Lawsuit Targets Musician Union Pension Fund

August 10, 2017, 2:29 PM · Two union musicians have filed a class-action lawsuit against members of the Board of Trustees of the American Federation of Musicians and Employers' Pension Plan, alleging mismanagement of the $2 billion pension fund that covers many union musicians in the United States and Canada.

The American Federation of Musicians [AFM] is a union with more than 80,000 members in the United States and Canada. About 50,000 of those members participate in the pension plan, which was founded in 1959.

The fund has been in grave trouble since a catastrophic 40 percent drop in the fund's assets (a loss of about $800 million) during the recession between 2007 and 2009.

AFM pension loss

In the years since, the fund's trustees and managers have not succeeded in turning the fund around. In April 2010, the plan was certified by its actuary to be in "critical" status, meaning it has funding or liquidity problems, or both.

"Critical" status required its trustees to develop a rehabilitation plan. Each year since then, the plan has been re-certified to be in "critical" status. Its most recent rehabilitation plan in 2016 stated that the "plan cannot reasonably be expected to emerge from critical status by the end of a 10-year rehabilitation period."

In Dec. 2016, a letter to all AFM pension fund participants said that the plan's status was likely to be downgraded from "critical" to "critical and declining" (a federal designation meaning that the plan is projected to be insolvent and unable to pay benefits within a 15 to 20-year period), and that could happen "as early as next year." In May 2017, the AFM-EPF announced that, while the fund remains in "critical" status, "better than expected investment returns kept the Plan out of 'critical and declining' status for another fiscal year."

The lawsuit was filed July 14 in U.S. District Court in New York by AFM Local 802 (New York chapter) members Andrew Snitzer and Paul Livant on behalf of participants and beneficiaries of the American Federation of Musicians and Employers' Pension Plan. Read the full lawsuit here. The suit cites "breach of fiduciary duties and other violations of the Employee Retirement Income Security Act," alleging overly risky investments, over-dependence on expensive asset managers; and lack of transparency, among other allegations. The plaintiffs are seeking (see p. 64-65) a declaration that the trustees breached their fiduciary duty, as well an order that the defendants make payments to restore losses to the plan. They also seek to move the fund's assets from "emerging markets equities" to less risky, managed assets, such as index funds.

In a statement about the lawsuit, AFM Employer Pension Fund Executive Director Maureen Kilkelly called the lawsuit "entirely without merit," stating that the trustees "have consulted with respected and experienced investment experts in the industry, closely reviewed investment options, and always acted in the best interests of the Fund's nearly 50,000 participants and beneficiaries." She goes on to cite other causes for the fund's poor performance: "Many multiemployer pension plans across the nation are struggling with a similar 'perfect storm' of challenging factors. These include the volume of Baby Boomers taking retirement; more benefits being paid out to retirees and beneficiaries than contributions coming in from actives; and significantly longer pay-outs because participants are thankfully living longer. Additionally, two major recessions since 2000, the one in 2008-09 being of epic proportions and causing the collapse of financial markets worldwide, have profoundly impacted pension plans across the nation." Read the entire statement here.

Note: I am a longtime member of the AFM who has been contributing to the pension fund since 1996.


August 11, 2017 at 02:17 AM · I'm sorry to hear your retirement is in jeopardy Laurie, as well as all other affected musicians.

It seems like a very unfortunate situation and I hope it manages to be settled to everyone's satisfaction.

If it's true this is a terrible crime. When you're playing with peoples future you'd think you'd try your hardest to be successful and take the least amount of risks possible. I'd like to hear the other side, so I hope you hear back so you can update us.

August 11, 2017 at 08:34 AM · Oh, sorry to see this. I hope for better leadership for the management of these funds, and that this will be turned around sooner than projected.

August 11, 2017 at 03:36 PM · Well my retirement account took a hit in the recession too. I mostly rode it out but it came back. But ... how could they not recover? I mean, my securities are nothing special -- index funds, basically.

Note to young people -- don't join pension funds unless they're backed by the government. Establish IRAs and buy an index fund such as the Vanguard Total Market. And then sit on your hands. Day-trading mutual funds is the stupidest thing there is.

I'm kind of struggling to understand what a class action lawsuit against a pension fund will accomplish. If the defendant "makes payments" then that's just less money that they have and less to divide up among pensioners later. So basically the best case scenario would be for the members to divide the entire value of the fund among themselves on a prorated basis, depending on how much they've paid in, and perhaps over what period of time, and close the fund. But even if you succeed you're looking at a process that will take several years and consume a significant fraction of the fund in legal fees.

August 11, 2017 at 05:26 PM · My contributions were only part-time, but many professional musicians have contributed tens and hundreds of thousands over a lifetime of work, and they have been counting on this. I hope the concerns can be addressed and a prudent plan can emerge from all this.

August 11, 2017 at 06:08 PM · We as a country, need to put back in place the restrictions that were created after the Great Depression to keep the banks in line, and not gambling with people's money. How, I don't know, because Goldman Sachs effectively runs the country now. Laurie, you have a platform, maybe you could form a coalition here and in Canada so that at least the crooks who did this would get some real jail time for a change.

August 11, 2017 at 06:59 PM · Paul,

one likely difference is that you were not living off your retirement fund during that time. You kept making contributions, buying shares on the cheap, which made for nice gains with the eventual market recovery. The pension fund managers, on the other hand, had to sell assets when they were cheap to pay the continuing stream of benefits, and that puts a real drag on the portfolio.

August 11, 2017 at 07:33 PM · Possibly poor management or incompetent management, assuming there is no fraud, think Madoff. Paul said he rode the recession out, but if one does not, for whatever reasons, one may realize paper loss that is real, by buying high and selling low. Repeats that couple cycles, one will be done.

The class action may argue that the federation should have given the money to highly regarded institutions to manage the money, or sooner when they first realized trouble. Think Vanguard, TIAA, etc.


August 11, 2017 at 08:18 PM · that is a very good point. Yes, you can't very well ride out a downswing if you're already drawing. I also appreciate that it's a very hard thing when one's pension fund is insolvent, and I don't mean to make light of that. But jailing the fund managers won't put rice in your bowl. Suing to compel them to invest more responsibly is not unreasonable.

However we will never be in a situation where banks do not gamble with our money. The way a bank works is they take your money, pay you some interest, and then invest it in such a way that they can earn back your interest plus enough to pay themselves a nice salary. If there was a perfectly risk-free way for a bank to make X% on your principal, we'd all be doing that instead of making bank deposits.

August 12, 2017 at 03:11 AM · The congress must re instate the Glass Stiegel Act immediately. The Act should never have been revoked (done under former President Clinton). It prevented banks from gambling with depositor funds. Now banks and Investment houses have been legally merged, and the results are being borne by millions of American retirees. I wish you and the rest of the musicians involved in this travesty of justice the best outcome possible.Criminal charges should have been brought in 2008.

August 12, 2017 at 05:08 PM · Paul, I agree that suing the fund managers as a punitive act after the money is gone is at best a feel-good measure, and probably harmful to less senior colleagues invested in the pension. Suing them to compel more reasonable investing is tricky. Making them invest in what is seen as less risky investments may simply reduce typical returns, which leads to either more funding needed for the same benefits, or benefit cuts to reduce the strain on the fund, or both. That usually means the newer employees get the shaft, one way or another.

I think another difficulty here is that the number of musicians paying into the pension may be declining while the number of people collecting payments is at best decreasing at a slower rate. And with orchestras going under all too frequently in recent years, there are now plenty of former musicians from those groups who are no longer "backed" in retirement by their younger colleagues. As with most group retirement schemes, the money you pay in is not saved or invested for your retirement payouts, but rather those of the people currently collecting, with the expectation that others will cover your costs when the time comes. A bit like playing a game of musical chairs where you hope to die before the music stops!

I'm not sure I see the repeal of Glass-Steagal as a true culprit here, contributing fasting, perhaps. The same factors that make pension funds less attractive would still be present. Changing demographics, employment patterns, skyrocketing health care costs coupled with increasing life spans, low interest rates all play a part in making a viable pension very expensive to fund. Reinstating G-S is no more likely to bring back the "good old days" than reducing environmental protections will cause a surge in high-paying coal-mining jobs when the real reason for their demise is mechanized mining and low natural gas prices.

August 12, 2017 at 09:04 PM · There are certainly issues that should be addressed in 2008. But, systematic risk in the US market should most definitely be part of anyone's risk management strategy and "emerging markets" have a role to play.

A farmer does not sell land to generate income; like wise a fund manager should not sell assets to generate income. Rather, she should invest in assets that would generate enough income to meet the needs of drawing retirees.

Beside the issue of competent management, the issue of contribution vs benefits is often overlooked. Given the level of contributions, the promise of benefits of many of these benefits-defined retirement funds is unsubstaniable even in the best of times.

August 12, 2017 at 09:10 PM · To be clear, our contributions are not taken from our pay. It's part of the "tariff of fees" of the local, and all purchasers under the local contract must pay into our pension at the agreed rate (percentage of scale) which varies from local to local.

Still... it begs the question, should we get rid of pension fees for higher base fees, and better year to year adjustments for COLA.

Are any of us Boom Busters and younger really counting on any kind of pension from anywhere, after the Boomers are done with it?

August 12, 2017 at 10:57 PM · I certainly remember contract negotiations in which the solution was that in exchange for agreeing to lower pay than desired, the musicians would agree instead to an increased pension contribution. So it's certainly part of the package.

August 13, 2017 at 12:34 AM · For Toronto I think the range is 8 to 18%, so I guess the potential is there for a purchaser to bargain. Come to think of it, I think in a recent negotiation for one of my agreements, management countered with lower annual raises for inflation, and possibly increased the pension by 1 point as appeasement.

Perhaps the best solution for millenials (the boom echo) is to fight to have their pension payments be self-directed, break from AFM-EPF altogether (rather than continue to pay for their parents' pensions.)

August 13, 2017 at 01:43 AM · A possible outcome from these lawsuits is they will likely call for the books to be opened. It sends the message "we're watching you". No one should be let loose with millions of dollars and no accountability.Strict checks and balances are in order.

I'm sure they have some measures in place already. The economy has hit retirements hard all over. Many retirement systems are falling short and need to raise additional revenue,putting a strain on many states retirement systems in the US.

Two factors involved. What I've heard called the "grey sunami" and the very unstable economy.

I wonder what the exact nature of the lawsuits involves?

I have a TIAA-CREFF account and it lets you play with the investments. I don't often get into moving funds in it as I choose to be low risk. It took a real hit in the recession and hasn't fully recovered.

I believe it's very important to look globally in investment strategies.Like most, I try to pretend it isn't there and put as much into it as I can, yet this is a bad approach, since I think we should be looking at it to make sure the numbers are all correct. Dishonest people can potentially get around checks and balances.

August 14, 2017 at 06:57 PM · I personally think this lawsuit is a bad thing. When the economic downturn happened, it happened to everyone who had invested money, and the only way to make money on what was invested on our behalf, was to invest in stocks and bonds, or CDs (that haven't paid anything for years). The team managing the EPF worked diligently to correct the situation and have been doing well since that time. However, more of us are retiring, so this is not like a single person investing and not withdrawing anything. The only thing a lawsuit will accomplish is the spending of thousands on this lawsuit, all of which will come out of our pension fund. I firmly believe there is no fraud, just a bunch of nervous musicians who don't understand how the stock market works.

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