Claims on T retirement fund ‘lack merit’

Forensic accounting firm says allegations of inaccuracies 'unfounded'

STATE HOUSE NEWS SERVICE

A forensic accounting firm hired by the MBTA Retirement Fund in the wake of a report alleging significant inaccuracies in the fund’s financial reporting has concluded that the allegations are “unfounded” and “lack merit.”

The FTI Consulting report was assembled by a team of accountants and actuaries in recent months after a Boston Globe report in June 2015 on assertions by Wall Street whistleblower Harry Markopolos. The self-employed fraud examiner concluded the transit system retirement plan’s health may have been overstated by as much as $470 million due to the understatement of liabilities and the overstatement of investment returns, the Globe reported.

Markopolos told the Globe that the $1.6 billion plan’s performance appeared “too good to be true,” adding: “Someone needs to go in and count the assets to make sure they’re all really there.”

According to the FTI Consulting report, neither FTI nor the MBTA Retirement Fund were able to obtain the report from Markopolos and received no response from him when requests for the report were made.

FTI traced the fund’s year-end investment balances for 2010, 2011, 2012 and 2013 and its reported investment returns for 2011, 2012, and 2103, finding “a few insignificant differences” and no errors, according to the report, which was signed by FTI senior managing director John Sullivan.

The mortality table used by the fund “was properly updated to reflect the actual experience for its members,” the FTI report said. Also, asset return assumptions and the asset smoothing technique used by the fund were “reasonable and appropriately applied in accordance with the applicable actuarial standards,” according to the report from FTI, a leading provider of forensic accounting services. The firm said it reviewed thousands of pages of documents and worked with the fund officials during its inquiry.

“The FTI report concludes that the allegations contained in the Markopolos Report regarding the Fund’s audited financial statements lack merit,” the MBTA Retirement Fund said in a statement. “The Retirement Board is very pleased that this independent review thoroughly validates the Fund’s reporting and results. The concerns created by these unfounded allegations can now be lifted, and the Fund looks forward to continuing to serve the workers and families that rely on it to secure their families.”

The FTI report also looked at the fund’s reporting in connection with investments with Fletcher Asset Management, which filed for bankruptcy in 2013, and concluded that “nothing came to our attention that suggests the accounting for the Fletcher Investment did not comply with generally accepted accounting principles.”

According to state Comptroller Thomas Shack, the state’s audited financial statements are overdue and have been on hold because state transportation officials have yet to release data due to FTI Consulting’s review in connection with the Markopolos report.

A fund official said that now that the FTI review is done, KPMG needs to complete the fund’s audited financials for 2014.

Critics of the MBTA Retirement Fund, which has 10 employees, say that while it receives public funds it operates in secret, with closed board meetings, and deserves more public scrutiny.

A fund official previously said the board’s next meeting was scheduled for March 18, but confirmed Wednesday afternoon that the board had met earlier Wednesday and voted to make the FTI report public.

The Globe’s Beth Healy reported that Massachusetts Superior Court Judge Kenneth Salinger ruled Wednesday that MBTA pension funds should be public because the fund receives tens of millions of dollars from the MBTA, which itself receives substantial taxpayer funding.

In February, the Globe reported that the MBTA pension board was “making changes that will require the cash-strapped transit agency and its workers to kick in millions more each year for retirement benefits.” Specifically, the pension board told the MBTA it will lower its expected rate of investment return to 7.75 percent from 8 percent. In that report, MBTA chief administrator Brian Shortsleeve said the pension fund’s long-term liability would rise by $53 million to $868 million, forcing the T to increase its annual contribution to the fund by $8 million to $84 million for the year that starts July 1.

Markopolos, who is widely credited with helping to uncover Bernie Madoff’s financial fraud, was not immediately available to comment.

Meet the Author
The MBTA Retirement Fund’s custodian is State Street Bank and its investment consultant is The Marco Consulting Group Inc., according to the FTI report. FTI’s review included interviews with retirement fund executive director Michael Mulhern, deputy executive director John Barry, manager of financial services Catherine McGahan and representatives from Marco.

Jim Evers, treasurer of the Boston Carmen’s Union, Local 589 and chair of the retirement fund board, said in a statement Wednesday, “We have maintained 100 percent confidence in the MBTARF, even in the face of allegations claiming mismanagement. I’m proud to chair this diverse and dedicated board that strives to work on behalf of one common objective – the financial security of members and pension holders of the MBTARF. I’m happy to be able to report that the independent analysis, unanimously approved by the Board, refutes the grossly irresponsible allegations previously made regarding the MBTARF.”