Philly Orchestra Challenged on Funding Pension

However, according to the Philadelphia Inquirer, a motion filed Monday in U.S. Bankruptcy Court by the American Federation of Musicians (AFM) essentially says: Prove it. 

The motion, which requests a broad range of documentation relating to the orchestra’s finances and operations, does not ask the bankruptcy court to take specific action beyond granting the start of the discovery process, but the musicians union is leaving no doubt about its intentions, the Inquirer reported. “We will not permit the company to attack the AFM fund without consequences to their endowment,” union president Ray Hair said, claiming the orchestra association had conceived of bankruptcy as an “escape hatch” to avoid pension obligations.  

The association has said that any reduction in its endowment will jeopardize its chances of achieving long-term financial stability. The orchestra holds $120 million in endowment; the Academy of Music, which the orchestra owns, has an additional $20 million.  

The association has said it does not intend to abolish musician pensions, but would like to replace the defined-benefit plan with a defined-contribution plan, such as a 403(b).  

According to the news report, bankruptcy attorney Lawrence G. McMichael said he had not had an opportunity to speak with the association about the filing, but noted: “I have been very clear from the beginning that the endowments are not a rainy-day fund. We have no authority to reach into them to do anything except what they’re intended for. We haven’t withdrawn from the pension fund. If we do and there’s a liability, they can take whatever position they want to take. I don’t think they’ll get very far.”  

The orchestra says it has spent most of its unrestricted endowment, and McMichael said it “absolutely” has documentation to show that the remainder is restricted.   

Current pension obligations cost the association about $3 million a year, the news report said. The AFM plan has been in the red (underfunded) zone, union and orchestra management officials agree. A separate, internal Philadelphia Orchestra pension program is also underfunded. But Hair says the $1.8 billion fund – with 50,000 orchestra members, Broadway musicians and others, including freelancers, participating – is recovering from the global financial collapse.  

“The fund is now funded at 94.5 percent. We’re back,” he said. “Technically, we’re in the red zone . . . but we expect to be out of the woods far earlier than anyone thought.”  

Hair says the orchestra association does not owe the estimated $23 million to the fund unless it withdraws its participation.