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Equity Pension & Health Trustees Report to Council:

Pension Fund Remains Able to Meet Current and Future Obligations; Health Fund Undertakes Cost Containment Initiatives

(Madeleine Fallon, Chair of the Equity portion of the Equity-League Pension & Health Trust Fund, made the following report to Council on October 20, 2009)

The last report to the Council on the Equity-League Pension & Health Trust Fund was given on September 16, 2008. At that time, we reported that the market value of the Pension Plan was $1,220,000,000. Even as those words were being read, the stock market was in a free fall. No pension plan of any kind was exempt from significant losses.

It has been a tumultuous and terrifying year. However, we are pleased to report that, in the end, our investment policy strategies have served us well. The current market value of the Pension Plan is $1,032,000,000.

Under the requirements of the Pension Protection Act of 2006, our plan remains in the green zone. This is a remarkable achievement, as the majority of pension plans in the entertainment industry fall into the yellow, orange or red zones. While a loss of $188 million is no reason to cheer, it must be understood that, in the context of the global market, our percentage of loss was smaller than most funds experienced. Our position in the green zone means that we are able to meet our current and future pension obligations.

Credit must be given to the members of the Investment Committee, which consists of Equity Trustees Doug Carfrae, John Connolly, Nick Wyman and Mark Zimmerman, along with League Trustees Chris Brockmeyer (Broadway League), George Forbes (Lucille Lortel Foundation), Colin Gibson (Broadway League), Barry Grove (Manhattan Theatre Club) and Paul Libin (Jujamcyn). We also acknowledge the expertise of John DeMairo, Senior Vice President of Segal Advisors, and his team. The Investment Committee and its professional advisors have shepherded our investments through a year that has been catastrophic for pension funds. (And, in case anyone is wondering: No, we did not have any investments with Bernie Madoff.)

Health Fund
The Health Fund continues to present its own set of challenges. The goal of the Trustees is to provide quality coverage for as many working members of AEA as possible. To that end, we rely on Actors' Equity to negotiate employer contributions which will, at a minimum, continue our present level of benefits and eligibility requirements.

The Trustees are well aware that these contributions represent an economic challenge to our employers. Their organizations have not been exempt from the global financial meltdown. And our members have seen little or nothing in salary increases for a number of years as a result of the cost of providing health contributions. We are all aware that the cost of health care is a national crisis. Not a day goes by without news coverage of this dilemma. At this time it is impossible to predict whether health care legislation will provide any meaningful relief. For this report to the Council, the Trustees wish to focus on the steps we have taken and plan to take to control the costs of our plan.

As we reported last year, in 2004 the Trustees commissioned the Segal Company (our actuarial advisors and consultants) to undertake an operational review of the administrative aspects of the Fund Office. As a result, there have been significant changes in order to improve efficiencies while reducing administrative costs. At the time the review began there were 57 fund employees and a total of three offices. The Chicago and Los Angeles offices were closed and operations were reorganized in New York. The Segal report had predicted that the work flow could be handled by 47 employees but, under the stewardship of Executive Director Art Drechsler, the Fund Office is providing enhanced service with a staff of 40.

Administrative expenditures have been scrutinized, and our Fund Office runs on a lean budget. We are currently in the final step of the process of administrative overhaul. We are severing our relationship with Standard Data, which costs approximately $750,000 per year and are implementing an in-house state-of-the-art technology system. The cost benefit of our new system should produce millions of dollars in savings in the years to come.

The real economic driver, however, is the actual cost of health care, which has been increasing at a rate of 10-12% per year. As of fiscal year ending May 31, 2008 the cost to the Equity-League plan per participant per year was $6,000. For FYE 2009, it was $6,700 and the current rate is trending at $7,500. The challenge to the Trustees is to analyze the marketplace as well as our health plan to attempt to control what seems to be spiraling uncontrollably.

In 2006, the Equity-League Health Plan became self insured. In other words, we pay our own claims. Our relationship with CIGNA is known as an Administrative Services Only-we pay a fee for each enrolled member. CIGNA administers our claims, and the Fund benefits from CIGNA's network of provider discounts. This is more cost effective than purchasing a standard insurance policy. Even so, the expense of providing health care continues to escalate.

The Trustees are currently undertaking a series of cost containment initiatives. We have already taken on a substantial reduction of administrative expenses. We must now tackle expenses on the health side. We authorized Segal Co. to perform an in depth health claims data analysis. The first initiatives from this study are being implemented.

As of July 1, 2009, we are requiring that those participants who take medication for high blood pressure, high cholesterol and acid reflux go to generic prescriptions. (Exceptions will be made in cases of demonstrated medical necessity.) Beginning January 1, 2010, we will require that all maintenance prescriptions be dispensed through mail order. This will result in a savings to the participant as well as to the Fund. The combined savings from these two changes alone is expected to be approximately $550,000 per year.

In addition, our analysis shows that a significant driver of our costs is in the areas of chiropractic/physical therapy. An extraordinary number of our participants go to out-of-network providers for these services. In January, the co-pay for in-network chiro/PT visits will be reduced from $25 to $15. In addition, there will be a cap of $4,000 per year. (With allowances made for those who need extensive therapy for catastrophic illness or injury and who agree to participate in a case management program.)

There will also be an adjustment to the fee schedule for out-of-network services. We have asked CIGNA to try to persuade high-volume out-of-network providers to come in-network. And we will be asking our members who use these out-of-network providers to help make the case that coming in-network would be mutually beneficial. We will be closely monitoring the savings derived from these changes. However, this is the tip of the proverbial iceberg. As we continue our study of the health claims analysis we will pursue every avenue that will allow us to reduce costs without compromising care.

It is significant to note that the "per member per year" costs quoted above apply to those who receive health care through employment. The price tag is even higher for those in the self-pay categories. That would include dependent coverage, members on COBRA, and those members who are fully vested and elect to continue on our plan beyond COBRA. The utilization of health care is considerably higher in these groups. This will factor into our continuing study of cost drivers and potential savings initiatives.

In the September 2008 report, we noted that the health fund was stable from a financial point of view. That is to say that the level of employer contributions versus our expenses was sufficient to allow us to operate with approximately twelve months' worth of reserve funds. At the time of writing this report, this stability continues to be maintained. However, the Trustees are nervously eyeing the horizon. We do not yet know to what extent our work weeks will be impacted by the financial crisis of the past year. We are currently positioned to be able to absorb a loss of revenue, but only time will tell what the long-term prognosis is. We do know that we have our work cut out for us.

The union half of the Equity-League Trustees is as follows: Madeleine Fallon, Chair; Mark Zimmerman, 1st Vice Chair; Doug Carfrae, 2nd Vice Chair; Nick Wyman, 3rd Vice Chair; Jeanna Belkin, John Connolly, Alan Hall, Tom Joyce, Kathryn Lamkey, Ira Mont, and Carol Waaser. Together with the Employer Trustees, who are appointed by the Broadway League, we work to provide benefits to the members of AEA. We are jointly committed to the fiduciary responsibility for overseeing the Pension and Health Funds. The health and longevity of our colleagues in the theatre is our mutual goal. To that end, we will continue to do our utmost to serve.

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