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President’s Message

AFMPresidentRayHairW

Ray Hair – AFM International President

    The AFM-EPF and the Multiemployer Pension Crisis

    The United States currently faces a worsening multiemployer pension crisis. One recent report estimated that 114 multiemployer pension plans across the country will become insolvent over the next two decades. These plans cover nearly 1.3 million people and they are underfunded by more than $36 billion. The American Federation of Musicians and Employers’ Pension Fund (AFM-EPF, “the Fund”) is not immune to the forces driving this crisis.

    The AFM-EPF, like many other multiemployer funds, was a robust, healthy pension fund through the late 1990s. In fact, our fund was actually overfunded, meaning that assets exceeded liabilities (promised benefits to participants for service already performed). Simply put, the Fund had more money on hand than it was projected to need to pay out as benefits in the future. In 1999, the AFM-EPF was 139% funded.

    Because of this overfunding, the Fund’s actuaries at the time advised the trustees that the Fund could afford to increase the benefit multiplier. Based on this advice, the trustees approved several multiplier increases. By January 1, 2000, these increases resulted in a $4.65 multiplier for retirements at age 65, the plan’s normal retirement age. As was the case for multiplier increases going back at least to 1981, these increases applied not only to benefits that would be earned in the future, they also applied to benefits that all participants had earned in the past, including for retirees.

    At the time these decisions were made, the trustees were advised by their experts that the Fund could afford the benefits that it was promising. But the Fund, like so many others, was hit by a combination of negative developments in the first decade of the 2000s. First, there was the dot-com bubble burst; then, just as it had recovered from those investment losses, the 2008-2009 international financial crisis hit. By the end of that crisis, the fund had a huge gap between its liabilities and its assets.

    Following the dot-com crash, the trustees lowered the multiplier in 2004 and again in 2007. And after the financial crisis, the trustees lowered the multiplier twice more to its current level of $1.00 in 2010. However, under the law at the time, the trustees were not allowed to reduce benefits that participants already earned. Therefore, the $4.65 multiplier could only be reduced for benefits earned going forward. Thus, these reductions had a relatively small impact, given that the multiplier increases in the 1990s had been applied to all past service. The Fund is still obligated, by law, to pay benefits earned under the higher multipliers, including the $4.65 multiplier that is applied to all credited service prior to 2004.

    There has been some positive news since the financial crisis. This includes annual employer contributions to the Fund increasing from $51 million in 2010 to $67 million in 2017. It also includes strong investment returns overall since 2009. However, because the Fund experienced a significant loss from the financial crisis, those returns were based on a much smaller amount of assets.

    Unfortunately, the AFM-EPF doesn’t get the full value out of strong investment returns because, despite the increase in employer contributions, annual benefit payments continue to far exceed those annual contributions. Annual benefit payments have increased as more participants retire. At the same time, there has been a decline in the number of musicians working under contracts requiring employer contributions, including those who choose nonunion employment.

    Thus, for the fiscal year ending March 2017, while the Fund paid out $158 million in benefits (an increase of $77 million over 2004), it received only $67 million in contributions (an increase of only $22 million over 2004), creating a negative cash flow of $91 million for that fiscal year. As a result, the Fund needed a 6.25% return that fiscal year just for assets to stay flat.

    This negative cash flow is projected to continue—and worsen. Every year, if investment returns don’t make up for this shortfall, the Fund has to draw down assets, which leaves less of an asset base on which to generate investment returns the following year. Cash flow is projected to reach negative $159 million for the fiscal year ending March 31, 2023 and negative $200 million in 2028. The Fund is projected to need an 8.7% return to break even in 2023, and a 12.7% return to break even in 2028.

    Investment returns since the financial crisis have been strong, but because of the severe negative cash flow, they have not been strong enough to make up for the Fund’s loss in the financial crisis and for the Fund to climb back to financial stability.

    The Fund has been in “critical” status since 2010, which, simply put, means that it faces a significant funding shortfall between assets and liabilities. For the fiscal year ending March 31, 2017, the Fund had $1.8 billion in assets and $3 billion in liabilities. So, our present unfunded liability is $1.2 billion, and it is projected to increase.

    The Fund is projected to enter “critical and declining” status in the future, which would mean it is projected to become insolvent within 20 years. A pension fund becomes insolvent when it runs out of money to pay benefits.

    Because the Fund’s fiscal year ends March 31, the trustees won’t know until sometime after that date whether the Fund will be in “critical and declining” status for the fiscal year beginning April 1, 2018. After March 31, the Fund’s actuaries will conduct an analysis to certify the Fund’s status by the June 29 deadline.

    How have the Trustees responded? The Fund’s trustees—then and now—have taken a series of strong, necessary remedial actions to address the Fund’s situation.

    Reducing the Multiplier and Implementing a Rehabilitation Plan

    Right after the dot-com disaster, the Fund’s trustees reduced the multiplier for future service and eliminated early retirement subsidies for future service. They subsequently reduced the multiplier three more times until it reached $1.00 in 2010. Later that year, when the Fund was certified to be in “critical” status, trustees took new steps, some of which are only available to “critical” status plans. Those steps included the following:

    • Adopted a rehabilitation plan that reduced or eliminated certain benefits, such as the early retirement subsidy for pre-2004 service.

    • Froze the maximum annual pension benefit, so that it didn’t continue to increase with the legal limit.

    • Mandated a 9% increase in employer contributions.

    Improving Investment Returns

    The trustees have also taken and continue to take decisive actions intended to maximize investment returns:

    • In 2009, they changed the Fund’s investment advisor, and by March 2011, had terminated eight investment managers in an effort to reduce fees and improve returns.

    • The Fund invested in new asset classes with higher return potential, including increased international stock holdings, TIPS, emerging market bonds, and private equity.

    These strategies were developed based on expert advice from plan professionals, who advised that the Fund faced a deeply concerning outcome if it did not produce higher returns. 

    The trustees have also kept investment fees to a reasonable minimum. In 2016, the Fund’s active managers’ fees were lower than those for the average union pension fund in every asset class. Trustees also reduced investment fees by moving assets into passive index funds where that made sense.

    In the eight years since the end of the financial crisis, the Fund’s average annualized return is 9.8% before fees and 9.3% after fees. That’s good, particularly since, in three of those years, the Fund didn’t make its 7.5% assumed rate of return, and our international stock holdings did not achieve the expected higher returns until very recently.

    In late 2017, the trustees shifted to an outsourced chief investment officer (OCIO) model. Under this model, the respected firm of Cambridge Associates was engaged to oversee day-to-day decisions for the Fund’s investment portfolio, including the selection of asset managers. Cambridge will act within parameters established by the Fund’s investment committee and board of trustees. This new model is expected to provide the Fund with access to best-in-class managers and allow it to adapt to what we expect to be rapidly changing markets and the growing complexity of investment decisions.

    AFM Is Negotiating Increased Contributions

    The Federation has been actively generating increased contributions into the Fund by negotiating additional contributions including those associated with new media. It has also negotiated new sources of “unallocated” contributions—particularly when sound recordings are streamed on-demand—that aren’t attached to benefits for any particular participant, and therefore increase the Fund’s assets without also increasing liabilities. The AFM continues to encourage participants to seek and file covered work engagements that generate additional pension contributions.

    Controlling Expenses

    The trustees have also successfully worked with Fund staff to reduce administrative expenses in recent years. From 2009 through 2016, annual administrative expenses (excluding staff personnel costs, Pension Benefit Guaranty Corporation (PBGC) premiums, professional fees, and depreciation) actually declined on average by 3.8% per year as a result of moving to a new office with lower rent, performing employer compliance audits in-house, and slashing production and mailing costs. Staff personnel costs increased only a modest 2.16% annually (comparable to the consumer price index) from 2009 through 2016, despite an increase in the Fund staff’s health care premiums (over a period when health premiums generally increased on average by over 25%).

    So, how does the AFM-EPF stack up against other large entertainment industry funds with some similar characteristics? Based on an apples-to-apples comparison, the AFM-EPF fares very well compared to similar large entertainment industry funds, based on the number of employers, collective bargaining agreements, and participants in each fund.

    It should be noted that, when evaluating administrative expenses, a comparison to other funds is not always the best barometer, due to each fund’s unique nature and circumstances. Those comparisons can also be misleading when one cherry-picks particular numbers or doesn’t adjust to make the comparison apples-to-apples. To produce a useful comparison, one has to adjust expense figures from the different funds’ “Form 5500” annual reports to remove depreciation, PBGC premiums, and professional and investment fees. Comparisons must also account for the fact that, unlike other funds, the AFM-EPF does not have a related health or other fund with which to share administrative expenses.

    Further, all multiemployer pension funds experienced sharp increases in premiums paid into the federal PBGC, which is supposed to be the backstop for insolvent pension plans. Premium payments increased because the PBGC is itself projected to become insolvent in 2025, due to the national multiemployer pension crisis. Premium payments to the PBGC, which are reflected in our publicly reported administrative expenses, rose from $2.60 per participant in 2005 to $12 per participant in 2014. Since then, premiums have more than doubled to $28 per participant in 2017, which is where they will remain for 2018 under current law. The Fund’s total annual PBGC premium expense was $167,000 in 2005, $600,000 in 2014 and $1,350,000 in 2017. This per-participant premium is mandated by law for all multiemployer funds and is not based on the funding status of a fund.

    Unfortunately, all actions taken with regard to benefits, investments, contributions, and expenses have been insufficient to dig out of the deep hole created by the 2008-2009 financial crisis, significant demographic shifts, and huge liabilities from protected benefits earned in the past.

    What Does the Future Hold?

    Our actuaries’ projections show that, over the next several years, even if we make our assumed investment return, the Fund’s benefit liabilities will continue to increase faster than our assets (which will ultimately begin to decline). Therefore, our actuaries have advised that our Fund is projected to be in “critical and declining” status at some point in the future. What can be done to address this growing problem?

    In 2014, Congress passed the Multiemployer Pension Reform Act (MPRA), which allows multiemployer pension funds in “critical and declining” status to reduce already-earned benefits payable at normal retirement age. Until a multiemployer pension fund enters “critical and declining” status, federal law prohibits fund trustees from reducing these benefits.

    If and when the Fund falls from “critical” status to “critical and declining” status, the trustees must decide whether to file an application with the Treasury Department for relief under MPRA, which would include benefit reductions for participants, including retirees—except those over the age of 80 and those receiving a disability benefit. Participants between the ages of 75 to 79 would receive partial protection from benefit reductions.

    Under MPRA, benefits cannot be reduced below 110% of the maximum guarantee provided by the PBGC. The PBGC is a government agency that insures pension benefits. If a participant’s pension fund becomes insolvent, the PBGC is supposed to pay that participant’s benefit up to a maximum level set by law. (For example, the maximum guarantee for a participant with 30 years of service is $12,870 per year—see the PBGC website for more information.) That means, if a participant’s benefit is currently below 110% of the PBGC guarantee, it cannot be reduced under MPRA. It also means that, if a participant’s benefit is above that level, even with a “worst-case scenario” under MPRA, the participant’s resulting pension benefit would still be higher than if the Fund became insolvent. However, due to the national multiemployer pension crisis, PBGC itself is projected to become insolvent by 2025. If the Fund and PBGC both become insolvent, participants’ benefits would be reduced to virtually nothing. 

    If and when the Fund enters critical and declining status, reducing benefits under MPRA may be the only viable course for the foreseeable future. This is because it will allow the Fund to remain solvent by reducing the high level of benefits that it once could afford, but now cannot, due to the factors already described.

    The trustees are currently working with the Fund’s actuaries to model different ways that benefit reductions could be implemented fairly. However, this modeling is very preliminary, and it is impossible to know now how benefit reductions could be structured. This depends greatly on the state of the Fund, if and when it enters “critical and declining” status.

    Other Legislative Possibilities

    At present, MPRA is the only federal law providing a way for the Fund to avoid insolvency. However, the trustees have supported and will continue to support legislation that addresses the financial issues facing our Fund, while also treating our participants fairly.

    In the past year, a few different legislative proposals have been discussed in Washington, all of which would provide low-interest government loans to multiemployer pension funds in “critical and declining” status. Some of these proposals would require no benefit reductions and others would require less benefit reductions than would be needed under MPRA.

    In November 2017, Senator Sherrod Brown (D-OH) introduced one of these proposals in Congress as the Butch Lewis Act. The AFM-EPF’s actuaries have confirmed that the Butch Lewis Act would address the financial issues facing the Fund by providing the financial support required to avoid insolvency should the Fund enter “critical and declining” status in the future. The Fund’s trustees have supported this legislation, and sent a letter to Congressional leaders in January conveying their support.

    While the Butch Lewis legislation was not included in the February 8, 2018 bipartisan Congressional budget deal passed and signed by the President, a Joint Select Committee was authorized to take a comprehensive look at the multiemployer pension crisis and develop legislation to address it before December 2018.

    While this Joint Select Committee deliberates in the coming months, the Fund’s trustees will remain as active and engaged with this process as possible. We will make clear to the appointed members of the committee that any solution they produce must address the financial issues facing our Fund, while also treating our participants fairly. There will be moments this year when it’s vital that members of Congress hear from participants. When that time comes, the Fund will help connect participants with their members of Congress so that they understand the importance of taking action.

    The trustees will continue to do everything possible under current law to improve the condition of the Fund, including considering benefit reductions under MPRA. It should be noted that some current legislative proposals—in addition to providing financial assistance—allow for benefit reductions imposed under MPRA to be rolled back.

    Again, the trustees won’t know whether the Fund will be in “critical and declining” status until after the end of the Fund’s fiscal year, March 31, 2018. The deadline for the Fund’s actuaries to certify the Fund’s status is June 29, 2018.

    Until that time, the trustees are exploring every possible avenue for protecting benefits by maximizing investment returns, bringing in new revenue, closely monitoring expenses, and supporting legislative proposals that provide relief in a fair manner.

    Read More

    Motion Picture and TV Film Agreements: One-Year Deal, 3% Raise

    I am pleased to report that on March 9, after a week of intense negotiations, an agreement was reached with major Hollywood-based film producers and their television film counterparts to extend the existing Theatrical and Motion Picture Film Agreements for one year with a 3% increase in wages. Upon ratification, the extension and wage increase will become effective April 5, 2018.

    The short-term contract solution was seen by both sides as an acceptable alternative to a positional deadlock that arose from the producers’ reluctance to address two important Federation bargaining objectives—the improvement of existing residual payment obligations when theatrical and TV films are streamed and the introduction of streaming residual payments when films are made for initial release on streaming platforms.

    The parties—the Federation on one hand and the producers, represented by the Alliance of Motion Picture and Television Producers (AMPTP) on the other—actually negotiate two separate agreements simultaneously, which become effective and expire concurrently. One covers the production of theatrical motion pictures and one covers television motion pictures initially released on free television.

    Despite the studios’ unwillingness to settle our key issues, and despite the tensions that were present (as they are in practically all negotiations, which by nature are consistently adversarial), the negotiating environment was decidedly different in this round compared to the last, where an agreement was reached after six rounds of bargaining spanning more than two years.

    This round, members of our team held meetings with bargaining unit musicians and representatives of other workplace unions well in advance of the bargaining sessions. Our team diligently researched and analyzed information necessary to formulate reasonable Federation proposals that would address musicians’ concerns over the rapid rise of viewer consumption of theatrical, TV film, and made-for-streaming productions on advertiser supported video streaming on-demand (AVOD) and subscription-based video streaming on-demand (SVOD) platforms.

    Every round of negotiations has a theme that dominates. The challenges we faced in this round were different from the previous round, but no less important. In the previous round, the prevailing themes were clip use, the banking of scoring hours associated with certain domestic and foreign productions, and language updates to the Film Musicians Secondary Markets Fund (FMSMF). This round was dominated by streaming.

    The Federation obtained coverage for new media in 2010. The term “new media” made sense to the entertainment unions a decade ago, after the 2008 Writers Guild strike, when it was coined to describe the online exploitation of recordings. In our film agreement, it refers to products made under the theatrical and television film agreements that are eventually streamed, and the making of original productions for digital (streaming) distribution in the first place. Hulu, Amazon, and Netflix are now producers and distributors of products we used to call “movies” and “TV shows.”

    As musicians, we can only feed our families and make a decent living, if we get paid fairly for our work. There are two components to that scenario—original session payments and FMSMF distributions. As entertainment consumption has shifted toward on-demand platforms, the Federation is rightfully concerned about how musicians will be paid in the digital future. We are determined to engage the film industry on these issues, drive a fair bargain, and obtain a fair agreement for our members.

    That said, the atmosphere in these negotiations was also decidedly different. Animosity from the conclusion of the previous round had subsided. In its place was an attitude of real respect. That difference, I believe is a product of the Federation’s program of contract compliance and enforcement toward these agreements.

    Six weeks after the 2015 film contracts were ratified, the Federation sued every major film studio, either for offshoring union jobs or for clip use violations, and some were sued for both. From those suits, we’ve collected money for our members and we’ve busted several of the studios for flagrant violations of domestic scoring obligations. Today, there is only one pending action against the producers. We will prevail on it, and they know it. They also know that, if our agreements are violated and no settlement is forthcoming, we will proceed directly into court against them.

    There is another factor that changed the negotiating atmosphere for the better—our side was extremely organized, well prepared, and completely, totally unified.

    In the meantime, the Federation will engage in negotiations with the media industries, we will follow the pattern examples of our sister entertainment unions, and we will aggressively bargain our digital future.

    I want to take this opportunity to offer my sincerest thanks to the many talented musicians, members of the AFM International Executive Board, and local union officers and representatives who spent countless hours working to identify, articulate, and prioritize workplace issues in advance of the negotiations. I would like to especially thank the small group we put together during the negotiations—Local 47 (Los Angeles, CA) President John Acosta; Local 47 Vice President Rick Baptist; Local 257 (Nashville, TN) President Dave Pomeroy; Local 802 (New York City) President Tino Gagliardi, Recording Musicians Association (RMA) President Marc Sazer, and rank-and-file representative and RMA Secretary Steve Dress.

    We had the benefit of superb legal representation from Federation in-house counsel Jennifer Garner and Russ Naymark, and outside counsel Susan Davis of Cohen, Weiss, and Simon. Lastly, my thanks go to Electronic Media Services Division (EMSD) Director Pat Varriale, EMSD Contract Administrator Matt Allen, and all the hardworking Federation staff for their valuable contributions throughout the process.

    We will reconvene these film negotiations in one year. It’s another opportunity to adapt, advance, and achieve improvements for the finest musicians in the world. I can’t wait.

    Read More

    New International Representative, TV Negotiations Update

    I am pleased to announce that Dave Shelton, former president of Local 554-635 (Lexington, KY), has become the newest member the Federation’s staff as an International Representative (IR), filling a field position that became vacant May 2017 with the departure of Barbara Owens.

    International Representatives are the first line of help and assistance for local officers in matters pertaining to day-to-day operations and governance issues in running a local. They are readily available to assist local officers with onsite training, preparation of operating plans, budgeting, and compliance issues relative to AFM Bylaws and Department of Labor regulations. IRs are a resource for the development and application of local bylaws, mergers, membership rosters, newsletters, membership meetings, and elections.

    New AFM International Representative for Midwest Territory Dave Shelton

    Dave Shelton is uniquely qualified for service as an IR with his broad experience as a versatile professional musician and as a local officer, symphonic negotiator, orchestra committee chair, union steward, and AFM conference officer. An outstanding musician with many years of orchestral horn and jazz piano performance experience, Dave graduated summa cum laude in 2007 from one of the world’s most respected music schools, the University of North Texas (UNT), with a Master of Music degree in Jazz Studies. At UNT, he served as a teaching fellow and a jazz lab band director. Prior to his study at UNT, Dave earned his bachelor’s degree at the University of Kentucky. He has performed as fourth horn with the Lexington Philharmonic Orchestra for nearly two decades, and also serves as pianist and arranger for that orchestra’s pops series.   

    During his years of service as a local officer with Lexington Local 554-635, Dave excelled in fundraising and development activities, public relations, collective bargaining, and contract negotiations. He was elected as an officer of the Regional Orchestra Players Association (ROPA) in 2016, and currently serves as its vice president.

    Dave now joins IRs Allistair Elliott (Canada), Wally Malone (Western Territory), Cass Acosta (Southeast Territory), and Eugene Tournour (Northeast Territory) who are each assigned a geographic territory of individual locals to maintain regular contact and visitation. The IRs’ activities are coordinated by Assistant to the President Ken Shirk, who is based in our West Coast Office, located in Burbank, California. We are delighted to welcome Dave as the newest member of the Federation’s staff. I know he will do an excellent job.

    TV Negotiations Update—Respect the Band!

    The Late Late Show band, members of Local 47 (Los Angeles, CA), (L to R) Tim Young, Hagar Ben Ari, Guillermo Brown, Reggie Watts, and Steve Scalfati demand fair pay when their work is streamed online.

    On December 15, 2017, the Federation resumed discussions in Los Angeles with representatives from CBS, NBC, and ABC toward a successor agreement covering the services of musicians engaged to perform on live television. Despite three rounds of negotiations, which began 18 months ago, the talks have been deadlocked over the networks’ refusal to bargain over the Federation’s proposals for progressive payment terms for advertiser-supported and subscriber-based streaming of live and on-demand TV. Our proposals for better terms for musicians engaged in the production of live television programs made for initial exhibition on streaming platforms such as Netflix, Amazon, and Hulu were also rebuffed.

    Despite the networks’ stonewalling, our team was determined to break the bottleneck and find ways to turn up the heat. At my request, AFM Organizing and Education Director Michael Manley, together with organizers from Local 802 (New York City) and Local 47 (Los Angeles, CA), Recording Musicians Association President Marc Sazer, and player representative Jason Poss of Local 47 worked to develop a plan of action by arranging a series of meetings with musicians working on late night shows, award shows, and prime time variety shows. The musicians identified, discussed, and prioritized issues surrounding the producers’ lack of additional payment when their performances are free to watch online.

    A concerted campaign with a catchy name, #respecttheband, emerged from those meetings and quickly gained traction. As the December negotiations got underway in Los Angeles, audience members waiting in line outside the studios on both coasts received leaflets outlining the issues. Musicians from the bands inside released statements to the press speaking out about producers’ lack of respect and fair treatment when their performances are streamed.

    The Late Late Show with James Corden musicians released a photo from their green room displaying a #respecttheband banner.

    “Other performers are all paid when Jimmy Kimmel Live! streams on YouTube or other online outlets, yet musicians are paid nothing. Musicians just want to be compensated for our likeness and our music,” says Cleto Escobedo III, musical director of Cleto and the Cletones. “I love Jimmy, the producers, and everyone we work with. We just need to make sure the networks treat us and all of our colleagues fairly.”

    “This is about fairness. It’s a travesty that musicians are being treated this way. We are just asking the networks for a little respect—and the networks can certainly afford to treat musicians with the respect we deserve,” says Harold Wheeler, who is well known in the Broadway and recording scene and will be the Oscar’s music director in 2018 for the third consecutive year. He was also the original Dancing With the Stars music director.

    Amen to brothers Cleto Escobedo III and Harold Wheeler, the Corden band, and our organizing team of highly motivated AFM staff, local officers and staff, and dedicated player representatives—bravo!

    With a publicity push from AFM Communications Director Rose Ryan, the musicians’ concerted activities in support of their bargaining objectives received extensive coverage in Deadline Hollywood and Variety.

    As a direct result, the networks have now agreed to engage and negotiate over the Federation’s proposals for fair and equitable compensation when musicians’ performances are streamed. Our next round of TV talks will occur this spring.

    Read More

    Big Radio: Deal with Us on Performance Rights Before It’s Too Late

    If you’ve been tuned in to the Federation’s congressional lobbying efforts, you know that our campaign for a performance right in AM/FM analog radio has been at the top of our legislative agenda for many years.

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    Media Talks Driven by Streaming Growth, Part 2

    This is the second of two articles on the continued rise of streaming and its effect on Federation media industry negotiations. Read the first here

    Last month, we discussed the Federation’s January 2017 deal with the sound recording industry, where major record labels agreed to earmark a percentage of domestic and foreign streaming revenue toward the American Federation of Musicians & Employers’ Pension Fund (AFM-EPF), Music Performance Trust Fund (MPTF), and the Sound Recording Special Payments Fund (SPF). We also discussed the skyrocketing growth of streaming revenue from recorded music, which now accounts for 62% of total record industry income.

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Official Journal of the American Federation of Musicians of the United States and Canada