Over the past few weeks, the Seattle newspapers have been reporting on growing labor tensions between the Seattle Symphony and their musicians over the status of their pension fund. So far, details have been slim but the issue of orchestras and pension funding should be of the highest priority for every professional ensemble. Granted, it may not be a very sexy topic but left unattended, an underfunded pension plan can wreck long term havoc on an institution. As such, this article takes a closer look into Seattle’s issues…
Issues surrounding Seattle’s pension plan were brought to light in part due to a grievance filed the Seattle Symphony and Opera Players’ Organization (SSOPO) against their employer the Seattle Symphony Orchestra (SSO). According to Timothy Hale, SSO violist and Players’ Committee chair, the grievance is to acknowledge that the SSO is not making payments they are obligated to make.
“For the last two seasons the orchestra received notice that [the organization] was considering a funding waiver to the pension but they did not go through with it for the 2005-2006 season,” said Tim during a telephone interview on 08/02/07. “However, they did file a waiver request with the Internal Revenue Service at the beginning of the 2006-2007 season and subsequently deferred making scheduled payments, the first of which was due in October, 2006.
After management did not make the second payment in January, we filed a grievance in the following month. Right now the musicians are pursuing language in our collective bargaining agreement which states they must make the pension payments.”
According to recently appointed SSO Executive Director, Tom Philion, during a telephone interview on 08/02/07 the SSO did file a waiver with the Internal Revenue Service to defer payments for one year. Tom went on to say that the organization outlined a plan to the musicians designed to stabilize financial operations. To that end, Tom pointed out that a recent 11th hour fundraising effort to end the season with balanced books was a part of that plan.
“The pension plan is very important to the organization and I want to be careful here to make sure there isn’t a picture that we’ve denied to make payments,” said Tom. “The waiver request is part of a larger cash-flow management strategy.”
What isn’t in question between musicians and management is that current retirees are in absolutely no risk of having pension payments reduced or cut off.
Consequently, the musicians have acknowledged that they have been aware of the organization’s revenue and cash-flow positions for several years due to ongoing efforts of a number of musicians serving as volunteer representatives on the SSO finance committee, attending board meetings, as well as comprising half of the organization’s pension trustees. In fact, the chair of the SSO’s pension trustees is SSO piccolo player, Zart Dombourian-Eby, who has been the elected chair of that committee for 16 years.
The six member committee is comprised of three representatives from the employer and three representatives from the employees. Given the unique nature of the unified financial responsibilities between the SSOPO and the Seattle Symphony and the Seattle Opera, two of the employer representatives are from the symphony and the remaining employer representative is from the opera.
In a telephone conversation from 08/03/2007, Zart Dombourian-Eby pointed out that the musician’s grievance is only with the SSO and not with the opera.
“The Seattle Opera pays approximately 16% of the overall pension payments, although that figure fluctuates,” said Zart. “To date, the opera is paid in full and they have no plans for filing any waivers with the Internal Revenue Service, as far as the Trustees know.”
“It’s Like Having Bad Credit”
According to Zart, for the past decade their actuary has regularly advised the Pension Trustees to look ahead and do more than make minimum funding payments. What the actuary is referring to here is that by underfunding the pension the organization will end up paying more in the long run via penalties and retroactive payments.
It has a similar impact on the organization’s cash-flow as having a low credit rating: those with low credit end up paying more for every basic expense in the form of higher mortgage rates, higher loan rates, and higher credit card rates. In a sense, the vitality of an orchestra’s pension fund can easily be used as a benchmark for fiscal health (assuming they have a defined benefit plan to begin with).
Four of the five SSO’s scheduled pension payments have not been paid while the organization awaits the IRS’s decision on their waiver request.
“The board has talked publicly about a financial recovery plan that focuses on the immediate fiscal year but there has been no specific component addressing the deferred pension payments which has been presented to the musicians by any official means,” said Zart. “As a result, I’ve noticed a very broad based amount of concern among [SSOPO] players, even those who aren’t close to retirement age.”
Zart went on to talk about the musician’s concerns about what sort of contingency plan the SSO board has in place to deal with the possibility of having the IRS deny the waiver (which did happen to another large budget professional orchestra not long ago – that topic will be examined in a future article). If that happens, the SSO will be responsible for making all missed payments in addition to a host of penalties.
The musicians are also concerned about how this waiver will impact future pension benefits. According to Zart, the last increase in musician pension benefits occurred in 2001-2002 season and if the current waiver is approved by the IRS then pension benefits may have to remain flat through the 2011-2012 season (the current pension benefit is $27,000).
Where Things Currently Stand
Ultimately, there is immediate need to address the outstanding issues from the SSOPO grievance, which have been ongoing for six months. According to Tim Hale, the musicians have granted extensions in the contractually mandated grievance process due to a number of extenuating circumstances.
“We have agreed to extensions in the grievance process in order to obtain additional information and conduct proper analysis,” said Tim. “Additionally, the changes in senior management responsible for the issue, vacation periods, key players out on extended sick leave, Tom Philion, our new Executive Director, leaving for six weeks to conclude his duties at the Eastern Music Festival have all contributed to extending the process. Regardless, the [SSOPO] wants to conclude this before the new Players’ Committee takes over on September 1st, 2007.”
To that end, meetings between the SSOPO and the SSO scheduled for this week have been temporarily postponed but both sides plan to talk about the status of and subsequent details surrounding a recovery plan and the necessity of continuing the grievance process.
“The musicians are hopeful that the board will present us with details for a recovery plan that addresses the contingency of having the IRS deny the waiver request,” said Tim. “We are also hoping that they will make at least partial payments to the fund for installments they have deferred to date as well as provide plans for improving benefits once payments are restored.”
For the musicians, this is a very serious issue, one which is as important as the organization meeting any other contractually defined responsibility. According to Tim, the fact that current payments do not impact existing retirees is not a reason to pursue the issue with any less diligence than health care or pay checks.
“If management came to [the musicians] and said ‘we can’t make your health insurance payments or pay your salary for the next season so we won’t,’ why is it reasonable for them not to fulfill the same contractual obligation to fund the pension account?” said Tim.
When asked to respond to that statement, and others, Tom Philion declined to comment stating that since he is just stepping into the position of Executive Director, he is not yet entirely up to speed on everything that has happened to date. However, he was looking forward to talking about these issues in meetings with the musicians this week.
Ultimately, Seattle’s pension issues will impact more than just cash flow and strategic financial plans. Given the fact that Tom is just coming into the organization, how he navigates this critical issue will likely set the tone for future labor relations and since the organization’s collective bargaining agreement expires in August, 2009 labor relations may have more impact than normal on how the organization conducts business.