Treasury Department Denies Request From Musicians Union’s Pension Fund To Reduce Benefits To Keep It Solvent; Trustees Say They’ll Try Again

The U.S. Treasury Department has denied a request by the American Federation of Musicians and Employers’ Pension Fund to reduce benefits for its participants in order to keep the “critical and declining” Fund from becoming insolvent within the next 20 years. Trustees of the Fund say they now will take another shot at seeking Treasury’s approval.

The Fund is in trouble because as of March 2019, its $3 billion in liabilities exceeded its $1.8 billion in assets, meaning that it’s underfunded by about $1.2 billion.

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In seeking to reduce benefits, the trustees said last year that nearly half of the Fund’s more than 50,000 participants would have seen some reduction of benefits beginning early next year if its application had been approved.

Musicians Union’s Pension Plan Asks Treasury Department For Permission To Reduce Benefits In 2021

“Because of Treasury’s denial, benefits will not be reduced on January 1, 2021, and our Plan will continue its financial decline,” the trustees said today. “To avoid insolvency, the trustees have started working with their actuaries to prepare and file a second application.”

In a letter to the trustees (read it in full here), the Treasury Department said: “After reviewing the application and consulting with the Pension Benefit Guaranty Corporation and the Department of Labor, Treasury has determined that the suspension described in the application fails to satisfy the requirement set forth in the Multiemployer Pension Reform Act (MPRA) ‘that the proposed benefit suspensions, in the aggregate, be reasonably estimated to achieve, but not materially exceed, the level that is necessary to avoid insolvency.’”

Specifically, Treasury has determined two elements of the application’s actuarial assumptions – the mortality rate assumption and the new entrant assumption – “are not reasonable under the standards in the regulations.”

Treasury said that “the mortality assumption used in the application is not reasonable because it is based on a standard table that was used without adequate justification or a demonstration of the manner in which the table properly reflects the mortality experience of the Fund. Furthermore, when additional information was requested to support the use of the table, that information revealed that the Fund’s actuary did not take into account relevant historic and current demographic data when selecting the standard table and that the standard table significantly overestimates the rate at which Fund participants and beneficiaries will die.”

Treasury also found that the application’s new entrant assumption “is not reasonable because it does not take into account relevant historic and current demographic data (regarding demographic characteristics of recent rehires) and it has a significant bias in that it underestimates the average entry age of new active participants, resulting in a significant understatement of benefit payments from the Fund. Specifically, it is not appropriate for the Fund to utilize a new entrant assumption that excludes recently rehired participants if doing so produces materially different results than use of a refined assumption.”

The Fund’s trustees told participants today that “we maintain that Treasury was wrong to deny the application on this basis, but we are encouraged by the fact that Treasury staff advised us verbally that it had no issue with any other elements of our application or our proposed benefit reduction plan.

“We are also continuing to advocate for Congressional legislation that could eliminate the need for a new MPRA application. Congress and the White House are currently negotiating the next COVID-19 stimulus bill, which is likely the last, best opportunity to pass multiemployer pension relief this year. But, there is as of yet no clear signal coming from Washington whether a multiemployer pension provision will be included in the stimulus bill – or whether there will even be a stimulus bill at all.”

In conclusion, the trustees told participants, “We will keep you updated on all of the Trustees’ efforts to preserve the Plan’s solvency for current and future generations of musicians.”

Here is the Fund’s full letter to participants (hyperlinks deleted):

U.S. Treasury Department Denies the AFM-EPF’s MPRA Application

Today, the U.S. Department of the Treasury officially notified the American Federation of Musicians and Employers’ Pension Fund (AFM-EPF, the Plan) that it has denied our application, which we filed to protect our Plan’s solvency by reducing benefits under the Multiemployer Pension Reform Act (MPRA). Treasury’s letter explained that its denial is based on a disagreement over the reasonableness of two of the actuarial assumptions used in our application. You can click here to read Treasury’s letter.

Because of Treasury’s denial, benefits will not be reduced on January 1, 2021, and our Plan will continue its financial decline. To avoid insolvency, the Trustees have started working with their actuaries to prepare and file a second MPRA application.

As we discussed in the August 5 issue of Pension Fund Notes, we maintain that Treasury was wrong to deny the application on this basis, but we are encouraged by the fact that Treasury Staff advised us verbally that it had no issue with any other elements of our application or our proposed benefit reduction plan.

Tell Congress and the White House to Pass Multiemployer Pension Relief!

We are also continuing to advocate for Congressional legislation that could eliminate the need for a new MPRA application. Congress and the White House are currently negotiating the next COVID-19 stimulus bill, which is likely the last, best opportunity to pass multiemployer pension relief this year. But, there is as of yet no clear signal coming from Washington whether a multiemployer pension provision will be included in the stimulus bill—or whether there will even be a stimulus bill at all.

Here are a few things you can do right now:

1. 1. Click here for more information and suggestions about what to say to policymakers in Washington about the need to address the multiemployer pension crisis.

   2. Contact the White House

      • Email the White House at www.whitehouse.gov/contact.

      • Call the White House comment line at 202-456-1111.

   3. Email Treasury Secretary Steven Mnuchin at Steven.Mnuchin@treasury.gov. Secretary Mnuchin is one of the White House’s chief negotiators on the COVID-19 stimulus bill.

   4. Click here to email your Members of Congress in both the House and Senate.

We will keep you updated on all of the Trustees’ efforts to preserve the Plan’s solvency for current and future generations of musicians.

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