For all the reasons discussed prior to this (underestimated liabilities, exploding liabilities, poor investment management), the Fund has become increasingly dependent on its nest egg. Ideally, we would like to see a nest egg which throws oﬀ enough investment income that, combined with contributions from employers, would completely fund beneﬁts and continue to grow. The reality is, unfortunately, not ideal. In fact, we believe the numbers show that we have reached the point where, as each year passes, more and more will have to be done to ﬁx the Fund. Each year beneﬁt cuts are delayed will only make them larger. Each year capital sources of greater size will have to be found. If we wait too long, all will be lost.
As we pointed out earlier, due to the high discount rate used to estimate the accrued liability, employer contributions were substantially lower than they needed to be to fund beneﬁts and beneﬁts were set too high, too soon. As more people retire, this inevitably shows up as a reduction in the Fund’s “nest egg”. This is what we call “capital erosion”.
What’s especially alarming is that the capital erosion has accelerated dramatically in recent years. As shown in Figure 8, it took only six years between 2009 and 2015 for the Fund to consume as much of its nest egg as it did in the previous eighteen! This is one of the reasons we believe the Fund is nearing a crisis point.
Figure 9 shows the annual deﬁcit as a percentage of net assets. The chart stops in 2015, but if the trend from the early 1990’s had continued, we would only be experiencing a 3% deﬁcit instead of the 5.1% deﬁcit in 2015 (and a 5.5% deﬁcit in 2016).
As a result of underfunding and poor investment performance, the Fund has become more and more dependent on current employer contributions to fund beneﬁts. As the Trustees note, fewer union musicians are working and more are retiring. Despite this, employer contributions have actually increased as shown in Figure 10.
Unfortunately, contributions have not been able to keep up with increasing beneﬁt payments (Figure 11).
As you can see from Figure 12, the chickens have indeed come home to roost. The percentage of beneﬁt payments covered by contributions has been steadily declining for 24 years. In 1992 contributions paid for 67.6% of all beneﬁt payments, requiring the Fund to pull $11 million (1.34%) out of its “nest egg”. By 2015, contributions paid for only 42.3% of yearly beneﬁt payments. This required an $86 million dollar reduction in the nest egg (5.1%).