MBTA unions pressed for pension concessions
State officials warn T retirement fund could run out of money
STATE TRANSPORTATION OFFICIALS on Monday pressured the MBTA’s major unions to agree to concessions that would reduce retirement payouts by about $1 billion over the next 18 years and prevent the authority’s pension fund from running out of money.
The officials said their analysis indicates the T’s pension fund is paying out more money than it is taking in in contributions and investment returns, that investment returns are unlikely to pick up significantly, and that a legislative bailout is unlikely.
Transportation Secretary Stephanie Pollack said emphatically that the state has no commitment to bail out the T pension fund. “The basic message is that this is a private retirement fund without a backstop,” she said.
John Englander, the MBTA’s legal counsel, said there are only three real options for addressing the authority’s pension problem. He said changes to the design of the pension plan can be negotiated with the T’s unions through collective bargaining or, if negotiations fail, via binding arbitration. He also said the Legislature could choose to act regarding the contributions to or the benefits from pensions. (The final sentence of this paragraph was corrected to specify what the Legislature could do.)
James O’Brien, president of the Carmen’s Union, the T’s largest union, agreed in December to wage and work rule changes in return for job protection for his members. But on Monday O’Brien, a member of the MBTA’s Retirement Board, accused the T of manipulating the pension data to present an unfair picture of the situation. He also sounded as if he was unwilling to make major concessions.
“The MBTA warns it may no longer be able to honor the promises it made its employees,” he said. “Where I come from, a promise is a promise.”
According to T officials, the agency’s pension fund has received $640 million in investment returns and $741 million in contributions over the last decade. Over that same time period, however, the agency has paid out $1.699 billion in benefits, resulting in a net outflow from the pension fund of $958 million.
Part of the problem is that there are now more MBTA retirees living off their pensions than active employees. In 2016, according to the presentation, the T had 5,786 employees and 6,685 retirees.
O’Brien blamed that imbalance on T management, noting that 728 workers have retired since 2015 because of layoffs, privatization initiatives, and retirement incentives. He also noted that pension costs may be up, but operating costs are down as the payroll has been trimmed $61.5 million since 2014.
Each year the MBTA Retirement Board calculates how much money is needed to keep the pension fund solvent. In fiscal 2017, officials said the MBTA is contributing 18 percent and employees 6 percent of the total, with the balance coming from investment returns on the fund’s assets. The officials said the MBTA’s contribution is $87 million in fiscal 2017 and expected to keep growing, hitting $119 million by fiscal 2022.
Brian Shortsleeve, the chief administrator and acting general manager of the T, said he wanted to work closely with the T’s unions in addressing the pension fund problems. But he leaked his pension fund presentation to the Boston Globe a day before presenting it to the Fiscal and Management Control Board and recited a long list of ways in which the T’s pension system provides relatively lavish benefits.
By contrast, MBTA employees with the same work history can retire at age 55 and receive pensions equal to 61.5 percent of their highest wage level. Their pension payout remains the same through age 65, and only increases to 75 percent of their highest wage level if they work 32 years and retire at 67.
The MBTA’s pension system gives workers with 25 years on the job little incentive to work until age 65, which explains why half of them retire and begin drawing their pensions in their 50s.
MBTA workers also collect both pensions and Social Security. A state worker hired after April 2012 who works 25 years and retires at 65 at a wage level of $80,000 would receive a pension of $44,000 a year. An MBTA worker with the same employment history would receive an MBTA pension of $49,200 plus $19,800 in Social Security payments for a total of $69,900.Another concern for the MBTA is the less-than-stellar investment returns. The T Retirement Board had a 6.2 percent return in 2016, missing its target of 7.75 percent. By contrast, the state’s pension fund had a 7.6 percent rate of return, slightly higher than its target of 7.5 percent.
Despite lackluster returns in 2015 and 2014 of .7 percent and 4.8 percent, respectively, the T pension fund’s rate of return over the last five years has averaged 8.4 percent, above the target rate of 7.75 percent. Still, a consultant hired by the T, Evan Inglis, said the pension fund’s target rate of return of 7.75 percent was overly positive. He predicted returns were unlikely to average more than 4 percent over the next decade.