The judge in the Philadelphia Orchestra’s bankruptcy case has approved the orchestra’s request to turn over two of its pension plans to an agency of the federal government.
Assets and liabilities of the orchestra’s internal pension plans for musicians and staff will be assumed by the Pension Benefit Guaranty Corp. under the terms of Monday’s decision by Judge Eric L. Frank.
Association attorney Lawrence G. McMichael hailed the decision as a major step in the orchestra’s exit from bankruptcy, but allowed that it will mean less money for retired players.
The plan — until now — topped out with a benefit of $80,000 per year.
“They will end up getting somewhat less,” said McMichael. “There’s a lot of sacrifice and we appreciate it.”
The timing of the orchestra’s exit from bankruptcy now hinges on talks with its landlord, the Kimmel Center, on restructuring the lease agreement.
Options discussed have ranged from lower rent to a consolidation between the orchestra and Kimmel — or even among the Kimmel and a number of its resident companies.
“I think some sort of consolidation ultimately makes sense,” McMichael said, adding that merger could be a part of the bankruptcy settlement or come later.
The orchestra’s exit from chapter 11 was previously expected by the end of the year, but now the goal is to have it completed before the first anniversary of the filing, on April 16, he said.
Also in Monday’s hearing, Frank denied a request from the American Federation of Musicians and Employers Pension Fund for a full financial examination of the Association’s financial records, though he did provide for the fund to receive a copy of the orchestra’s audit for fiscal year 2011 when done, as well as the Association’s bank statements back to 2005 (if they can be located).
The fund is pressing for financial information in its ongoing probe to prove that the Association has mischaracterized money as being permanently restricted to endowment. Such monies, the pension fund says, could be available to it as a creditor to satisfy up $35 million it is owed as a result of the Association’s withdrawal from the fund.
Orchestra officials said removing obligations associated with all of its pension plans — and moving to a defined contribution plan — was a key goal of the bankruptcy. Fund-raising has been hobbled, McMichael said, because potential funders have been uncomfortable with the uncertainty of the Association’s ability to meet payments.
Judge Frank pointed out that the orchestra’s own projections showed the fund growing healthier within five years, but McMichael said the burden of continued risk was untenable.
“What we need to show them is that there is no risk of the pension issue blowing up in their faces,” he said. In order to attract “big checks,” leaders need to assure philanthropists “that the orchestra will be here in three or four years.”
The Association’s chapter 11 case has so far cost it $6,241,693, according to bills and other documents submitted to the court through Oct. 31: $4,991,693 in professional fees and expenses to law firms and bankruptcy consultants, plus a $1,250,000 payment to the Philly Pops as part of a severance agreement.