Key Takeaways
- • The trustees of the American Federation of Musicians and Employers' Pension Fund agreed to pay $26.85 million to settle a nearly three-year-old class action accusing them of excessively risky investments from 2010 through 2017, without admitting fault.
- • The plaintiffs said the plan held just 18% in US equities versus a peer median of 33%, and 27% in international equities versus a peer median of 10%.
- • Insurers are funding at least $17 million of the settlement, and no current or former trustee defendants are paying personally, according to the trustees.
- • The settlement requires a neutral independent fiduciary trustee for four to five years and replacement of Meketa Investment Group as outsourced CIO monitor via an RFP process approved by plaintiffs.
- • The plan is certified in "critical and declining" status, projected to run out of money within 20 years, and recently applied to the US Treasury to reduce earned benefits under the MPRA.
Summary
The trustees of the American Federation of Musicians and Employers' Pension Fund have agreed to pay $26.85 million to settle a class action lawsuit that accused them of making overly risky bets with plan assets. According to the settlement, the payment represents the vast majority of provable damages that likely would have been won at trial, according to the plaintiffs. The defendants continue to deny all claims and admit no fault.
According to the complaint, the plan underperformed its peers because trustees set an asset allocation policy that underweighted public equities during an unprecedented bull market while overweighting higher-risk, worse-performing assets. The plaintiffs said the plan held 18% of its assets in US equities compared with a peer median of 33%, and 27% in international equities compared with a peer median of 10%. The plaintiffs described the trustees' conduct as "wild and excessive" risk-taking and said the plan's decisions reflected breaches of duty.
The settlement imposes governance changes. Trustees must appoint a neutral independent fiduciary trustee for four to five years. That trustee will serve as a non-voting board member and as a member of the investment committee, with full access to relevant information and participation in all meetings on investments, including asset management and allocation. Trustees must also replace Meketa Investment Group as the plan's outsourced CIO monitor through an RFP process approved by the plaintiffs. Meketa served as investment consultant from 2010 through 2017.
Both sides claimed victory. The trustees said at least $17 million of the settlement would be paid by fiduciary insurers and that the alternative was to let insurance proceeds be consumed by legal fees. Musicians for Pension Security (MPS), the plaintiff group, called for court records to be unsealed. Context for the settlement includes the plan's earlier application to the US Treasury Department to reduce earned benefits under the Multiemployer Pension Reform Act. The plan has been certified in "critical and declining" status and is projected to run out of money within 20 years.
According to the complaint, the plan underperformed its peers because trustees set an asset allocation policy that underweighted public equities during an unprecedented bull market while overweighting higher-risk, worse-performing assets. The plaintiffs said the plan held 18% of its assets in US equities compared with a peer median of 33%, and 27% in international equities compared with a peer median of 10%. The plaintiffs described the trustees' conduct as "wild and excessive" risk-taking and said the plan's decisions reflected breaches of duty.
The settlement imposes governance changes. Trustees must appoint a neutral independent fiduciary trustee for four to five years. That trustee will serve as a non-voting board member and as a member of the investment committee, with full access to relevant information and participation in all meetings on investments, including asset management and allocation. Trustees must also replace Meketa Investment Group as the plan's outsourced CIO monitor through an RFP process approved by the plaintiffs. Meketa served as investment consultant from 2010 through 2017.
Both sides claimed victory. The trustees said at least $17 million of the settlement would be paid by fiduciary insurers and that the alternative was to let insurance proceeds be consumed by legal fees. Musicians for Pension Security (MPS), the plaintiff group, called for court records to be unsealed. Context for the settlement includes the plan's earlier application to the US Treasury Department to reduce earned benefits under the Multiemployer Pension Reform Act. The plan has been certified in "critical and declining" status and is projected to run out of money within 20 years.
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