AMO PENSION PLAN FINANCIALS
The AMO Pension Plan suffered major losses the past few years. The percentage of “funded liabilities” dropped from 80.7% on 01 October 2005 to 58.9% on 01 October 2008, a decrease of 21.8% or an average of 7.3% per year. AMO leadership has repeatedly claimed that the major losses suffered by the plan were “inevitable and unavoidable”. However, the available data raises questions as to whether the best interests of plan participants has been properly carried out by AMO investment advisors, and were adequately monitored by the Trustees who are charged with oversight.
In early 2009, the Trustees assured the membership that all was well, with no forseeable problems on the (7 year) horizon. The online edition of AMO Currents, dated 29 January 2009, contained the following excerpt from a letter sent by the Board of Trustees of the American Maritime Officers Pension Plan to all AMO Pension Plan participants. The letter was dated Jan. 26, 2009: “The funded percentage for the Plan as of October 1, 2007 exceeds 80%, and based on the valuation results as of October 1, 2007 an Accumulated Funding Deficiency does not exist and is not projected to occur within the next seven plan years. The projections used to make this determination were based on the facts and circumstances in effect on October 1, 2007. Reasonable actuarial methods and assumptions were used to project future results from this date.” A basic review of AMO financial data reveals funding and performance issues with the plan for the years prior to 2009, thus one must question why the Trustees would paint such a rosy picture and then, less than 3 months later, issue a statement by the Plans Director in AMO Currents dated 23 April 2009 that includes the following data: "Status of the AMO Pension Plan - Since the beginning of the stock market decline at the end of 2007, through March of 2009, the assets of the AMO Pension Plan have received a return of negative 31.8%. During this market decline, the Pension Plan has continued to pay monthly benefits in the range of $1.8 million to $2 million per month
for a total of 18 months, or approximately $33 million. Also during this period, the Pension Plan has paid out approximately $75 million in lump sum payments. At the beginning of the fiscal year starting October 1, 2007, the Pension Plan had assets of $525 million, and as of April 2009, the Pension Plan has assets of $300 million. From October 2007 through the first part of April 2009, the AMO Pension Plan has lost $160 million. The Pension Plan was over 90% funded for our fiscal year ending September 30, 2007. However, it is now projected that the Plan will be 60% to 65% funded by the end of the current fiscal year. It is estimated that 90% of all pension plans nationwide will be less than 65% funded.”
A review of AMO financial reports include data which indicate that the performance and strategy of the investment advisors is reviewed once per quarter by the Board of Trustees, and that the administration of the plan is the responsibility of the Board of Trustees. AMO Financial Statements indicate that: “The Plan’s investment portfolio includes derivative financial instruments such as collateralized mortgage obligations issued by U.S. governmental agencies…. the Plan’s management believes that the risk of loss is remote”. In light of the majority of these highly leveraged and securitized instruments dragging investors in to a financial quagmire, one must seriously question the “investment strategies” used by the AMO pension plan investment advisors.
To be fair, I suspect the majority of pension plans in the U.S. were equally deficient in their investment strategies and oversight, but as previously mentioned, hard working AMO members had every right to expect that the Board of Trustees would have done due diligence and made the decisions necessary to protect the pension plan. Meanwhile, the following data is extracted from various AMO financial reports, and the data points to a deteriorating financial condition of the pension plan for a number of years at least.
ACTUARIAL REPORT FOR YEAR ENDING 30 SEPT 2009
- Summary of Results
(4) Current liability funded percentage.
2005 – 80.7% 2006 – 75.1% 2007 – 70.5% 2008 – 58.9%
NOTE Funded percentage DECREASED by 21.8% from 2005 – 2008, or an average of 7.3% per year. Not a good sign.
QUESTION - What was done to rectify the situation during each plan year?
- Plan Funding Liabilities as of Valuation Date
(4) Unfunded Accrued Liability
2005 - 14,910,434 3.11% (of line 3. Net Assets Available)
2006 - 50,426,727 10.22% (of line 3. Net Assets Available)
2007 - $ 46,892,097 9.15% (of line 3. Net Assets Available)
2008 - $126,873,858 25.64% (of line 3. Net Assets Available)
NOTE - According to this data, the AMO Pension Fund “unfunded accrued liability” increased significantly since 2005. Again, it raises the obvious question of what modifications to strategy (if any) was implemented by the pension plan investment managers, and what oversight was accomplished by the AMO Board of Trustees?
ADMINISTRATIVE EXPENSES from 2005 – 2008
Plan Year ending in 2007 1,536,345
Plan Year ending in 2008 2,166,968 (increase of 630,623 / 4.10%)
Plan Year ending in 2009 2,907,427 (increase of $ 740,459 / 3.42%)
AMO FINANCIAL STATEMENTS REVIEW
Financial Statements, year ending 2008 and 2007
Assets and Liabilities
Change in ASSETS (investments only) from end 2007 to end 2008:
2007 594,582,676
2008 469,051,119
LOSS $ 125,531,557 / 21.11 % loss
NOTE - The value of AMO Pension Plan (investment) assets dropped by 21% in one year, while administrative expenses increased by almost 5% per year. It appears that the AMO membership paid more for increasingly worse performance. That is not a “business model” that will serve the customer well, or in this case, the AMO membership, as history has proven all too painfully.
CONCLUSIONS
It does not take a rocket scientist to see that the AMO Pension Plan performed extremely poorly over the few years noted. To say the losses were “inevitable” is unsubstantiated. Unfortunately, the typical financial advisor earns money for his firm regardless of whether the client gains or loses money. The typical Wall Street brokerage firm is full of “yes men”, who advise clients based on the herd mentality. The broker / advisor who dares to “step outside the box” and make recommendations that do not cater to the “party line” is unacceptable, and those who do so are typically “muffled and silenced”.
The bottom line here, is the fact that “competent” financial advisors and economists warned of the impending financial disaster that was coming, yet both institutional and private investors were “advised” to invest and hold their course in extremely dangerous and volatile financial instruments. Like cows being herded over a cliff, investors lost trillions of dollars. The AMO Pension Plan was devastated, and the financial security of many AMO member familes was severely compromised or destroyed. Meanwhile, AMO was paying investment advisors to act in the best interests of the Pension Plan, and the Board of Trustees were charged with monitoring and oversight. An unbiased review of AMO investments since at least 2005, SHOULD have resulted in the advisors AND the Trustees realizing there was trouble on the horizon and that SOMETHING should have been done to protect plan assets. Instead, right up until 23 April 2009, AMO assured the membership, claiming that all was well, and nothing was done until it was too late.
To say the losses were inevitable suggests that paying financial advisors who stood by as millions of dollars was lost from the AMO Pension Plan, is to suggest that NO advisors would have been preferable to those who allowed the plan to suffer such losses. Any idiot could have placed the AMO Pension Plan Assets in conservative, ‘minimum risk’ securities and the result would have been better than what occurred as a result of paying the advisors.
The question now, as AMO members look to the future, is who is at the helm? I suspect the same advisors who managed to sit back while the pension plan was decimated the first time, continue to advise the the AMO Trustees. In spite of the previous losses, AMO members are now asked to have faith in the same administration, using the same financial advisors, as they review their new pension estimate. Aside from the fact that AMO members are horrified by the low estimates they are receiving for the value of their hard earned pension funds, which may or may not be accurate 6 -7 years from now, the estimates come with absolutely no guarantee of the amount they can expect to receive. Based on previous performance, AMO members had better start buying lottery tickets; their chances of winning might be greater than the chance of ever receiving a decent pension from the AMO.
Meanwhile, a few select union officials have seen their annual salaries increase by 10% and higher, while the typical AMO member has seen his hopes for a decent pension from AMO evaporate in to thin air…
It is time to change now.