The $4 billion SAG-Producers Pension Plan is “currently healthy and it is projected to remain healthy in the future,” Plan officials say, despite this year’s drop in employer contributions due to the coronavirus shutdown.
Last year, more than 14,000 participants and their beneficiaries received nearly $285 million in benefits – more than three times the $124 million paid out in 2003. In 2019, employer contributions to the Plan came in at nearly $300 million – $15 million more than was paid out last year in benefits.
“The plan is in good financial health,” Plan actuary Cary Franklin said during a recent webinar for SAG-AFTRA members. “No participant’s earned benefit is in jeopardy of not being paid as promised, and if you are currently retired and receiving benefits from the Plan, you will get every dollar of benefit that you expect. And if you are not yet retired, you can rest assured that the benefits that you have earned today will be there for you when you retire.”
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You can watch the webinar here.
“This is a good news story,” said David White, a trustee of the Plan and SAG-AFTRA’s national executive director. “The contributions that we’ve been able to negotiate over the past many years have actually not only kept pace with benefit payouts, but right now are exceeding benefit payments. That is testimony to our negotiations and to the contribution increases that we’ve had from all of the contracts that feed this plan. Good news story. Full stop. We’re very happy about that.”
Gabrielle Carteris, the union’s president, said she hopes that this will dispel rumors that have been circulating that claim that the pension plan could be headed for the kind of trouble that required the SAG-AFTRA Health Plan to increase eligibility requirements come January 1 because of massive deficits.
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“A number of our members have contacted me about some of the misrepresentations and inaccuracies they’re seeing online and in social media,” she said, noting that these “disturbing untruths” are “patently false. Our pension plan is stable, secure and has a positive outlook.”
Currently, the SAG Pension Plan is 75% funded and is in the so-called “Green Zone” as defined by the Pension Protection Act, as amended in 2014. A pension plan’s financial health is perhaps best measured by its funded percentage, which is its assets divided by its benefit liabilities – the value of benefits owed to all participants. As of Jan. 1, 2020, the Plan had $5.39 billion is benefit liabilities.
Michael Estrada, the CEO of the SAG-Producers Pension Plan, noted that the Plan’s investment income has increased by an average of 7.03% of assets in each of the past 25 years, and that Plan assets have grown from about $1 billion in 1994 to $4 billion by the end of 2019.
“A pension plan does not need to be 100% funded now to be considered healthy, as long as it will get to 100% funded in the future,” Franklin said, noting that the Plan is projected to be 100% funded by 2029, and 124% funded in 2036, assuming that investment income will continue to average 7.5% of assets each year until then.
The pandemic has created considerable volatility in the stock market, but Franklins said that even if investment income falls to zero this year, the Plan will still be 113% funded by 2036. And even if the Plan gets no return on investments in 2020, and “if we lose as much as 50% of employer contributions this year, instead of 113%, we still might be at 110% or 111% (by 2036).”
“A one-year slowdown just does not have a significant impact on the long-term funding of the Plan,” he said. “Even if it’s two years, it’s not a significant problem. We know that the work levels will come back and contribution levels will come back to the pre-pandemic levels and we’ll be back on this path. So that is not a particular concern.”
The Plan, he said, is also on track to reach 100% funding even if investment income falls below the current projection of 7.5% of assets each year. Even if there is zero percent return this year, and only 6.5% on investments for the next nine years – “we still get to 102% funded in 2036,” he said. And if there is zero percent return on investments this year, and only 5.5% return on investments in each of the next nine years, the Plan will be 92% funded by 2036, he said. “The projections show excellent growth in the Plan’s funded percentage, even if the investments don’t perform as well as assumed.”
The Pension Protection Act of 2006 established three “zones” – green, yellow and red – to determine the health of pension plans. Anything below 80% was considered endangered or critical. “Congress corrected the Act in 2014,” Franklin said, “to recognize that some healthy plans might be less than 80% funded, and the SAG Plan is one of many plans to which this corrected rule applies. The SAG-Producers Pension Plan is currently in the Green Zone and it is projected to remain in the Green Zone in the future.”
Explaining how the pandemic could have so disrupted funding for the SAG-AFTRA Health Plan but to a far lesser extent the SAG Pension Plan, White said: “It is useful for participants to understand the difference in funding between a pension plan and a health plan, and why the pandemic has such a large and immediate impact on a health plan and not on the pension plan. One reason, of course, being that the (SAG-AFTRA) Health Plan has about $500 million in assets pre-pandemic, and the Pension Plan has $4 billion. The Health Plan is a short-term funding system: the money comes in; the money is then used for benefits. On the pension side, this is a very long-term exercise, and it’s not going to have nearly the type of impact if there is the immediate drop in contributions.”
The webinar focused on the SAG Pension Plan, but also provided data showing that contributions to the AFTRA Health Plan have similarly been on the rise. The SAG and AFTRA health plans merged in 2017, but the two pension plans remain separate.