I noticed today the ABA's 2019 audited financials, finalized in February 2020, are online. These shed some light on the probable significance of all the cancelled meetings and lost revenues, because the meeting fees in 2019 were in amount about 42% as great as the total dues revenues. So loss of meeting revenues, which will probably persist to the end of the fiscal year now, will leave a significant gap in ABA's budgeted income.
The financials also reflect ABA pulling several million from investment income in each of 2018 and 2019 to backstop losses in dues revenues from the New Membership Model. This reliance on investment income was part of the discussion in the Treasurer's Report at the Mid-Year Meeting. To the extent ABA ends up with no (or greatly reduced) investment earnings in the current fiscal year, lost dues revenues will be expressed instead as part of the negative change in net financial position on next year's statements.
The other thing of interest was Note L in the Notes to the Financial Statements, where the auditors were required to discuss particularly material changes occurring between the close of fiscal year 2019 (August 31, 2019) and the February 2020 issuance of the audit report.
Recall that ABA had a significant loan outstanding from a prior attempt to bolster its pension funding, and (as discussed in the Treasurer's Report at the Mid-Year Meeting) its unfunded pension liability also increased significantly in 2019 due chiefly to declining interest rates.
Note L (in which, I believe the figures are stated in thousands) shows us that in October of 2019, ABA borrowed $48,000,000 at a fixed rate of 3.22% with a maturity of September 30, 2026. The proceeds were used, in part, to pay off the $28,000,000 balance of the existing loan, and the rest were used to fund a contribution of $19,951,000 to the pension plan.
Genius. As to this pension contribution, the effect was to convert a pension underfunding which was not subject to interest or debt covenants to a fixed debt obligation which is subject to both. Maybe not the best financial planning for these reasons alone. However, if ABA could play its cards right, the leveraged contribution could help address its underfunding problems in the pension plan. All ABA had to do was make sure that the return on the investment of the borrowed proceeds substantially exceeded the 3.22% interest owed on those proceeds, and additionally, make sure that it would not accidentally piss away a substantial portion of the invested debt proceeds (in, for example, a catastrophically pandemic-driven bear market).
Oh.
I'm going to say that part didn't go very well at all.
This illustrates how the leveraged risk play of pension borrowing can come to fruition in spades. When a huge chunk of the borrowed proceeds becomes lost in the investment markets, the borrower is still obligated to repay the loan with the stated interest. The pension plan remains underfunded, and the borrower's financial problems are multiplied (because it now has both the funding deficit and the loan repayment to contend with).
I look forward to the Treasurer's Report at the Annual Meeting. If, for any reason, ABA decides not to share that one for public access, I hope any colleague who might be posing as an ABA member for purposes of participation in the Annual Meeting will share the highlights with us here. For now, the 2019 Audited Financials can be reviewed and analyzed at the following link:
https://www.americanbar.org/content/dam/aba/administrative/aba/aba_financials/fy19-audited-financial-statement.pdf