The New York-based American Federation of Musicians and Employers’ Pension Fund has started the year on a down note as it told its participants that it is looking to cut benefits in order to stave off insolvency.
The fund, which has nearly 51,000 members, has applied to the US Treasury Department to reduce earned benefits under the Multiemployer Pension Reform Act (MPRA). The plan has been certified to be in “critical and declining” status, which means it is projected to run out of money within 20 years. If approved, the benefit reductions would go into effect on Jan. 1, 2021.
More than 53%, or just over 27,000 participants, would see no reduction of benefits, while just under 45%, or almost 23,000 participants, would have their benefits reduced by as much as 19%. Less than 2%, or more than 900 participants, would have their benefits reduced by between 20% and 40%.
The fund has faced “a combination of daunting financial challenges over the past several years” particularly from investment losses during the Great Recession of 2008-09. It said sharply rising benefit payments have increasingly exceeded contributions. It also blamed a lack of action by Congress to solve the multiemployer pension funding crisis.
“For more than two years, Congressional leaders have been undertaking negotiations for a bipartisan legislative solution that would provide financial assistance to our fund and the more than 120 other multiemployer pension funds across the nation,” said the fund in its newsletter for participants. “The trustees have been advocating for such legislation, but we also know that we cannot sit idly by waiting for it to happen.”
Although the fund called applying for a cut in benefits “a painful decision,” it said its only other option would be to do nothing. That would let the multiemployer pension lifeboat, the Pension Benefit Guaranty Corporation (PBGC), bail the fund out. The statement said if that that were to happen many participants would face an even larger reduction in benefits than under its plan.
The fact that the PBGC is facing its own financial crisis was also a factor in the fund’s decision to seek a reduction of benefits.
“Absent a change in the law, the PBGC currently projects its multiemployer program will become insolvent by the end of its 2025 fiscal year,” said the fund. “If the PBGC were to become insolvent, it would not be able to pay the full benefit it guarantees. In that case, your benefit could be much less than even the current PBGC guaranteed amount.”