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Pension Fund

Pension Fund Information Update

As an officer of the Federation who is also a trustee of our Pension Fund, I am devoting this column to the Pension Fund. Like all of you, I am concerned about the safety of my pension and, like you, I am worried about the Pension Fund’s future. But I assure you that every member of the Board of Trustees is doing our best to protect and preserve the Pension Fund into the future. Please know that the opinion I express here is solely my own and I do not speak on behalf of the other trustees or the fund.

When I became a trustee in August 2010, the fund was beginning its efforts to rebalance its finances and repair the damage done by the 2007-2009 recession. On March 31, 2009, we had an $800 million gap between the pension benefits already earned by members—that is, our liabilities—and the market value of our assets. Over the next five years, the market value of the assets increased by $500 million to $1.8 billion, but our liabilities also increased, by $300 million to $2.4 billion, narrowing the gap between our assets and liabilities by only $200 million (from $800 million to $600 million). That is the single biggest issue facing the Pension Fund.

In 2014, our actuaries provided an Asset-Liability Modeling Study that showed that over a 20-year period, our liabilities were projected to increase dramatically, such that even if we achieved our 7.5% investment return assumption, our funded percentage would be below 50% by 2034 and there would be a serious risk of future insolvency. On the other hand, the study showed that an investment allocation with a higher investment return target would reduce the probability of future insolvency. After lengthy discussion, the trustees increased the allocation of investments to some with the potential for higher returns, recognizing that an investment mix with a higher return potential (albeit with accompanying higher volatility) reduced the probability of insolvency. One of the investments we hoped would give us part of the additional return did not achieve its expected results (although today it is one of the highest performing asset classes in the portfolio). This widened the gap.

So, we have a very serious imbalance in our finances. While there are other contributing factors that exacerbate our situation—the loss in union membership (and corresponding contributions) that mirrors the decline in our participant base; the aging of our population (common among all mature pension funds) reflected in the increase in pensioners and their longer lifespans; and the growing amount of work not done under union contract—the increasing size of this gap between assets and liabilities is the most critical problem we have to solve. Resolving it is essential to our survival.

As an International Executive Officer I participate fully in the AFM’s legislative and political activities. Matters concerning federal legislation are overseen by AFM President Ray Hair and his legislative aide, Alfonso Pollard. I have worked with them consistently regarding the pension bills that have already been submitted, including the Butch Lewis Act introduced by Sherrod Brown and endorsed by the Federation.  The Pension Fund’s actuaries are currently reviewing that bill to confirm that it would help the fund. If so, I will urge my fellow trustees to fully support the bill, and I have every reason to believe that they will enthusiastically do so.

In the meantime, absent new legislation, the only way to address the imbalance between our assets and liabilities is to reduce the liabilities in a manner consistent with current law: the Multiemployer Pension Reform Act (MPRA). If the fund enters “critical and declining” status, the MPRA allows the trustees to apply to the Treasury Department for approval of an equitable plan of benefit reductions. Should such reductions become both necessary and legally allowable, that plan would be designed consistent with the strict requirements of the law to reduce benefits of those under 80 and those not disabled, but in no case below 110% of the PBGC guarantees. If a participant’s benefit is already below the PBGC guarantee, that benefit cannot be reduced further. 

Since it is unlikely at the moment that investment returns alone will resolve these funding issues, the other trustees and I must consider MPRA restructuring in order to preserve the Pension Fund, reducing benefits for some in order to maintain the viability of the fund for all. While once the fund could afford to pay the high benefits it promised to some of us, it can no longer afford to do that, and recognizing and addressing that fact appears at the moment to be the only option to preserve the fund and as much of our benefits as possible. Since benefit restructuring under the MPRA cannot reduce benefits below the PBGC guarantees, it is clearly preferable to relying on those PBGC guarantees, particularly in light of the PBGC’s own impending insolvency in 2025.

I urge all members to register on the Pension Fund’s website and carefully review the information we post there. We are committed to keeping you informed.

Understanding Your Film Musician Secondary Markets Fund

Secondary Markets Fund

by Kim Roberts Hedgpeth, Executive Director Film Musicians Secondary Markets Fund

 

In 2017, the Film Musicians Secondary Markets Fund (FMSMF) celebrated 45 years of serving the film and television music community. Created in 1972 by the motion picture and television producers and the AFM, the FMSMF’s primary purpose was to act as the agent of the producers to collect and distribute residual payments to film musicians. Today, we continue this mission, while also serving as a resource for motion picture professionals in addressing various challenges to the industry.

For some musicians and filmmakers, the FMSMF remains a bit of a mystery. Because FMSMF distributes a significant source of income to working musicians, all musicians working in film, television, new media, as well as sound recordings should be familiar with how it works.

FMSMF provides a unique service to the film and TV music community. For producers, it shoulders the responsibility of calculating and issuing individual musicians’ residual payments and paying required taxes and withholdings. For musicians, FMSMF sends a detailed listing with a breakdown for each title that accompanies the musician’s annual payment. This provides a “one-stop shop” to make residual tracking, personal record keeping, and annual tax accounting easier and more efficient for the working musician.

FMSMF is a 501(c)(6) nonprofit organization operating under the supervision of an oversight committee appointed by the Alliance of Motion Picture & Television Producers (AMPTP), and AFM liaisons appointed by the AFM International President who consult with the oversight committee. FMSMF does not engage in collective bargaining on behalf of either producers or the AFM.

How FMSMF Works 

FMSMF collects residuals (contributions) if a film, TV program, or new media project has moved from its primary market into a secondary market, and that secondary market use generates revenue, as described in Chart 1.

Secondary Markets Fund

Residuals collected by the FMSMF represent a small percentage (below 1% net of deductions outlined in the AFM agreement) of distributors’ gross receipts from secondary market distribution of film, TV, or new media programs. Producers and/or distributors send residuals directly to the fund on a quarterly basis. Residuals collected during the FMSMF’s fiscal year (April 1-March 31) are distributed to musicians the following July 1. Administrative costs for operating the fund (legal and auditing fees, insurance, salaries, computers, rent, etc.), taxes, and other required withholdings, plus a small reserve for “omissions,” are deducted from the amounts collected. Each individual title’s contribution is allocated proportionally against the total contributions received for all titles during the year. (A title refers to an individual film or a season of a TV series). Each musician’s share within each title is determined by applying the percentage that his original wages represented of the total wages paid to all musicians for the score, against the residual payment collected for that title during the year.

A second, smaller “omissions distribution” is made each September to musicians who the fund discovers were erroneously omitted from a project’s list of musicians, or whose original wages were underreported to the fund. FMSMF conducts its own research, reviews, and audits, either directly by the Fund Compliance Department or by outside auditors engaged by the fund to ensure that signatory producers and distributors make the required residual payments. In addition, the fund’s Participant Services staff works to find musicians who may have unclaimed residuals waiting at the fund. Many of these “lost” musicians are musicians who performed on AFM-covered sound recordings that were used in AFM-covered films and programs, but do not have a valid current address registered with the fund.

Who Participates?

Participating musicians include, not just instrumentalists who played on the score (on or off screen), but also conductors, orchestrators, copyists, arrangers, contractors, and other AFM-covered positions. Further, musicians who worked on a union-covered sound recording used in an AFM signatory film, TV program, or new media project may be entitled to share in that title’s secondary market residuals. If a participant is deceased, his/her designated beneficiary is entitled to receive the participant’s share of residuals. The FMSMF staff researches, identifies, and contacts beneficiaries to effectuate the musician’s intent for them to benefit from their legacy.

Recent Activity

In the 2017 fiscal year, the FMSMF collected more than
$98.4 million in secondary market residuals. Participants received 15,676 payments in the July regular distribution and another 1,415 payments as part of the September omissions distribution. A list of films, TV programs, and new media programs that have paid into the fund over the years is located at www.fmsmf.org.

It can take several years after the first release or broadcast before a film, TV program, or new media program moves into a secondary market and revenues are generated. Resulting residuals for an individual title can vary from modest to significant, depending on its success. Overall, secondary market residuals have grown in recent years. Residuals from new media exhibition of film and television programs have become a more significant share of the totals, as illustrated in Chart 2.

Secondary Markets Fund

FMSMF also administers a smaller sub-fund that collects supplemental market residuals for secondary use of live and videotape programs such as the nightly talk shows, variety shows, and other programs produced under the AFM’s Live Television Videotape and Basic Cable Television agreements.

Whether you actively work in film and television scoring, on a new media project, or in sound recordings, the FMSMF and the residuals it collects can be relevant to you. Now, the fund has new relevance to all working musicians. As a result of the AFM’s negotiations for its 2015 Film and Television Basic agreements, a portion of the residuals collected by FMSMF will be sent to the AFM-EPF to help support the funding of musicians’ pensions.

We invite you to learn more about the FMSMF by visiting our website where we keep musicians and producers informed about FMSMF activities and offer online services for musicians and beneficiaries to securely access accounts, update information, sign up for easy direct deposit and paperless options, and locate unclaimed residuals.

Remember, if you’re a participant, please make sure your address, email, contact information, and beneficiary designations are current and remain up-to-date with the fund. And, please visit us on Facebook.

On behalf of the FMSMF staff, we look forward to our continued service to the professional musicians of the US and Canada and extend our best wishes for a happy and healthy 2018!

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Unallocated Contributions Support Each Participant’s Pension

Note: Fund updates appearing in this column are not applicable to the AFM’s Canadian pension fund, known since August 2010 as Musicians Pension Fund of Canada. 

To improve its funded status and restore its health over the long term, the American Federation of Musicians and Employers’ Pension Fund (Fund) needs additional employer contributions as well as good investment returns. For the plan year that ended March 31, 2017, higher employer contributions and strong investment performance kept the Fund out of critical and declining status for the plan year that began April 1, 2017. Whether the Fund can stay out of critical and declining status in the future will depend in part on income each year from employer contributions and investment returns.

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Pension Fund Avoids Critical and Declining Status Due to Higher Investment Returns and Increased Employer Contributions

Note: AFM-EP Fund updates appearing in this column are not applicable to the AFM’s Canadian Pension Fund, known since August, 2010 as Musicians Pension Fund of Canada. 

At its May 2017 Board of Trustees’ meeting, AFM-EP Fund actuaries advised that better than expected investment returns and increased employer contributions—most notably, $20 million in new contributions over the next three years from the Sound Recording and Motion Picture industries negotiated by the Federation—enabled the plan to avoid “critical and declining” status for at least another fiscal year.

Although the odds are that the Fund may become critical and declining at some point in the future, even as early as the next fiscal year (beginning April 1, 2018), that status will depend on investment returns, employer contributions, and other results during this fiscal year.

Busting the Myths

With the speed of today’s Internet, inaccurate information can be disseminated quickly. Here are a few myths I’ve seen, along with the facts.

Myth #1: The Fund is not critical and declining so we’re “safe.”

Though plan status has been certified critical each year since 2010, avoiding critical and declining status this year doesn’t mean the plan is healthy. High investment returns coupled with innovative increases in Federation-negotiated employer contributions kept the Fund out of critical and declining status this fiscal year. As recently as the plan year concluding March 31, 2016, employer contributions covered only 42% of benefit payments.

Increases in the percentage of employer contributions are essential to the health of the Fund. This cannot be accomplished if members opt to work off-contract without pension contributions for signatory employers, rather than insisting that Federation and locally-negotiated agreements with pension benefits be honored.

Myth #2: The Keep Our Pension Promises Act (KOPPA) proposed by Senator Bernie Sanders is good for participants.

Fund trustees would strongly support legislative changes that would help the Plan secure participants’ pensions without relying on benefit cuts. Unfortunately, KOPPA as currently drafted and sponsored by Senators Bernie Sanders (I-VT), Al Franken (D-MN), and Tammy Baldwin (D-WI) provides the Fund with no relief whatsoever.

Why not? Because a key provision in the bill disqualifies the plan from coverage. Relief provided by KOPPA pertains only to plans with a certain percentage of their funding problem attributable to employers who withdrew from the fund without paying their withdrawal liability. One example of this was the 2011 Philadelphia Orchestra bankruptcy. However, because the plan does not meet the bill’s required threshold percentage, KOPPA, if enacted, would fail to provide any relief.

KOPPA would also eliminate the plan’s ability to avoid insolvency (running out of money) by reducing benefits. While no one wants to see benefit reductions happen, that option is important as a last resort. Benefit reductions could allow the plan to continue paying higher benefits than if it became insolvent. As written, Congressional adoption of KOPPA, though highly unlikely in the current Congressional climate, would shorten the life of the plan.

Local 802 (New York City) President and Fund Trustee Tino Gagliardi and I met with senior staffers for Senators Sanders, Franken, and Baldwin in Washington, DC, June 6 to discuss what changes to their proposed KOPPA legislation would be needed to permit the plan to benefit from it. Unfortunately, none of those staffers believed that KOPPA would ever move through required congressional committee hearings where amendments could be made, let alone be adopted.

Myth #3: The plan lost 40% in investment returns when other plans lost 25%.

The Plan lost 29% in investment returns for the 12 months (fiscal year) ending March 31, 2009, not 40% as some have alleged. This misunderstanding was tracked back to the trustees’ December 2016 letter to participants that said plan assets declined by 40% over 18 months. Some have read this to mean the plan’s investment return was negative 40% over that period—but that was not the case. 

Myth #4: The Fund office received huge staff pay increases in 2009.

This misunderstanding was tracked back to the change in IRS reporting requirements for the compensation numbers shown on IRS Form 5500 Schedule C. The rules changed in 2009 to expand the definition of compensation to include, not just salary, but all payments made on behalf of staff—including, for example, health insurance and other benefit costs, travel reimbursements, and other expenses incurred while performing their jobs.

Fund Office staff cost increases have averaged only 2.16% a year from fiscal year 2009 to 2016. This modest increase, only slightly more than CPI, includes an increase in staff health care premiums over a period when premiums rose on average more than 25%.

What’s Next?

Because the Fund remained in critical status this year, benefit reductions to already earned benefits, which might be necessary if the Fund becomes critical and declining, will not be considered this year. Next year, the Fund will go through the same process—as it has every year in the past—to determine the plan’s status. Critical and declining status could be in the Fund’s future at some point and appropriate preparations will be made. Until then, the Fund will continue to monitor its progress, review its investments, collect employer contributions, and manage expenses.

The Federation, in each of its negotiations, will push hard for increases in employer contributions to increase the plan’s overall funding percentages and improve assets available for distribution.

I am committed to keeping you updated with the most current information about the Fund’s status. In addition, please visit the Fund website, www.afm-epf.org, register and log on for easy access to FAQ’s and updated information as it becomes available.

The NEA Needs Your Support Now

The House is currently considering legislation that funds the National Endowment for the Arts (NEA) and other cultural agencies. Representative Louise Slaughter (D-NY), who is the Congressional Arts Caucus co-chair, is urging musicians to remind their members of Congress about the importance of arts and arts funding. Efforts to increase NEA funding from $146 million to $2 million, as requested by President Obama, have so far failed. We are currently hoping to maintain level funding for the NEA, and to reject any attempt to reduce it. Share this Top 10 Reasons to Support the Arts and to get your message of support across visit: https://www.votervoice.net/ARTSUSA/Campaigns/41478/Respond.