3 The Fund’s Diminishing Capital

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 8: Acceleration of Nest Egg Reduction (Capital Erosion).


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).

Figure 9: Deficit as a Percentage of Net Assets (Capital Erosion).


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.

Figure 10: Employer Contributions


Unfortunately, contributions have not been able to keep up with increasing benefit payments (Figure 11).

Figure 11: Employer Contributions and Benefit Payments


Figure 12: Percentage of Benefit Payments Covered by Employer Contributions


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%).