Unallocated Contributions Support Each Participant’s Pension

September 1, 2017

Ray Hair  -  AFM International President

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.

An important aspect of employer contributions to the Fund last year were certain contributions that provided additional funding for the Fund without being attached to benefits payable to any particular participant. This type of employer funding for pension funds was introduced many years ago, but only recently became a factor for our Fund. Our experience with negotiating “unallocated contributions” to the Fund began in 2011, when I concluded my first set of negotiations as your president with the major record labels under the Sound Recording Labor Agreement (SRLA).

At that time, the AFM and the four major labels—Sony, Warner, EMI, and Universal (and also Disney)—agreed that the labels would pay one-half of one percent (.5%) of all receipts from online, on-demand streaming, tethered downloads, and ringbacks to the Fund as unallocated contributions. Back in 2011, the total amounts payable annually from streaming from all labels combined amounted to only a few hundred thousand dollars from some 13 million tracks licensed to digital distributions. Because the income was so small from the streaming of each track (each track embodied the performances of numerous musicians), we estimated that the cost in work time and human resources to research and allocate the pro-rata, per-stream pension contribution for each musician would overrun the income from those contributions and thus outweigh the benefit of accrual. For those reasons, in 2011 the AFM and record companies agreed that contributions from on-demand digital distribution would be paid and received as unallocated and not accruable to any participant and therefore would not generate any additional benefit liability for the Fund.

The fact that these unallocated contributions come to the Fund without increasing accrual and payment obligations to participants makes them more important than regular contributions, in light of the Fund’s funded status. The entire amount of all unallocated contributions goes straight to the Fund’s bottom line, so that unallocated contributions support each participant’s pension!

Those who have read my column in recent months know the importance I’ve attached to closing progressive deals for online, on-demand digital content distribution with the AFM’s bargaining partners. My focus on progressive, back-end, percentage-of-gross-receipts deals is due to the speed that media consumption has moved away from traditional physical product, digital download, and linear traditional broadcast and cablecast, toward wireless, digital on-demand streaming. Where consumption goes, money follows.

By 2016, the deal I made with the record companies for unallocated payments to the Fund had risen from only a few hundred thousand dollars in 2011 to more than
$5 million. In January this year, we concluded a deal with the labels that guaranteed payments from streaming revenue to the Fund of $5 million in 2017, $5.5 million in 2018, and $6 million in 2019 (plus another half-million kicker), for a total from the labels in unallocated contributions to the Fund over the next three years of $17 million. What’s more, our new 2017 SRLA provides additional new unallocated income to the Fund from low-budget licensing.

Meanwhile, a deal we reached with the motion picture industry in early 2016 provided for 1.5% of TV and film residual payments from producers to be paid to the Fund as unallocated contributions. Last year, the Film Musicians Secondary Markets Fund collected $100 million in TV-film residual revenue, and will pay $1.5 million (1.5% of gross collections) to the Fund in unallocated contributions this year.

I want to publicly thank representatives of the Recording Musicians Association (RMA), an AFM player conference that assists my administration in the negotiation of AFM media agreements, and especially RMA President Marc Sazer and RMA Secretary and Los Angeles chapter President Steve Dress, for their encouragement and support while that groundbreaking deal was negotiated, finalized, and ratified.

Just a few weeks ago, I concluded a new agreement with public radio that provided for a five percent (5%) annual payment from gross receipts from digital distribution (YouTube, Amazon, Netflix, Apple Music, etc.), two and one-half percent (2.5%) payable to the musicians appearing in the program, and two and one-half percent (2.5%) payable to the Fund in unallocated contributions.

We are moving into online, on-demand streaming—digital distribution—as a source of media residuals for our musicians, and also as a significant source of employer contributions to the Fund on an unallocated basis, that go directly toward helping improve its funding status.

When I was elected as your president in August 2010, I made it my goal to aggressively renegotiate the Federation’s open, extended, and expired industry-wide collective bargaining agreements—of which there were many. I am pleased to advise that, through an intense schedule of nonstop collective bargaining, that goal was achieved. It took five years to do it. As I began to bargain up the wages in those open and expired agreements, some of which had languished for 10 years, the pension contributions on wages for musicians working under the agreements automatically increased. And today, as I bargain successors to those agreements, my eye is on bargaining unallocated employer contributions, in addition to negotiating escalations in traditional contributions that now accrue from musicians’ wages.

Since 2010, annual employer contributions to the Fund have increased from $50 million to $67 million through March 31, 2017. I will continue to bargain hard in Federation contract negotiations to obtain new and innovative increases to unallocated contributions to augment the improvements we are negotiating in traditional contributions.

We are a union, and we are all in this together. Insist that your employers sign and abide by the appropriate AFM agreement and make contributions on your behalf to the Fund. If you do that, you will help the Federation and its locals safeguard the security of the Fund, not only for existing participants, but for generations upon generations to come.

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