Fund Status FAQs

The application for special financial assistance was resubmitted March 15, 2024

As we reported in the December 2023 issue of Pension Fund Notes (PFN), there was a slowdown in the Pension Benefit Guaranty Corporation's (PBGC) review process for all applications, including ours, due to a new application requirement that was added by the PBGC. The American Federation of Musicians and Employers' Pension Fund's (AFM-EPF) application was resubmitted with the information needed to satisfy the PBGC's new requirement on March 15, 2024.

The PBGC's new requirement had nothing to do with the content or quality of our application and is the result of issues with other funds' applications that have been previously filed. The PBGC took longer than anticipated to update its internal procedures to address these issues. The resubmission happened later than we anticipated as a result of the PBGC's new requirement and revised review process mentioned above and, therefore, we expect that the approval will happen in the summer of 2024.

ARPA stands for the American Rescue Plan Act of 2021. ARPA allows certain troubled multiemployer pension plans to obtain special financial assistance through the federal Pension Benefit Guaranty Corporation (PBGC). The special financial assistance is intended to provide these plans with the additional funding they need so that they are projected to be able to pay benefits due through 2051, without reductions to participants' benefits. Our Plan qualifies for special financial assistance because it is in critical and declining status and is projected to run out of money in the next 20 years.

Following the PBGC's approval of a plan's application, special financial assistance under ARPA will be paid to the plan in the form of a lump-sum grant that does not need to be repaid. For plans that meet the eligibility requirements, it's not a matter of whether they will receive special financial assistance, it's a matter of when (depending on filing and approval) and how much.

No. ARPA does not impose any reductions to participants' benefits in plans that receive special financial assistance.

On March 10, 2023, the AFM-EPF applied for special financial assistance. Due to the amount of financial assistance to which it is entitled, the AFM-EPF was in a special priority group, and so did not have to wait in line with the over 100 plans that could only join a waiting list to apply starting March 11, 2023. On June 30, 2023, after extensive discussions with the PBGC, the AFM-EPF's application was withdrawn in order to make some revisions that the PBGC requested. This is common — approximately 30% of the applications that had been approved at that time first had to be revised and resubmitted based on feedback from the PBGC. The AFM-EPF's revised application was submitted on August 4, 2023 and was identical to the prior application other than data updates and the few issues the PBGC asked us to address.

On October 30, 2023, the AFM-EPF's application was withdrawn and resubmitted in order to make a data entry correction in the revised application. This was done through the PBGC's amendment process, under which PBGC tries to make its decision by the deadline that applied to the pre-amendment submission or shortly thereafter. This amended application used the figures from the audited financial statements as of December 31, 2022, which were not available in August but were available at the time of the amended submission.

On November 16, 2023, we were informed of a PBGC policy change that affects all applications under review and those still to be submitted and will shift the anticipated approval date of our application. The delay is solely due to PBGC's policy change and has nothing to do with the content or quality of our application. It would have affected our plan even if we had not had to revise the application.

On February 23, 2024, the AFM-EPF's application was withdrawn to make the revisions described above.

On March 15, 2024, the AFM-EPF's application was resubmitted with the information needed to meet the PBGC's new requirement. PBGC has advised us that our application will stay on track and we will not be placed at the back of the waiting list. We now expect approval of AFM-EPF's application in the summer of 2024. (See FAQ 5 for more information.)

The PBGC is requiring all applications currently under review, as well as those that have yet to be submitted, to submit to a new audit requirement.

• The PBGC's Office of the Inspector General (OIG) raised concerns that, in the PBGC's review of SFA applications, it was not cross-checking the routine death searches conducted by plans such as the AFM-EPF against a database that is only available to the federal government (not available to our Plan) to ensure that all reported participants were alive. The OIG was concerned that this could lead to inaccurate payments, so the OIG recommended that the PBGC use the federal database to conduct death audits of all plan participants. (Click here to learn more.)
• As a result, the PBGC changed its policy at the beginning of November and is now conducting an independent death audit (in addition to the ones conducted by plans) for all participants to ensure that everyone counted in the calculation of requested financial assistance was still living.
• This new policy originally applied to all new applications (those yet to be submitted) but was then extended to all of the applications currently under review as well, and will require Plans that have already been approved and received SFA to undergo this review also.
• As we previously reported, the AFM-EPF amended and resubmitted its application on October 30, 2023. This new requirement would have applied to us even if we had not amended our application.

The PBGC's policy change has nothing to do with the content or quality of our application. This change in policy means a delay in approval, but our application maintains priority status for review.

• The AFM-EPF has supplied multiple rounds of information requested by the PBGC for the PBGC to perform its independent death audit. The Plan has responded to the PBGC's initial findings and resubmitted our application.
• It's not unusual to receive a death report weeks or even months after the date of a death. The response to PBGC identified some deaths that were reported after the application was filed and were not reflected in our application. We were required to withdraw and resubmit our application because PBGC's new procedure requires that this be done if even one person who died before the date we used to determine the population used in the application was identified – even if that death was reported after the application was filed.
• PBGC advised us that our application will stay on track and we will not be placed at the back of the waiting list.
• We now anticipate approval of our application during the summer of 2024.

The Fund remains eligible for assistance under ARPA – it's only a matter of how much and when it will be paid.

• The point of SFA is to provide the amount of assistance that results in the Fund being projected to be able to pay benefits through 2051 without reductions.
• The Fund will receive interest on the amount of financial assistance from December 31, 2022 to the date the financial assistance is paid.

In the meantime, the Plan will continue to pay all benefits. It currently is projected to have enough funds to pay all benefits through 2034. Once in hand, the financial assistance is expected to provide additional security that all benefits will be paid for decades to come.

The Pension Plan's rules do not allow contribution rate reductions. In addition, plans receiving special financial assistance generally are not allowed to permit reductions in employer contribution rates.

ARPA did not put a cap on the total amount of special financial assistance available.

As of the most recent application submitted, we expect the Plan will receive $1.44 billion of assistance plus interest on the assistance amount from December 31, 2022 to the date it is paid.

The special financial assistance under ARPA is intended to provide plans with the additional funding they need so that they are projected to be able to pay benefits due through 2051, without reductions to participants' benefits. The calculation to determine the amount of special financial assistance the Plan receives started with the assets of the Plan as of December 31, 2022, then factored in the expected income and outflows from 2023 through 2051.

The special financial assistance is intended to provide our Plan with the additional funding we need so that we are projected to be able to pay benefits through 2051. To the extent the Plan can outperform some of the assumptions that ARPA requires us to use, it may remain solvent beyond that. Right now, we are cautiously optimistic. Market conditions, investment returns, and future contributions to the Plan are a few of the many factors that will have an impact on the Plan's financial health in the decades to come and are unknown. We will continue to monitor our progress along the way.

ARPA requires the PBGC to approve an eligible plan's request for special financial assistance unless the application is incomplete or includes “unreasonable” assumptions. The PBGC raised a few technical issues in our initial application and we addressed them promptly. We filed the revised application on August 4, 2023. To correct a data entry error in the revised application submitted in August, the application was withdrawn and resubmitted on October 30, 2023. Shortly thereafter, the PBGC implemented a policy change requiring PBGC to perform an independent death audit of all participants – including for applications already in the review process and future submissions. In response to this new audit requirement, the application was resubmitted on March 15, 2024.

Before the PBGC's new audit requirement, approximately 35% of the applications that had been approved were withdrawn and resubmitted at least once. With the change in PBGC procedures, all applications that were in process had to be revised. In any case, the PBGC pays interest from December 31, 2022 to the date the SFA is paid.

ARPA requires plans to keep the special financial assistance separate from other plan assets. According to PBGC rules, 33% of special financial assistance may be invested in "return-seeking assets" and at least 67% must be in investment-grade, fixed-income securities. At a minimum, plans that receive special financial assistance are required to invest at least one year of projected benefit payments and administrative expenses in investment grade, fixed-income securities.

Yes. Participant benefit improvements will not be permitted in the first 10 years after receiving the special financial assistance under ARPA unless they are for future accruals only and fully paid for with new contribution increases not initially considered in the application. After 10 years, a plan may request an exemption from this rule if it can demonstrate that it will avoid insolvency even with the benefit improvement.

In general, a plan receiving ARPA special financial assistance will also not be permitted to allow reductions in an employer's contribution rate. More specifically, an employer's contribution rate in each collective bargaining agreement cannot be any lower than it was on March 11, 2021, the date that ARPA was signed into law.

These restrictions on benefit increases and contribution rate reductions will expire after 2051.

There will be little impact on the calculation of withdrawal liability, at least in the short- to medium-term.

The special financial assistance will not be recognized all at once when calculating withdrawal liability. In accordance with the final rule from the PBGC, it will be phased in over several years. For this Plan, special financial assistance will be recognized over eight years, beginning with the Plan year in which we receive the funds.

The regulations also prescribe the methodology for selecting the interest rates that must be used during the ten plan years following the receipt of the assistance to determine withdrawal liability amounts and payment schedules. This is the same methodology that is currently used by the Plan.

As of January 2023, the Plan had roughly $1.7 billion in assets and about $3.5 billion in liabilities, which is the value of all the benefits that have been earned by participants for services already performed and that will be paid in the future. That means that the Plan is about $1.8 billion underfunded.

Our actuaries determined that the Plan entered "critical and declining status" in April 2019. It remains in that status today. The Plan is currently projected to run out of money to pay benefits (or become "insolvent") in 2034 – well beyond any timeline for receiving special financial assistance.

Under ARPA, the AFM-EPF and other troubled multiemployer plans that are critical and declining or meet other criteria may obtain special financial assistance from the PBGC. This financial assistance is intended to provide these plans with the funding they need so that they are projected to be able to pay benefits due through the plan year ending in 2051, without reductions to participants' benefits. To the extent the Plan can outperform some of the assumptions that ARPA requires us to use, it may remain solvent beyond that. Right now, we are cautiously optimistic. Market conditions, investment returns, and future contributions to the Plan are a few of the many factors that will have an impact on the Plan's financial health in the decades to come and are unknown. We will continue to monitor our progress along the way.

Plans that receive special financial assistance are deemed to be in critical status through 2051, so, you will continue to receive annual notices of critical status after the Plan has received financial assistance. (See FAQs 1 through 13 for more information on ARPA.)

No. The Trustees do not plan to lower the current $1.00 multiplier for future service.

The PBGC is a government insurance agency that provides financial assistance to plans that no longer have enough money to pay benefits on their own. Pension plans pay annual premiums to the PBGC. This financial assistance is independent of the new special financial assistance for troubled multiemployer plans created by ARPA as described above.

Although the PBGC provides financial assistance to insolvent plans, it does not necessarily "cover" the full benefit amount. Rather, it insures and pays benefits up to a maximum amount set by federal law, which is known as the PBGC "guarantee."

The PBGC's website has more information on how the guarantees are calculated.

The PBGC is also charged with administering ARPA's special financial assistance program for troubled multiemployer plans. (See FAQs 1 through 12 for more information on ARPA.)

All defined benefit multiemployer pension plans pay annual, per-participant premiums to the PBGC. These premiums are mandated by law and are not based on a plan's funded status. PBGC premiums are indexed each year for inflation, so they increase over time. In 2023, the Plan paid $1.8 million in PBGC premiums.

For 2024, multiemployer plan premiums are $37 per plan participant. ARPA increases the per participant annual PBGC premium to $52 in 2031. Plans must continue to pay PBGC premiums after receiving the ARPA special financial assistance, the amount of which will include the projected PBGC premiums through 2051.

Even though the current $1.00 multiplier is lower than multipliers in the past, the AFM-EPF still has important advantages over a defined contribution plan, such as a 401(k) or 403(b) plan. A retired participant receives pension benefit payments monthly for the rest of their life (and a reduced amount is received by the participant's beneficiary, if the participant elects a joint and survivor benefit). In contrast, payouts from a 401(k) or 403(b) plan are much less insulated from market downturns, and therefore provide less predictability and stability. And, unlike a pension benefit which is payable for your lifetime, you risk outliving your 401(k) or 403(b) retirement income.

AFM members can help the Plan by continuing to pursue work engagements covered by a union collective bargaining agreement requiring contributions to the Plan and to ensure that those engagements are reported to the Plan. All such covered employment, including single engagements covered by an LS-1, not only adds to your accrued retirement benefit - it provides more contributions into the Plan, which can improve the Plan's financial outlook through 2051 and beyond.

Under federal law, multiemployer pension funds like the AFM-EPF are administered by union and employer trustees with equal voting power. The Plan has sixteen Trustees - eight Union Trustees and eight Employer Trustees.

The AFM President appoints the Union Trustees. According to the AFM bylaws, at least three of the Union Trustees must be rank-and-file working musicians. Employer Trustees are appointed by the rest of the Employer Trustees or by the employers.

While the Trustees receive ongoing education and training, they are not professionals in investing or actuarial analysis. This is typical across the other 1,400 multiemployer pension funds because most recognize the importance of having trustees who are stakeholders that understand the industry and act in the best interest of participants. In the case of the Plan, the Union Trustees are working and retired musicians - just as ironworkers, actors and machinists serve as union trustees of their respective funds. The AFM-EPF Employer Trustees are current or former executives from the film, recording, symphonic, television and theatre industries.

The Trustees retain a wide range of experts to provide them with guidance and make certain investment decisions within parameters the Trustees establish. These experts include:

• The actuary, Milliman, which evaluates the funded status of the Plan and makes financial projections to inform the Trustees' decisions.
• The outsourced chief investment officer (OCIO), Cambridge Associates, which oversees day-to-day decisions for the Plan's investment portfolio—including the selection of asset managers - acting within established parameters.
• The independent monitoring fiduciary, Opus Investment Advisors, which assists the Trustees in monitoring the OCIO's performance.
• The law firms of Proskauer Rose LLP and Cohen, Weiss and Simon LLP, which provide legal counsel.
• The certified public accountants, WithumSmith+Brown, which advise the Trustees on accounting and financial reporting issues. Withum also conducts an annual independent audit.

Additionally, Andrew Irving, Manager of Blakeman Crest Advisors, serves as the Neutral Independent Fiduciary Trustee. He is a non-voting member of the Board's Investment Committee and an advisory resource to the voting members of the Investment Committee.

New Trustees meet for several hours with each of the Plan's professional advisors, i.e., Counsel, Actuary, Auditor and the Plan's Outsourced Chief Investment Officer (OCIO), to review matters within each advisor's and professional's expertise. They also meet with the Fund's Executive Director and such of her Directors as she may designate to review basic operations of the Fund and the Fund's various Committees, as well as the Trustees meeting schedule.

New Trustees each receive the Trustee Handbook, which, among other things, contains critical documentation, including the governing Trust Agreement and Plan document, the Summary Plan Description, certain administrative guidelines and procedures, contact information and the Fund's Investment Policy Statement. In addition, new Trustees receive the previous year's meeting minutes, the most recent audited financial statements and actuarial valuation, and the most recent investment performance report.

Each year, all Trustees have the opportunity to attend up to two educational conferences, seminars, and similar programs and events sponsored by, among other groups, the International Foundation of Employee Benefit Plans (IFEBP). There, the Trustees obtain important insights and knowledge relevant to performing their roles on behalf of the Fund prudently and for the benefit of the Fund's participants, including foundational principles of fund management and governance, current legislative and regulatory developments under ERISA, and other laws affecting the Fund, employee benefit plan administrative issues, economic and investment matters, and other issues relevant to the Fund. Trustees receive periodicals, newsletters, client bulletins and memoranda, and other relevant updates from the educational organizations and the Fund's professional advisors.

The Fund's advisors also provide ongoing education and training at regular Trustee meetings and at special educational Trustee meetings as the Trustees may schedule in their discretion from time to time.

While the Union and Employer Trustees do not receive compensation for performing their Trustee duties, they are reimbursed for expenses actually incurred in attending Trustee and Committee meetings, educational conferences and otherwise performing their duties.

The primary function of the Fund Office is to administer the pension benefits defined by the Plan Documents, including compliance with regulatory requirements. In addition, the Fund Office receives and processes contributions and related engagement reports from employers and performs recordkeeping of investment transactions, along with all other accounting transactions, which are audited by the Plan's independent Certified Public Accountants. The Fund Office does not make plan design or investment decisions – those responsibilities rest with the Trustees and the Outsourced Chief Investment Officer.

The following may give a sense of the degree of support required for a large, complex Plan like ours. In the fiscal year ending prior to the effects of the pandemic, the Fund Office:

• Maintained current databases for over 5,500 employers, 3,700 collective bargaining agreements and historical databases back to the AFM-EPF's inception in 1959.
• Processed over 25,000 contribution checks (representing approximately 51,500 engagements with total contributions of more than $68 million). These contributions result in over 640,000 engagement records to be included in the earnings accounts of approximately 40,000 participants.
• Completed over 550 pension estimates and processed 1,700 new pensioners. Pension benefits were paid to over 17,800 pensioners and beneficiaries monthly.
• Maintained participant data so accurate that less than 1% of the over 53,000 Annual Funding Notices, etc. distributed were returned with bad addresses.
• Fielded approximately 11,000 phone inquiries and responded to approximately 2,000 emails.

The Fund Office prides itself as a responsive, well-run, professional organization.