The Fund Enters Critical & Declining Status
In late May, the actuaries of the AFM-EPF advised that the Fund is entering “critical and declining” status, which means the Fund is projected to run out of money to pay benefits within 20 years. This has occurred because of the combination of investment losses during the Great Recession and rising benefit payments that increasingly exceed contributions.
As a result the Trustees have decided to seek permission to apply to the U.S. Department of the Treasury for approval to reduce benefits under MPRA by an amount sufficient to prevent insolvency. Although reducing benefits will be painful, the Trustees have decided to seek permission to do so because running out of money would leave all participants with virtually no benefits in the future.
The Fund is facing this painful decision due to a loss it took in the Crash of 2008 in combination with several other factors. These are some of those factors: (1) the loss in the downturn, (2) a commitment of paying benefits which outweigh contributions coming in, (3) a decreased number of participants for whom contributions are being made, (4) greater numbers of retirees receiving benefits, (5) and a rising mortality rate in the population. As a result, a critical time of decision for the Fund, as no level of income – for either investments or contributions – is currently attainable to correct the problem.
Given the stark circumstances, the Trustees are forced to choose between basically doing nothing (eventually running the fund into insolvency), and considering a plan to reduce current benefits for retirees.
The many faceted approval process for this application to the Treasury Department will take at least a year – if approved at all – and reductions would not begin until late 2020 or early 2021 at the earliest. There are many requirememtns for an application to be approved. MEPRA requires that reductions avoid insolvency but not be any greater than is necessary. They must be shared equitably, and many participants are protected from any reductions at all.
One of the requirements for the Fund making this application is to appoint a retiree representative to advocate for retired participants and beneficiaries. In keeping with this, the Fund announced that Brad Eggen, President of the Twin Cities Musicians Union in Minnesota since 1990 has been appointed in this capacity.
While the Trustees have made this announcement, it is important to remember that other solutions – not yet available to us – are still being sought. The introduction of the “Butch Lewis Act” in the Senate a little over a year ago was a game changer, which if enacted would save our Fund without making any cuts to benefits. While this bill did not make it out of the Senate last year, it spurred a bi-partisan effort to find a solution. Since that time, the Joint Select Committee on Solvency of Multiemployer Pension Plans was established and worked on a solution. This year in the newly Democrat-controlled House, a new version of the Butch Lewis Act was introduced by a bi-partisan group and has since been passed in the House. Given the new dynamics at Capitol Hill and the upcoming election season, we see some momentum in the fight for its passage.
If a solution in this form is achieved, the Fund has indicated that it can and will withdraw its application under MPRA. It is important to remember that an application for a restructure of benefits under MPRA is an unhappy choice, and will be pursued because it is the ONLY currently available course of action to avoid future insolvency. Please see the other articles included in the Special Report of this issue of the Dallas/Fort Worth Musician on efforts to address the AFM-EP Fund’s current crisis.