Now is the right time to become an American Federation of Musicians member. From ragtime to rap, from the early phonograph to today's digital recordings, the AFM has been there for its members. And now there are more benefits available to AFM members than ever before, including a multi-million dollar pension fund, excellent contract protection, instrument and travelers insurance, work referral programs and access to licensed booking agents to keep you working.
As an AFM member, you are part of a membership of more than 80,000 musicians. Experience has proven that collective activity on behalf of individuals with similar interests is the most effective way to achieve a goal. The AFM can negotiate agreements and administer contracts, procure valuable benefits and achieve legislative goals. A single musician has no such power.
The AFM has a proud history of managing change rather than being victimized by it. We find strength in adversity, and when the going gets tough, we get creative - all on your behalf.
Like the industry, the AFM is also changing and evolving, and its policies and programs will move in new directions dictated by its members. As a member, you will determine these directions through your interest and involvement. Your membership card will be your key to participation in governing your union, keeping it responsive to your needs and enabling it to serve you better. To become a member now, visit www.afm.org/join.
January 27, 2015Ray Hair - AFM International President
Note: Although I promised to provide further details this month concerning newly concluded Federation agreements in Symphonic Media and Motion Picture-TV Film, I will defer until March in order to clarify an avalanche of questions received about new pension fund legislation and its impact upon AFM-EPF. Thanks to Fund Counsel Anne Mayerson for her assistance in preparing this month’s column.
In December, Congress passed the Multiemployer Pension Reform Act of 2014. This legislation is not currently relevant for the American Federation of Musicians & Employers’ Pension Fund (AFM-EPF) because it applies only to severely underfunded plans. The AFM-EPF is not severely underfunded.
Contrary to what you might have heard, the new legislation will help to protect the pensions of millions of Americans. Here’s why:
Defined Benefit Plans: Basic Principles
There are two basic types of retirement plans. Under a “defined contribution” plan, the employer contributes (and/or allows the employees to contribute out of wages) a fixed amount of money to each employee’s plan account. That money is then invested. When the employee retires, he or she gets whatever is in the account; that is, the fixed contribution, plus investment earnings or minus investment losses.
By contrast, under a “defined benefit” plan, the employer contributes an amount of money required to pay a fixed benefit—the AFM-EPF fixed benefit provides a specified dollar amount per $100 of contributions. The age 65 benefit that has been earned at any particular point during an employee’s career generally cannot be reduced by the plan or by the employer.
The Role of the Pension Benefit Guaranty Corporation
Federal law contains detailed rules to ensure that defined benefit plans have enough money over time to pay all of the benefits that have been earned. However, certain plans in extreme situations become insolvent because they are not able to satisfy these rules. In that case, the plan relies on the Pension Benefit Guaranty Corporation (PBGC) to pay a portion of the benefits.
PBGC is a federal government agency that serves as an insurance company for defined benefit plans. The PBGC is not funded by tax revenues, but by premiums paid to it by defined benefit plans; in return, the PBGC guarantees a portion of the benefits earned under each plan (the maximum guarantee for a participant in a multiemployer plan is just under $13,000 a year).
The guarantee can be only provided, however, so long as the PBGC remains a viable entity. Unfortunately, the PBGC is on shaky financial ground. Two recent studies, one by the PBGC itself and one by the federal government’s General Accounting Office, conclude that the PBGC is likely to run out of money in the near future (the next 10-20 years) and that the insolvency of just two severely underfunded plans would almost entirely deplete its resources. PBGC says funds sponsored by the Electrical Workers and the Teamsters are most at risk.
Benefit Reductions Under the Recent Pension Legislation
The primary goal of the recent pension legislation was to give severely underfunded plans—which AFM-EPF is not—an opportunity to recover from the lingering effects of the economic turbulence of recent years, rather than letting them become insolvent and thereby jeopardizing the viability of the PBGC. It’s estimated that, while at least 90% of multiemployer defined benefit pension plans are on solid financial footing, about 5-10% of such plans, covering as many as 1.5 million participants, are severely underfunded. The legislation permits those plans to reduce benefits in certain circumstances, but in no event to a level that is less than 110% of the PBGC guarantee.
Specifically, a severely underfunded multiemployer defined benefit plan may reduce its benefits only if it applies to the government, and the government finds that:
Benefits may not be reduced for participants on a disability pension or for those age 80 and older. (Restrictions on reductions also apply to participants between age 75 and 80.)
I want to reiterate that the AFM-EPF is not severely underfunded under this new law, is not projected to become insolvent, and the new law does not authorize benefit reductions to the AFM-EPF. But by protecting PBGC’s solvency, the new law is good for AFM-EPF participants, along with participants in the other multiemployer pension plans that are not severely underfunded.
No one I know thinks that reducing pension benefits is a good thing. But ignoring the effect that the economic struggles of a few multiemployer defined benefit plans could have on participants in all multiemployer defined benefit plans is a worse thing. Like many other labor organizations and multiemployer pension funds, the AFM and AFM-EPF applaud the recent pension legislation as the only opportunity for the recovery of severely underfunded plans and the preservation of the PBGC’s benefit guarantees for all participants in multiemployer defined benefit plans.