Central States Teamsters Fund and the Mine Workers Fund. These funds may prove to be equally, if not more, relevant in comparison to ours, particularly in terms of asset and participant size, declining numbers of active participants for whom contributions are being made, and an increasing retiree group living longer.

Our advisors tell me that the variables are so many that meaningful like-to-like comparison among various pension funds is practically impossible. What does all this mean? I believe the comparisons being circulated are without merit, and that those making them have frequently mischaracterized data provided by the Fund, presented it out of context, and made judgments that the data does not support while ignoring supported conclusions that don’t serve their agenda. More importantly, I can’t see how the comparisons are at all helpful or even relevant in finding a solution to the real and enormous problem we face that I described in my opening.

Like all of you, I am concerned about the safety of my pension and, like you, am worried about the pension fund’s future. But I assure you that every member of the Board of Trustees is doing our best to protect and preserve the pension fund into the future.