I recently received a memo, “Important Information from the Board of Trustees of the American Federation of Musicians and Employer’s Pension Plan.” Basically, it says the AFM pension plan – my pension plan, your pension plan for anyone reading this – is up the creek without a paddle.
Allegro readers may remember my letter published in the October 2014 issue in which I asked pointed questions about the Trustees’ Annual Funding Notice and Notice of Critical Status. I’m proud that my letter provoked an open dialogue by the trustees about this important issue.
Now, although I appreciate this new information, we are told:
“It is possible that we will be in critical and declining (italics added) status in the future, even as early as next year.”
It goes on to say that:
- The plan earned a 5.2 percent return on market value of assets for the year ending in March 2015, and -0.1 percent for the year ending in March 2016.
- The benefit multiplier remains at 1, and future reductions to benefits are likely.
- The plan’s investment performance was managed by AFM-EPF’s 25 professional investment managers, five management trustees, five union trustees and an independent investment consultant/fiduciary.
- The plan is paying $14 million in administrative costs and $11 million in investment fees ($25 million in total).
I must ask: Why is an army of fund managers with a budget of $25 million dollars unable to turn the AFM-EPF around?
- Are high administrative/management fees eroding the plan’s assets?
- Is a slow, conservative investment style causing lost market opportunities?
- Are administrators and managers thriving at beneficiaries’ expense, while failing to reverse the plan’s decline?
- Is the future security of beneficiaries being squandered while the plan continues to demonstrate lackluster investment performance?
I manage my 401(k) myself for nothing and its return last year was 8.5 percent. It is not rocket science.
All AFM members saving for or now collecting pension benefits – old, young and in between – must be alarmed! We all must insist on responsible stewardship of our pension plan. We are told that we have a plan that “incorporates reasonable measures available under the law to address our situation.” But this explanation is inadequate and, in my view, unethical – even though it may be “legal.” Now is not the time for “reasonable” investment measures. Over-diversification is safe, but it may be sluggish in response to dynamic markets. Skillful, innovative and focused investment strategies are what is called for in order to reverse the plan’s “critical and declining” status.
Furthermore, poor investment returns should not be rewarded with hefty management fees drawn from beneficiaries’ pension contributions and the plan’s assets. I feel this is unethical.
The plan exists to provide for the retirement of beneficiaries, i.e., those who pay for it and are first entitled to draw from it. The welfare of beneficiaries must be prioritized, ahead of the six-figure salaries of three dozen administrators and managers.
LOCAL 802 PRESIDENT TINO GAGLIARDI REPLIES:
Local 802 understands the serious concerns expressed by Mr. Donelian and several other members in response to the pension fund’s recent letter. I, and all the Local 802 officers, participate in the pension fund, and our benefits are subject to the same challenges as those of our members. To address these concerns, we are devoting the next Local 802 membership meeting on Wednesday, Feb. 22 at 5 p.m. to this critical subject and have invited the co-chairs of the board of trustees and other representatives of the fund to join us. We urge you all to attend the meeting, and also to review not just the letter from the pension fund, but the related FAQs that are posted on the pension fund’s web site at www.afm-epf.org.
As a fund trustee, along with other union trustees representing the AFM on the fund and our management trustee colleagues, it is my job to oversee the fund’s operations and its investments. I take this duty very seriously. I believe that we have a prudent process in place for investing the fund’s assets, using passive and active investment managers, with an approximate overall investment fee of only 0.52 percent. However, despite our best efforts, the returns in the market place (measured as of March 31, the fund’s fiscal year) have not always matched our expectations. Nonetheless, you should know that among a universe of 20 Taft-Hartley pension plans with at least one billion dollars, the pension fund’s investment return for the year ending Sept. 30, 2016 ranked first. That does not eliminate the pain of the losses in other years, but, hopefully, we are heading in the right direction.
Please come to the meeting on Feb. 22. We will try to answer all of your questions.