This report finds that Massachusetts’ 102 local systems (84 municipal, 12 regional and 6 “special” such as MHFA and Massport) have average per-member administrative costs that are at least triple those of the Massachusetts State Employees’ Retirement System (MSERS), with many that are far higher.
About Iliya Atanasov
Iliya Atanasov is Pioneer’s Senior Fellow on Finance, leading the research tracks on pension portfolio management, infrastructure and municipal performance. Iliya received his PhD in Political Science from Rice University and is a former Presidential Fellow at the University. He also holds BAs in Business Administration, Economics and Political Science/ International Relations from the American University in Bulgaria.
Email: iatanasov at pioneerinstitute.org
Phone: (617) 723-2277
This report documents significant deficiencies in the actuarial valuations produced by the Massachusetts Bay Transportation Authority Retirement Fund (MBTARF) since 1990. Analysis of about a quarter-century of data suggests that the MBTARF’s actuarial reports may have deviated considerably from the true cost of pension benefits. As of yearend 2015, the fund had an estimated unfunded liability of about $944 million.
The commonwealth should set a five-year deadline for 102 public pension systems to transfer their assets to the Pension Reserves Investment Management (PRIM) Board, the management authority for the Massachusetts State Employee Retirement System (MSERS) and the Massachusetts Teachers Retirement System (MTRS).
This report examines the MBTA Retirement Fund’s unfunded liability and compares MBTA and state employee and employer retirement contributions. It recommends that the MBTA assess the feasibility of moving its employees out of the Social Security system and transfer investment management responsibility for its pension fund to the commonwealth’s Pension Reserves Investment Management board as initial steps toward terminating the MBTA Retirement Fund (MBTARF).
This report illustrates that had MBTA Retirement Fund (MBTARF) assets been placed in the Massachusetts state pension fund at the end of 2000, their value would have been an estimated $902 million greater by 2014 and T pensions would have been about fully funded.
In the past 15 years, the MBTA has paid Wall Street firms an estimated $236 million in interest after gambling on synthetic swaps. Such financial derivatives are rife with risk and were among the most significant contributors to the global financial crisis of 2008. The T’s reform-minded leadership would do well to trim these exposures, with an eye to eliminating them as soon as practically possible. Doing the right thing won’t be easy. As Pioneer revealed in its February 2016 paper entitled “The Reckless Cost of MBTA Financial Derivatives,” the T built up and then doubled down on an irresponsible derivatives portfolio in the 2000s. Tempted by small upfront premiums offered by investment banks, MBTA managers made bets that interest […]
This study reveals that the MBTA built up a large exposure to financial derivatives and had to pay an estimated $236 million in interest on synthetic swaps for fiscal years 2001 to 2015.
Pioneer Institute is releasing an update to MassPensions.com with new data from the Public Employee Retirement Administration Commission about the status of the 105 Massachusetts public pension systems at the beginning of 2014. Retirement boards have continued on their path of lowering assumed rates of return (ARRs) towards more reasonable levels. However, funding progress for most systems remained stilted, as 22 local boards extended their funding deadlines by up to eight years.
For quite a few years now, public pension liabilities have been a growing concern for policymakers and public finance professionals. The methods used to value the liabilities are fundamentally important both for designing plan policies and for plan administration. They are an essential tool for budgeting because they help account for the costs of public services and create appropriate funding schedules for plan contributions to ensure the fiscal soundness of both the plan and its provider.
The discount rates used by defined-benefit pension systems to value their liabilities and to determine annual contributions have long been a point of concern and contention. Until 2014, governmental accounting standards required that pension funds use the assumed rate of return (ARR) on their portfolio as the discount rate for both management and reporting purposes. With the implementation of Statement 68 of the Governmental Accounting Standards Board (GASB), the ARR will be applied as a discount rate only on the portion of liabilities covered by existing assets, but it will remain a critical metric for many institutional investors.
Has Massachusetts made progress towards providing a better quality of life for its residents while maintaining financial stability over the past decade or so? In July 2014, Governor Deval Patrick signed into law the eighth and final budget of his administration with only a few vetoes and recommendations to the General Court. Five years after the financial crisis, this is an opportune moment to review and reflect upon the fiscal state of Massachusetts and what has changed since the beginning of this governorship more than seven years ago.
This study presents the MBTA Retirement Fund (MBTARF) as a cautionary tale for institutional investors not merely with the benefit of hindsight, but as its story unfolds towards what will likely be an unfortunate conclusion.
Friday, April 11, 2014 Iliya Atanasov The MBTA Retirement Fund’s management has been aggressively spending taxpayers’ and retirees’ money to fend off attempts by the media and the Legislature to shine a light on its books. And the reason is becoming all too obvious. Earlier this year, senior executives testified before the Legislature’s Joint Committee on Public Service that the fund is not a public entity and exists for the sole benefit of current and future retirees. Hence, they say, it should not be subject to public oversight. Looking to find an amicable solution, legislators patiently kept asking what information the retirement board is trying to protect. They received no clear answer. The board’s actions strongly suggest that it is […]
Testimony Before the Joint Committee on Public Service Regarding the MBTA Retirement Fund Provided in February 2014.
It cannot have been a particularly merry Christmas for Stephen Crawford, spokesman for the MBTA Retirement Fund. In the run-up to the holidays, a series of Boston Globe articles recounted a potentially fraudulent $25 million loss at the pension fund, blatant conflicts of interest and repeated failures to follow standard accounting practices – not to mention an ever-expanding investigation by the state attorney general, Martha Coakley. Seemingly unbowed by the controversy, Crawford told the Globe: “The pension fund is fully capable of meeting its obligations to its retirees and beneficiaries. The trust is solely responsible for meeting that responsibility – not the commonwealth.’’ [quote align=”right” color=”#999999″]Whether Mr. Crawford intentionally misrepresented the facts, fell victim to years of disinformation about past […]
The primary goal of this policy brief is to evaluate the insinuation that MBTARF is in a position to fulfill its obligations to its beneficiaries without help from the commonwealth.
For the past few years, officials from the Massachusetts Bay Transportation Authority (MBTA) and the MBTA Retirement Fund (MBTARF) have promoted the narrative that the T’s pension system has been reformed so that benefits are “fair” and it holds no risk for taxpayers.
Expert Testimony: Several Retirement Systems in Critical Condition, Fiscal Risks to Remain High New accounting rules will demand higher pension contributions; unfunded retiree healthcare liabilities major long-term threat BOSTON – The unfunded liabilities of several retirement systems in the state may precipitate a number of local bankruptcies in the next economic crisis, unless managers adopt more fiscally prudent policies, according to testimony given by Pioneer Senior Fellow on Finance Iliya Atanasov Tuesday. Testimony before the Joint Committee on Public Service of the General Court of the Commonwealth of Massachusetts Regarding the Fiscal Condition of Local Retirement Systems “Defined-benefit pensions and other postemployment benefits for public employees in Massachusetts will cast a growing shadow on the fiscal health of the commonwealth for the […]
Do pension funding changes display true fiscal responsibility or just election-year window dressing?
Testimony before the Joint Committee on Public Service of the General Court of the Commonwealth of Massachusetts Regarding the Fiscal Condition of Local Retirement Systems provided in January 2014.
The purpose of this paper is to provide tools to quantify the costs of delaying the funding of pension obligations – those incurred in the aftermath of the financial crisis as well as projected costs more generally. Policymakers should be aware of these implicit costs when making budgetary decisions, and so should taxpayers, who ultimately are liable for what essentially amounts to a long-term financing cost for current spending.
In a recently published article,1 Robert Novy-Marx identifies what he believes are inconsistencies in the valuation methods espoused by the Governmental Accounting Standards Board (GASB). He advocates that current GASB methodologies for determining the discount rate be replaced by what some academic economists call a “fair-value” or “risk-adjusted” rate of return.
The goal of this report is to highlight developments at the MBTA and MBTARF and outline a path towards improved transparency and accountability in order to secure employees’ benefits at a reasonable cost to MBTA riders and Massachusetts taxpayers.
Currently, there are 103 municipal, regional and agency retirement systems for public employees in Massachusetts, each administered by a five-person board and various numbers of board staff.
Pioneer has generally produced at the time of release of key budget documents a series of “The Good, the Bad and the Ugly” reports. The conference committee’s fiscal year 2014 budget was circulated on the first of the month, just as the new fiscal year started.
This policy brief introduces the MassPensions data accessibility tool by Pioneer Institute. MassPensions is a website presenting in clear and convenient format key data about the state of public employees’ pensions in the Commonwealth of Massachusetts for the period 1985-2012. The low cost and fast turnaround of this project illustrate that government transparency is not always as complicated or expensive as it may seem.
This brief is one of many in a series from Pioneer Institute examining the direct effects of the PPACA on Massachusetts. The purpose of this report is to estimate the annual impact of the law’s tax on the 19 biggest medical device companies conducting business in Massachusetts.
Public retirement funds’ managers should embrace new reforms designed to minimize risk during this period of continued market volatility.
Realistic investment assumptions and paying down unfunded liabilities more aggressively are indispensable if we are to achieve public pensions that are solvent, fair to employees and attract qualified and capable individuals to public service.
The adoption of these reforms can significantly improve the performance of retirement systems statewide and reduce the costs of funding public pension benefits. Investment and payment planning will be facilitated by more predictable cash flows from investing activities, helping avert potential liquidity crises.