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…Absolutely\nguaranteed anonymity – Former Musician’s Union officer\u2028<\/p>\n\n\n\n
…The\none voice of reason in a sea of insanity – Nashville ‘first call’\u2028scoring musician<\/p>\n\n\n\n
…Allows\nus to speak our minds without fear of reprisal – L.A. Symphonic musician<\/p>\n\n\n\n
…Reporting\nissues the Musicians Union doesn’t dare to mention – National touring musician\u2028<\/p>\n\n\n\n
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I. 26.85 Million Settlement Against AFM for Gross Trustee Mistakes <\/p>\n\n\n\n
[Similar to Trump, and as expected, trustees did not acknowledge they did anything wrong.]<\/p>\n\n\n\n
The musicians pension lost\nbig time on risky bets; then a Cheltenham-born saxophonist led a suit that won\na $27 million settlement <\/p>\n\n\n\n
Who pays when the\npeople who oversee retirement plans bet on risky investments and end up losing\nbig time?<\/p>\n\n\n\n
Thursday\u2019s\nsettlement deal in a case brought by a onetime Philadelphia area saxophonist\nagainst a $2 billion musicians\u2019 pension fund shows that the trustees who ratify\nadvisers\u2019 and outside managers\u2019 investment picks can be held responsible for their\nmistakes.<\/p>\n\n\n\n
Management and\nlabor trustees who oversaw the American Federation of Musicians and Employers\u2019\nPension Plan for 50,000 working and retired entertainers will have to pay the\nfund $26.85 million — minus up to $10 million in legal costs– to settle a\ncivil complaint that they gambled tens of millions away on poorly performing\nprivate equity and foreign investments. They did all that while avoiding U.S.\nstocks even as their value soared in the early and middle 2010s.<\/p>\n\n\n\n
That\u2019s according to\nthe agreement between lawyers for trustees for the joint plan, co-managed by\nthe American Federation of Musicians labor union, a group of employers\nincluding Time-Warner, Disney and Broadway theater owners, and the musicians\nwho brought the suit, including Andy Snitzer, a Cheltenham High graduate known\nfor his work with Paul Simon, Sting, and the Rolling Stones.<\/p>\n\n\n\n
Pending approval\nfrom a federal judge in New York, the money will be paid by trustees\u2019 board\ninsurance — which, though adequate in this case, is rarely called on to cover\nclaims this expensive, said the musicians\u2019 lawyers Steven A. Schwartz and\nRobert J. Kriner Jr. of Haverford-based Chimicles Schwartz Kriner &\nDonaldson-Smith.<\/p>\n\n\n\n
Lawyers for the\nindustry trustees, at the big New York corporate law defense firm Proskauer\nRose, confirmed the settlement, which avoids \u201ca needless and disruptive court\nbattle\u201d but does not result in trustees acknowledging they did anything wrong,\naccording to a statement by James Chase, for the trustees.<\/p>\n\n\n\n
\u201cWe have always\ntaken our fiduciary responsibility seriously and acted prudently in the best\ninterests of all Plan participants,\u201d he added, speaking for the trustees. He\nnoted that the trustees took other steps to cope with the funding deficit,\nincluding sharp cuts to benefits and early retirements, and boosted employer\ncontributions, which rose from $54 million in 2009 to $76 million last year. <\/p>\n\n\n\n
Besides paying\ncash, Chase noted the plan has agreed to reforms. Those include the appointment\nof veteran pension lawyer Andrew Irving as Neutral Independent Fiduciary\nTrustee for the musicians\u2019 plan, which Schwartz said would make it less likely\nthat the trustees will make high-risk investments.<\/p>\n\n\n\n
The pension could\ncertainly use additional cash. It had $1.8 billion in assets and $3 billion in\nliabilities as of early 2019, making it about 60 percent funded. It has only\n21,000 working members paying in, compared with 15,000 retirees or survivors\nwho are collecting and 14,000 others who no longer work but are eligible to\ncollect.<\/p>\n\n\n\n
What went wrong? The\nplan \u201cgot clobbered\u201d in the stock market collapse of 2008. The trustees\nrealized that, with a high proportion of retirees to paying members and fewer\nmusicians making a living in the digital era, “the pension plan would run\nout of money\u201d in 30 to 40 years, said Schwartz, the musicians\u2019 lawyer.<\/p>\n\n\n\n
What to do? By\n2010, the U.S. stock market had fallen by nearly half from its\npre-mortgage-crisis high. Plan leaders — including union heads elected by\nmembers, as well as employer representatives (the Philadelphia Orchestra was\npart of the plan before its 2011 bankruptcy) — should have broadcast the\nfund\u2019s dim future and pushed for more pension contributions or reduced\nbenefits.<\/p>\n\n\n\n
But instead of\nbraving those unpopular steps, trustees \u201cmade a decision: \u2018Let\u2019s gamble our way\nout of this,\u2019\u201d said Schwartz.<\/p>\n\n\n\n
Among other steps,\nthey doubled investments in two categories — \u201cemerging\u201d stock markets in\ndeveloping economies , and private equity, typically buyouts of troubled U.S.\ncompanies. Those bets came to comprise 9 percent of the fund, and reduced\ninvestment in U.S. stocks, which were beginning their longest sustained price\nincrease since World War II.<\/p>\n\n\n\n
Over the next year,\n\u201cemerging markets,\u201d instead of rising, fell so sharply that market wags called\nthem \u201csubmerging markets.\u201d Many private investments also floundered.<\/p>\n\n\n\n
That didn\u2019t scare\nthe board. \u201cThey doubled down,\u201d said Schwartz, boosting emerging markets to 11\npercent and private equity to 15 percent — totaling more than a quarter of the\nfund, from less than 5 percent two years earlier. At the same time, they\ncontinued to reduce U.S. stocks to around 20 percent at a time when the\nPhiladelphia city pension system and many other large plans were closer to 40\npercent.<\/p>\n\n\n\n
U.S. stocks\ncontinued to beat the private and foreign investments that the trustees\nfavored. No matter: In 2015 the board approved boosting emerging markets yet\nagain, to 15% of the fund, and private equity to 18 percent — totaling\none-third of plan assets.<\/p>\n\n\n\n
Many of those\ninvestments proved a drag on plan returns. They reduced profits when other long\nterm investors, including the Montgomery County pension fund, were switching to\nVanguard Group-style index funds, which, they noted, tended to do as well as or\nbetter than professional stock-pickers, at lower fees.<\/p>\n\n\n\n
According to the\ncomplaint, the fund didn\u2019t make clear enough to the members that it was in\ntrouble, as required under the federal ERISA law. \u201cIt\u2019s easy to play \u2018hide the\nball\u2019 in reports to pension plan participants,” said lawyer Kriner. The\ntrustees\u2019 lawyers said their clients complied with the law.<\/p>\n\n\n\n
Growing worries\nabout the pension plan and the prospect that benefits might have to be cut led\nto the formation of a dissident union group, Musicians for Pension Security. In\n2018, Tino Gagliardi, a pension trustee, and career trumpeter, was defeated in\nhis bid for re-election as president of musicians\u2019 Local 802 in New York. (He\nremains on the pension board.)<\/p>\n\n\n\n
Will the fat legal\nsettlement clear the way for other pension complaints against trustees? \u201cI bet,\nwhen you see some of these pension plans tanking and losing value in the\nfuture, if you look at their prior disclosures, you\u2019ll see similar problems,\u201d\nsaid Kriner.<\/p>\n\n\n\n
Still, the\nmusicians\u2019 case has unusual features, said Schwartz. \u201cNo other plan took quite\nthis kind of allocation plan,\u201d he said. The trustees had effectively \u201cpulled\nthe goalie,\u201d he said, referring to the hockey move where the losing team\nreplaces its goalie for an attacker in hopes of coming from behind — but risks\nlosing more decisively.<\/p>\n\n\n\n
From January 2010 –\nNovember 2017 the Plan had average annual returns of about 7.56%, according to\nthe plaintiffs; Vanguard\u2019s Index Balanced Fund returned 9.79% in that period, a\nsignificant difference underlining the shortfall from the trustees\u2019 unusual,\naggressive approach, said Schwartz.<\/p>\n\n\n\n
\u201cThe\nmessage here is, if you are going to take out-of-the-box risks as a pension\nplan trustee, you better disclose that you are doing that, and make very sure\nabout understanding, not just the potential upside of the risk, but also the\ndownside.” <\/p>\n\n\n\n
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II. ANOTHER INCOME DRAIN FOR THE AFM<\/p>\n\n\n\n
For years, the AFM was charging $50 per musician for foreign orchestras who wanted to tour in the US. Some years ago, those fees were raised to $250 per player. Apparently the AFM has become quite dependent on these fees.<\/p>\n\n\n\n
With the Covid-19 Pandemic, that income has vanished and it was reported by a New York member that the AFM might wind up having trouble paying their Time Square rent if it lasts more than a few months.<\/p>\n\n\n\n
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III. COMMENTS<\/p>\n\n\n\n
I heard this idea floated by\na few people and it\u2019s worth repeating here:<\/p>\n\n\n\n
With work now disappearing\nat a rate (I\u2019m in NYC and never seen it so bad) never seen before because of\nthe Corona Virus, we all need to write the Film Musicians Secondary Markets\nFund and DEMAND they release our residuals payments NOW rather than wait til\nJuly 1st.<\/p>\n\n\n\n
please email: Kim Roberts at\nthat office at<\/p>\n\n\n\n