Nice little pension plan you got there…

It’d be a a shame if something happened to it. Oh wait… something just did:

The Pension Protection Act of 2006 requires the funding “zone status” for defined benefit multiemployer plans like the American Federation of Musicians and Employers’ Pension Fund (the “Plan”) to be certified each year by the plan’s actuary. The actuary for this Plan has advised the Plan’s Board of Trustees (the “Board”) that it expects to certify the Plan to be in “critical status” (also known as the “red zone”) for the Plan Year beginning April 1, 2010.

There are various tests to determine whether a plan enters critical status. This Plan is expected to enter critical status because it is projected to have an “accumulated funding deficiency” within the next four to five years. An accumulated funding deficiency occurs for any year that the amounts required to be charged against a plan’s “bookkeeping account” (mainly the cost of benefits earned during the current year and a portion of unfunded benefits earned during prior years, along with a portion of investment losses for the current and prior years) exceed the amounts required to be credited to that account (mainly employer contributions and a portion of the investment gains for the current and prior years).

…For plans certified as being in critical status, the law requires employers to pay a surcharge on contributions to the Fund. This surcharge is 5% of contributions effective from the Surcharge Effective Date through March 31, 2011, and 10% of contributions effective April 1, 2011. The Surcharge Effective Date is the date that is 30 days after the Plan sends a notice to employers regarding the surcharge, and is likely to be June 1, 2010 (but will not be before that date). By law, this surcharge is over and above the required employer contributions and will not generate any benefit accruals for participants. However, employers can take action that will result in a lower payment, as described below.

The surcharge will not apply if the bargaining parties adopt the contribution schedule required by the rehabilitation plan before the Surcharge Effective Date. The contributions required by this schedule are less than the surcharges and they generate benefit accruals, so the bargaining parties will wish to amend their collective bargaining agreements as soon as possible.

Specifically, the rehabilitation plan is expected to provide that the rate of employer contributions must be increased from the rate in effect on the Surcharge Effective Date. The rate increase required for the period from the Surcharge Effective Date through March 31, 2011 is 4%. The rate increase required on and after April 1, 2011 is 9%. For example, if a collective bargaining agreement has a 10% contribution rate, the rehabilitation plan will require that the contribution rate increase to 10.4% effective on the Surcharge Effective Date and to 10.9% effective April 1, 2011.

…The Board recognizes that these changes, which are legally required to implement a valid rehabilitation plan, will significantly affect participants and employers. Participants and bargaining parties should understand that the final details of the rehabilitation plan have not yet been established. Thus, the Fund Office will not yet be able to provide further information as to the particulars.

I guess we should have expected something this bad when the Fund announced its first symphonic management trustee in February. Those of us who’ve been around the bargaining block a few times know that an invitation to musicians to join their orchestra’s board is invariably in close proximity to the board (respectfully and reluctantly, of course) re-opening the collective bargaining agreement in order to take a healthy whack at musicians’ compensation.

It’s interesting to see our managements treated the same way by the AFM-EP Fund; unfortunately we’re still the ones getting screwed.