Grim times loom as US musicians face 40% pension cut

Grim times loom as US musicians face 40% pension cut


norman lebrecht

January 08, 2021

The American Federation of Musicians and Employers’ Pension Fund has applied once more to the U.S. Treasury Department for permission to slash benefits for around half of its 51,521 members.

The pension fund is currently in ‘critical and declining’ status, following years of warnings from musicians that it was being mishandled. It is now expected to run dry within 20 years.

If approved by the Treasury, the new cuts will kick in next January 1.

Over-80s will not be affected.



  • CA says:

    Outrageous that it has been so poorly run for so long.

    • Old Man in the Midwest says:

      While returns have not been good since the start of the Bull Market (2009 onwards), there are some mitigating factors.

      Up until about 2000, there were actually a surplus of funds and the US government decreed that rather than run a surplus and have extra funds on hand, it would be better to distribute them. So retirees prior to this time actually had a high “multiplier” and received much more than they put in.

      Along the way, many orchestras that reorganized under Chapter 11 bankruptcy laws discarded their in-house pensions and reverted to the AFM pension causing more strain.

      Finally, over a decade of low interest rates have made bond and fixed income returns truly pathetic meaning that more risk (stocks) is needed to meet target return goals. Very hard to balance risk and reward.

      Yes the fund has not performed well against the Indexes but there are other factors that have to be considered when criticizing the plan.

      • Stewart Frankel says:

        The trustee’s poor investment performance and purposeful lying to rank and file are both scandals. Period.

        • JoshW says:

          Even though the rank and file has been told this for years – so there is considerable culpability there as well.

      • NYMike says:

        Actually, the IRS said it would tax managements if the Fund was over-funded, leading to the unreaslitic raise in the multiplier and the fund’s current troubles.

  • J Barcelo says:

    Don’t worry…they’ll go to a Democrat run Congress and ask for a bail out, along with bankrupt cities like Democrat-run Chicago and Los Angeles. The new Democrat president will sign the bill. Heck, we’re just $27 trillion in debt, what’s another hundred billion or so?

    • Fred says:

      Hmmm, now why is it no one cared about the national debt when it quadrupled during Trump’s fat cat tax cut tenure?

      • Barry Guerrero says:

        . . . plus there’s always those U.S. printing presses to mint fresh billions; hand them directly to secret black budgets for secret black projects of all sorts. Space Force anyone? . . . reverse engineered UFO’s?

      • BruceB says:

        Similar to Republicans in Congress arguing against another impeachment (this time for unquestionably impeachable actions that unquestionably did happen), saying it would be hasty and divisive.


    • Chris says:

      Sounds like a great idea, what with the US maintaining the world’s reserve currency. We very obviously can and should print our way out of this and many other financial problems. Other countries will line up to purchase US debt instruments at zero or even negative real interest rates just as they have for decades.

      Of course, I imagine your REAL point is that bailing out the ultra-wealthy and corporate “people” is just fine; nothing to see here, move on.

    • Maestro5151 says:

      At least no one will be storming the Capitol complaining about a “stolen” election.

  • Curvy Honk Glove says:

    So the same people who can’t maintain financially solvent performing organizations can’t manage a pension fund. Color me shocked. I’ve been in the industry a while, and the musicians I interact with are constantly patting themselves on the back for how brilliant they are. Rarely have I ever heard my colleagues say they didn’t know something or weren’t a qualified expert in everything, and for all that intellect and education, the industry perpetually fails itself.

    • Hayne says:

      Ha ha! So true and that includes me:)

    • Mick the Knife says:

      If you looked at funding of symphony orchestras through the years, they have never run as a for-profit business. The same is true about higher education. There has always been a need for donations and, in some cases, government funding. Both are highly tied to the health of the economy, which is not under their control. So, to make a blanket statement “they can’t maintain a financially solvent…organization” is pretty unfair.

    • sam says:

      How do you spell schadenfreude?

    • NYMike says:

      The people running performing organizations (orchestras, ballets, operas, etc.) are not the same as those who are AFM-EPF’s trustees. Best you learn facts before you post.

  • DAVID says:

    The story is actually much more nuanced and much more complex than the fund simply being “mishandled.” The real culprit here is a magic number called the “multiplier” — essentially a coefficient used in order to calculate a specific person’s benefits given their amount of contributions to the fund (which are themselves based upon one’s earnings). Years ago this multiplier was raised to 4.65 — a level which was simply not sustainable, as with a multiplier of 4.65, a beneficiary would then earn a yearly 55% rate of return. As an example, for just a one-time contribution of $100,000, a beneficiary would then receive $55,000 a year — not just for one year, but for life. Anyone thinking this to be sustainable long-term is simply out of touch with reality. Any insurance agent familiar with annuities would find such a rate of return simply insane, and of course not even professional hedge funds could manage a comparable rate of return year after year. It was sustainable for those years during which the stock market was booming, but things changed in 2008 when the market crashed, though the fund’s liabilities remained the same and in fact increased — and are still increasing. The multiplier was then changed to 1 for work performed after 2010 and was gradually decreased for work done before 2010, but even that wasn’t sufficient to put the fund on a sustainable path. And because the application to cut benefits was denied last year, the cuts for all work done up to 2010 went from 15.5% to 30.9% — they essentially doubled in a year. The saddest thing about this is that it has turned what should have been a reliable benefit for thousands of musicians into a Ponzi scheme in which the younger participants essentially get nothing, especially so when one takes inflation into account. For the exact same amount of work, someone starting out today and eventually eligible for a pension, for instance $2,000 a month, would have actually gotten $9,300 a month under the old multiplier — for the exact same amount of work and level of contributions to the fund. And, to add insult to injury, that’s probably in 20 years’ time or so, at which point inflation will have turned this pension essentially into a stipend, whereas older participants are still doing quite well comparatively given the current cost of living. Many people have faulted the Union for this, accusing it of mismanagement, but very few people were complaining during those years when the fund was already on its current, unsustainable path and paying out hefty monthly benefits. It truly is an exercise in delusion and lack of self-awareness. In fact, this problem is far from being limited to the AFM — it has affected many major multiemployer pension funds in the United States, in great part due to outdated legislation which at the time forced pension funds to increase their multipliers when they were deemed to be “overfunded” (which obviously in retrospect they were not). For anyone skeptical about this, I invite them to peruse the current list of multiemployer pension funds currently in “critical and declining status” on the U.S. Department of Labor website — you will see that the list is quite long and that the AFM is far from alone in this. It is in fact a systemic problem that has only now come home to roost.

    • Monsoon says:

      Part of it is that their investment strategy its terrible.

      Their fiscal year ending March 2018, the fund earned only 10.68% pre-fees and 10% after fees. With dividends reinvested, the S&P earned 16.557% during that period.

      Fiscal year ending March 2019, it was 4%, then 3.18%. The S&P did 7.543%

      Fund details here:

      While it would have been impossible to earn the returns needed with their multiplier to keep the fund solvant, they paid their fund managers as much as 20 percent of their investment income to under perform the market by 50 percent. That’s simply shameful.

      One of the ways the Fund can course correct is firing their fund managers and just putting 90 percent of the money into VTI or VOO, and the rest into bonds.

    • Stewart Frankel says:

      Irrespective of the long term realities, the investment strategy failures of these trustees was epic. The reason the fund is here, at this moment and not 15 yrs from now, is those investment failures. To suggest that it’s simply about the overpromise is distortion. And the overpromise is actually more evidence of endemic incompetence, not less.

      • DAVID says:

        If it simply were distortion, you wouldn’t have 61 pension funds in critical and declining status for 2020 alone, and at least as many for each of the past 6 years. This is a systemic problem caused by several factors, but less than optimal investment returns alone cannot account for the crux of the issue, which does remain the high multiplier. I’m not saying the Union could not have done many things differently — they probably could have. However, everyone seemed quite happy with their management of the fund until the past few years. As to the oft-cited suggestion that they should simply have invested the bulk of the fund in indexes, that is highly misinformed, for the simple reason that you just don’t manage that kind of money the same way that you manage an individual’s 401k. When you have over a billion dollars invested in the market and must on top of that ensure your ability to meet your liabilities on a regular basis, you need to manage risk. You can’t just invest everything in the S&P and hope for the best — that would be utterly irresponsible. The market may have been strong recently, but hindsight is 20/20 — by the same logic, had they invested all of the fund in Bitcoin 10 years ago, we wouldn’t be having this conversation today. Judging from many appalling comments last year on the Treasury Regulations website, it seems that many participants have a very hard time acknowledging reality, preferring to still believe in Santa Claus, and have absolutely no problem throwing their younger colleagues under the bus as long as their benefits remain unaffected. This entire thing has made an absolute mockery of the concept of union solidarity.

        • Monsoon says:

          The belief that money in pension funds and endowments needs to be actively managed is simply wrong, and the data shows this.

          The way a fund works is quite simple: The earnings are tapped for expenses, not the principal. Some years you’re going to miss your earnings target or your expenses exceed projections, and you have to tap into the principal — you don’t want to sell stock when the market is down and take a loss. The solution to that is simple: keep a portion of the principal in bonds, and a smaller percentage in cash.

          You say:

          “You can’t just invest everything in the S&P and hope for the best.”

          Actually, you can. Compare the historic data on the S&P going back to its inception vs. the annual returns the fund managers are producing. The S&P always outperforms them.

          This is why a growing number of university endowments are looking to dump their fund managers and switch to index funds. They’ve paid the fund managers a fortune over the last 20 and 30 years to under perform the market.

          It’s also why there’s now more money invested in index funds than active managed accounts.

          But let’s say your argument is that you don’t care about matching the S&P; you want to minimize volatility of your fund’s value even if that means low returns. You don’t need active management for that — just increase the portion of your fund invested in bonds.

          • DAVID says:

            I doubt very much that what you’re describing is even remotely realistic when one takes into account that the fund needs to pay out around 170 million a year to over 40,000 participants and furthermore be able to do so on a monthly basis. I can’t even begin to imagine the impact a 30% market crash would have on your scenario, even with a portion of your portfolio invested in bonds — especially given the fact that this yearly liability represents around 10% of the overall portfolio, which is simply enormous. Furthermore, this portfolio keeps dwindling every year, as liabilities increase while participation in the fund actually decreases — and that’s assuming stable rate of returns, a market drop makes these numbers much worse. What you’re describing might well be valid for someone starting out and having 20 to 30 years in front of them, which would allow them to survive most volatility. It’s a whole different story, however, when you have to meet expenses on a monthly basis and need to make sure that you don’t experience such a dip in your overall portfolio that your ability to meet expenses becomes severely compromised. Such a dip would then force you to sell a portion of your portfolio in order to meet those expenses at the worst possible time, which means that you would have a much weaker base in future years for healthy returns as you would have had to sell part of your portfolio simply in order to survive. To present the situation as you’re describing is both reductive and misleading, but I’m sure it’s very appealing to a simplistic approach that refuses to take complexity into account. “Historical data” looks really good in hindsight, however it’s a much different story when you can’t pay your bills because the market just happened to drop 30% and you’re just not sure what to do next — whether sell, hold, or actually buy. In fact, in most cases, you don’t have a choice — you sell, and then when the market recovers, you realize how much you’ve lost because you initially failed to correctly assess your risk.

  • Violist says:

    One thing conspicuously absent from the comments above is the lying about the performance of the fund by the fund’s Trustees for years. All of this has been made public in depositions in Snitzer/Livant vs. AFM Trustees et al. The trustees knew since 2012 that the pension fund was in trouble but intentionally (and repeatedly) withheld that information from the Fund’s constituents. It is a sad and disgusting story.

    • Stewart Frankel says:

      That is correct. Depositions from the case prove this, straight from the mouths of deposed trustees. And if you know anything about institutional investing, you can calculate the extent of their failure. Simple low cost indexed investing, from the time these trustees took office (2010) would have resulted in 100s of millions of additional fund assets. This is indisputable, and any attempt to divert from these failures is attempted propaganda.

    • JoshW says:

      Orchestra managements have known this for 20 years and have tried to inform their players but the players wouldn’t believe their big, bad managements. There’s more to blame here than the Trustees.

  • Simon says:

    Wait, I have an idea – hire more diversity executives. That’ll fix it!

    • PFmus says:

      Well gee, maybe it would, being that it was the non-diverse ones who ran it into the ground. Think diverse ones could do any worse?

  • JoshW says:

    Orchestra managements have been warning their musicians about this for at least 20 years and the musicians refused to listen. God forbid they should blame their own union for this – they’ll find a way to make it their management’s fault. Hey, maybe Gelb did it.

  • Monsoon says:

    What’s the pension fund invested in? The 10 year return on the S&P 500 is 267%; you don’t have to pay a hedge fund manager millions of dollars to see those returns — just buy a low-cost index fund that tracks that S&P.

    While I’m sure part of the problem is that fewer and fewer people are contributing to the pension fund while pensioners are living longer and longer, it’s shocking that the fund could be in a “critical and declining” status when the market has had incredible returns over the last decade.

    My guess is that they are paying a fund manager way too much money to try and beat the market and they’ve actually been coming in way under.

  • pastore says:

    In addition I believe that for some years there have been many fewer musicians paying into the fund. When I was growing up many hotels, nightclubs and even radio stations employed musicians, that is no longer the case. In Chicago many musicians made good money recording commercials, that has dried up as much can be computer-generated. I would guess that in the major cities the bulk of contributions to the pension fund comes from symphony and opera musicians.

  • drummerman says:

    What about the administrative staff of orchestras who get no pension at all and are not protected by union contracts? I don’t see anyone crying about that.

  • Greg Bottini says:

    Typical AF of M bullshit, and not surprising in the least.
    That organization, on both national and local levels, has been corrupt for a hundred years.