Resolution No. 8 at the Convention Report by Stewart Williams

As one of the delegates at the AFM Convention this year, I was appointed to serve on the Finance Committee. In this role I participated in the process by which the various recommendations and resolutions are introduced to the floor of the convention. At the committee level, we hear testimony from proponents and opponents, if they choose to be heard. We discuss and prepare a recommendation on the proposed legislation for the moment when it is brought to the floor. At this year’s convention, Resolution #8 was the most controversial as it pertained to the governance of the AFM-EP Fund, and as it was referred to the Joint Law and Finance Committees, I took part in its consideration. On the surface, the resolution, submitted by members of newly elected leadership of Local 802, seemed innocuous as it proposed that “among the Trustees appointed by the President to the Board of the American Federation of Musicians and Employers’ Pension Fund US the following experts: one person who has demonstrable expertise in the area of investments; and one person who has demonstrable actuarial expertise in the pension field.”

While ensuring that there is expertise in these areas in the membership of the trustees may seem a reasonable proposition at first glance, the joint committee ultimately and unanimously voted to recommend its rejection. Firstly, the purpose of the trustees are to serve as stakeholders, rank and file members who understand our industry and have the interests of the participants as a first priority. But this does not mean that the industry’s top professionals in these areas are not at the trustees disposal. The Trustees retain a wide range of independent experts. These experts include: The funds actuary, Milliman, which evaluates the funded status of the Fund and makes the projections to inform the Trustees’ decisions, is one of the nation’s most influential actuarial consulting firms. The outsourced chief investment officer, Cambridge Associates, oversees day-to-day decisions for the Fund’s investment portfolio and is an industry leader serving endowments and foundations, healthcare systems, governments and insurance, private clients, and has a 40 year history in managing pension portfolios. For further oversight, the independent monitoring fiduciary Meketa Investment Group assists the Trustees in monitoring Cambridge’s performance.

Additionally, the certified public accountants WithumSmith+Brown advise the Trustees on accounting and financial reporting issues and conducts the annual independent audit.

In Committee we heard the proponent’s arguments for passing the resolution. There was lip service in respect to the trustees’ service, but the thrust of their arguments were backed by various statements pointing to alleged weak investment performance of the Fund, and the generic need to bring some sort of change coming out of the convention in regard to the Fund. I recall one of my colleagues on the committee remarking, “This sounds to me like a solution in search for a problem.”

While we certainly face serious problems with the solvency of the Fund, the Joint Law & Finance Committee found this resolution to provide no solution to the problems we now face. The evidence supporting the proponent’s contention that the investments have been poorly managed were cherry picked and represented numbers taken out of context, which tended to cloud discussion rather than clarify. In my view, the most compelling argument for this resolution’s passage would be to offer our membership hope for change and improvement. This is something local officers across the AFM yearn to provide, but this proposal simply doesn’t pass the smell test for quality. As stated above, it adds no corrective. The Fund already retains the highest level of expertise available. Placing “experts” in positions of trusteeship (who would be expected to volunteer their time) would complicate the independence necessary for such consultation and risk a greater likelihood that conflicts of interest could arise. It would also compromise the purpose that trustees be stakeholders of the Fund. Perhaps even more problematic is the message (whether comforting or not) that it sends. Responding to a call to add investment and actuarial experience suggests an acceptance that this is the root of the problem facing the Fund, and that this expertise was missing. Not only does this sustain an inaccuracy, it promotes a misunderstanding of the problem and assigns blame where it does not belong.

The solution to the Fund’s threatened future insolvency is not found in improved investment performance, but in correcting a cash flow imbalance, and showing that such a correction is an assumption that can be counted on in future years. Since the Fund has met it’s healthy investment assumption over time, the fluctuations that we see in a down year do not necessarily change that assumption for the future, and have a very limited effect on the actuarial projections.

Where our energies must be placed is on what we CAN do to RAISE MORE AND HIGHER CONTRIBUTIONS for the fund, and show that that increase is something that can be counted on in the future as well.
The AFM’s efforts to increase current contributions and create NEW streams of revenue – that in likelihood will grow – was a more constructive discussion at the AFM Convention. It was within this context that the delegates did not accept Resolution No. 8 after consideration of the Joint Law & Finance Committee’s negative recommendation and extensive debate on the floor.

Now a Word About Musicians for Penson Security

Discussing Resolution No. 8 at the AFM Convention would not be complete without a mention of the Advocacy Organization known as Musicians for Pension Security (MPS), which formed in the spring of 2017 as an AFM-EPF watch dog organization. Adam Krauthamer, newly elected President of Local 802, and other Local 802 officers were the proponents of this resolution. Krauthamer is also Co-founder and Executive Director for Musicians for Pension Security. Just prior to the convention, MPS messaged participants urging the passage of Resolution No. 8 as a corrective to what it alleges as poor performance of the Fund, most specifically its investment performance, since the crash in 2008. Then after the conclusion of the Convention, after the failure of Resolution No. 8 to be adopted, participants were told by MPS that the entrenched trustees “armed with teams of lawyers, and supported by political allies” conspired to kill this one last hope.

Again, having served on the Joint Law & Finance Committee which heard the debate and delivered the negative recommendation to the floor, I wanted to share my view from that perspective. As the Fund has repeatedly responded to MPS attacks as “misinformation”, and MPS follows with more accusations of mismanagement and non-transparency, our members find themselves in confusion as a result of this continuous volley. To find clarity, one must understand the purposes of both sides. The Trustees of the Fund are tasked with the obligation of seeing to the Fund’s survival – avoiding insolvency being at the top of the agenda. The purpose of MPS, it would seem, is more specific: fighting cuts to pension benefits – most specifically the benefits currently and soon to be paid out (calculated on high multipliers). As the Trustees have unhappily announced that the Fund will apply to the Treasury Department for benefit reductions to stave off insolvency, MPS blames the Trustees of incompetence, and other transgressions. However, the information and messaging put out by MPS does not address the actual problems of the Fund.

MPS has focused its attacks on the Fund’s investment performance almost exclusively, especially in connection with its support of Resolution No. 8, and they have cherry picked specific time periods and detail. This has created more confusion than explanation as source materials are not identified, and context is not explained. But most importantly, the Fund has met its healthy investment assumption over time, upon which the projections are based. Fluctuations here and there do not change that, and are not to blame for the Fund’s status.

Unfortunately, forcing the Fund into a public defense of its investment strategy only clouds the situation further, as even miraculous investment performance does not offer a solution to the Fund’s problems, as explained above. With all the rhetoric, MPS has offered no workable solution to the Fund’s real cash flow problems. By focusing so much attention on the Fund’s investment performance, MPS is not only producing confusion with cherry picked data and incomplete comparisons, but it is also leading us to believe that the Fund’s investment performance is the avenue for the fund’s survival, when it is not.

As I stated above, MPS has shown that its priority is to keep pension benefits from being cut. This is an important goal for us all. We advocate for Butch Lewis legislation to this end. And we work for game changing increase of contributions, which are best found in the emerging streaming industry. But is MPS more interested in fighting reductions – any reductions – than about the actual survival of the fund? Perhaps this is the most important thing to keep in mind as the war of words rages on.