Philly out of the AFM-EP Fund?

This is potentially a very big deal:

The American Federation of Musicians and Employers Pension Fund (the “Fund”) said today that an agreement reached by the Philadelphia Orchestra Association is the culmination of a strategy to avoid its obligation to pay the Fund contributions of up to $35 million it owes for benefits earned by its musicians.

“The Philadelphia Orchestra Association has taken advantage of the legal process and arranged its finances in a way that damages the pension benefits of musicians across the country,” said Raymond Hair, co-chair of the Fund, and President of the American Federation of Musicians. “From the outset, the Association has distorted aspects of its financial condition so that it could eliminate its obligations to pay for pension benefits that were already earned.”

In response to the news that the Philadelphia Orchestra Association reached a new collective bargaining agreement that allows it to withdraw from the Fund, a $1.7 billion non-profit organization that provides needed pensions to approximately 50,000 musicians across America, Mr. Hair said that the Association’s leaders had presented a skewed version of its true financial condition to their own employees, their donors and the Bankruptcy Court.

The Philadelphia Inquirer reported on some other details of the new deal:

– A minimum annual salary of $106,000, rising to $111,800 in 2012-13; $117,000 in 2013-14; and with 2014-15 stepped up from $119,600 to $124,800. That last amount is the current base minimum.

– A hiring freeze will cut the official size of the ensemble from the current 105 instrumentalists and two librarians to 95 instrumentalists and two librarians, with the reduction achieved through retirements and attrition.

– Replacement of the current defined benefit pension plans with a 403b plan in which the Association contributes 8 percent of the minimum weekly salary for orchestra members under the age of 40; 9.5 percent for those between 40 and 50; and 10.5 percent for those 50 and older.

– Substitute players, including returning retirees, will be paid at 85 percent of the minimum weekly scale, with a vague exploration of an expanded relationship with the Curtis Institute of Music to create “greater work and learning synergies.”

…Changes in the pension plan are contingent on approval by the Pension Benefit Guarantee Corp., the federal agency that makes up pension obligations employers are unable meet. “In the event the PBGC does not agree to a distress termination, then this agreement may become null and void upon the election of either party and the parties may promptly meet to negotiate a new collective bargaining agreement,” says the memorandum of agreement between the musicians’ union and the Association.

This is an extremely complicated situation, of course, and having labor negotiations overseen by a bankruptcy court changes the normal dynamics of concessionary bargaining (which, sadly, has become common enough to have “normal dynamics”) in ways that I don’t fully understand. But I do find it fascinating that the AFM is essentially denouncing a deal negotiated by one of its premiere ensembles, represented by a Local whose president is a member of the AFM’s International Executive Board. To make things even more interesting, the negotiating counsel for the Philadelphia musicians (and, technically, for the Local) was Susan Martin, who is ICSOM’s new legal counsel and who reports to a Governing Board which has two members also serving as trustees of the AFM-EP Fund. I would bet there have been some very… interesting conversations recently between ICSOM, 1501 Broadway, the Local in Philly, and the musicians of the Philadelphia Orchestra.

That’s not to say that either the AFM or the Philly musicians are behaving irrationally, unethically, or contrary to recognized principles of trade unionism. Having Philly get away with leaving the Fund without paying its withdrawal liability would indeed be a damaging blow to an institution that is going to provide retirement income to thousands of AFM members (including me), although more for what it might portend than for the immediate financial loss – and it may be that the whole bankruptcy experience in Philly has proven messy and expensive  enough to deter any other managements fantasizing about a similar escape hatch, which seems to be the AFM’s major fear.

From the musicians’ standpoint, on the other hand, further contributions to the Fund at the current benefit rate do not presently look like an attractive investment, although one would have to have 20-20 foresight to confidently predict that any investment vehicle available to participants in a 403(b) plan would do better.

Overall, the situation is a wonderful illustration of just how tangled and complex relationships in this field can be, even (or perhaps especially) amongst those who are supposed to be on the same side of the table.