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PensionsJanuary 13, 2021

Musicians Pension Fund Reapplies for Benefits Cuts

Previous application to Treasury Department had been rejected over mortality, new entrant rate assumptions.

The American Federation of Musicians and Employers’ Pension Fund (AFM-EPF) is hoping the second time is the charm and has reapplied to the US Treasury Department for a reduction in benefits under the Multiemployer Pension Reform Act (MPRA) to help stave off impending insolvency.

In August, the Treasury Department denied the fund’s application for a reduction in benefits, saying that the mortality rate and new entrant assumptions it used were “not reasonable under the standards in the regulations.” The department said the mortality assumption used in the recovery plan was 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.”

In the fund’s new application, which was submitted on Dec. 30, the proposed reduction for all participants who earned contributions before Jan. 1, 2010, includes an across-the-board 30.9% reduction of the multipliers used to calculate benefits for contributions earned before Jan. 1, 2010. There is no change to the multipliers for contributions earned on or after Jan. 1, 2010—the $1.00 multiplier is not being reduced. The benefit multiplier is the dollar amount by which each $100 of contributions is multiplied to determine the amount of a participant’s monthly pension benefit.

Participants who began their pension benefit before age 65 but then earn contributions before reaching age 65 earn so-called “re-retirement benefits.” On reaching age 65, a re-retirement benefit is added to the regular pension benefit.

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Under the proposed reduction, re-retirement benefits will be recalculated using a revised formula consistent with the way regular retirement benefits are calculated. Each $100 of contributions earned since the initial pension effective date is multiplied by the age-65 benefit multipliers for the benefit period in which the contributions were earned.

The only changes to the structure of the proposed reduction from its previous application is that the flat across-the-board reduction of multipliers higher than $1 is 30.9% instead of 15.5%, and that benefits will not be reduced if a participant’s benefit comes out to less than $1 per month.

“The change that matters most, of course, is the increase in the flat across-the-board reduction, which is due mainly to the COVID-19 pandemic,” said the fund’s trustees in a communication that was sent to the plan’s participants. “This year, due to the large drop in work, contributions to the plan have been significantly lower. And they likely will continue to be depressed for the next few years. Less contributions means benefits have to be lower for the plan to survive.”

The pension fund supports more than 50,000 active workers, retirees, and beneficiaries, and receives contributions from more than 5,500 employers in the film, recording, symphonic, television, and theater industries. If approved, the proposed reductions would take effect Jan. 1, 2022.

Restoring Pensions from 401(k) Plans Could Cost San Diego Millions

The city might have to retroactively create DB plans for some 4,000 city workers.

By Michael Katz

San Diego could be required to spend millions of dollars to retroactively create new pensions for thousands of city employees after a Superior Court judge invalidated a 2012 pension reform proposition.

Proposition B, which passed with 66% of the vote just over eight years ago, eliminated defined benefit (DB) pensions for nearly all new city employees and replaced them with 401(k)-style retirement plans. But in August 2018, the California Supreme Court ruled that San Diego had illegally placed Proposition B on the ballot because the city did not first negotiate with unions representing city employees.

State law requires public officials to meet and confer with public employee unions about changes to wages and other terms of employment. The justices said then-Mayor Jerry Sanders had neglected his duty as the city’s chief labor negotiator to do this. However, the city argued that it was it was exempt from the requirement to meet with unions because the measure was sponsored by citizens, not the city.

However, in March 2019, a state appeals court ordered San Diego to financially compensate city employees who did not have pensions because of Proposition B. The court decided that the financial compensation for the workers would be the difference between the value of a DB pension and the value of the defined contribution (DC) plans plus 7% interest.

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The city appealed and took the case to the US Supreme Court, arguing that the state Supreme Court’s ruling ignored Sanders’ First Amendment rights because it held that he was supporting the measure as a private citizen not as mayor. But in March 2019, the US Supreme Court denied San Diego’s request to review the legal fight.

If the most recent ruling isn’t appealed or overturned, San Diego will have to retroactively create pensions for the approximately 4,000 workers who have been hired by the city since the cuts took effect in 2012. Despite the costs the city would have to bear, current San Diego Mayor Todd Gloria lauded the Superior Court ruling, saying Proposition B had cost taxpayers millions of dollars and made it easy for other cities to lure away city workers.

“Proposition B was a disaster for our city long before it was invalidated,” Gloria said via Twitter. “Proposition B promised to save money and that cities throughout California would follow our example by ending pensions. Neither happened.”

However, City Councilmember Chris Cate, the only Republican representative on the council, criticized the ruling saying it “overturned the voices” of 154,000 San Diegans.

“In a duly held election, two-thirds of voters decided the city of San Diego’s pension system needed to be reformed. Unfortunately, San Diego took a gigantic step back today,” Cate said on Twitter. “Furthermore, this is a dangerous precedent to overturn the will of the voters over process technicalities. San Diego voters were crystal clear when they voted to reform the city pension system.”