Open Letter: Regarding Reform of the MBTA Retirement Fund

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The past year has seen the MBTA Retirement Fund mired in scandals involving conflicts of interest, losses of taxpayer money and, to put it mildly, imprudent attitudes towards the general public and the public trust.

A high-quality mass transit system is critical to Greater Boston’s economy and the well-being of its residents.  As a result, the financial health of the authority’s pension system is a real public-policy concern. Please make no mistake about it: The deteriorating financial condition of the fund and exploding pension costs, a heavy burden on an MBTA already saddled with debt, are no accident.

The fund’s governance is broken. Without bringing it into a state of good repair, no amount of money or temporary fix will put it on a firm financial footing and restore the trust of retirees and taxpayers in the system.

What follows is a list of commonsense improvements, which will end the ethical laxity and conflicts of interest, and restore accountability at the fund. We hope you will consider these in negotiating the pension agreement’s renewal this year as well as legislative measures as part of the FY 2015 budget package.

  1. Board members from the union quota must be elected by union members of the MBTA retirement plan rather than appointed by the union leadership
  2. Board members from the government quota should be appointed by the governor or secretary of transportation and meet the following qualifications:
    1. They may not have been elected officials of any union within the US and may not have received any compensation in any capacity from a union within the past 15 years
    2. They may not be current or former employees of the MBTA, members of its board or members of the board of MassDOT
  3. Employees of MBTARF must meet the criteria for board members in number 2 above
  4. The employer representatives on the bargaining committee for the MBTA’s labor and pension agreements must meet the same neutrality criteria in number 2 above
  5. Board members and management at MBTARF must file SFIs in accordance with 268B MGL and those SFIs should be made public online
  6. MBTARF must publish online its annual reports and valuation studies from 1980 onward
  7. MBTARF’s financial statements must be prepared in accordance with all GASB requirements; ideally, a noncompliance fine will be included in the contract of the executive director if information is missing or materially inaccurate
  8. All searches for new employees, investment managers, consultants or other third-party contractors must be posted on MBTARF’s website
  9. MBTARF must publish on its website and periodically review an internal risk controls and ethics policy based at a minimum on the state’s ethics standards
  10. MBTARF must accept the jurisdiction of the state’s ethics standards, public-records and open-meetings laws (this can be done via a clause in the contract)
  11. MBTARF must adopt and publish a fully-fledged investment policy and make it public (as an example see
  12. MBTARF must disclose in its annual report the payments made to each of its employees, board members and contractors, listed by name and contract/service provided where applicable
  13. MBTARF board meeting announcements and meeting minutes must be posted publicly online except when the content is protected by state privacy laws
  14. MBTARF must post online quarterly asset allocation and the rationale for its target asset allocation, as well as for any material deviations from that target
  15. Two outside advisory boards with members serving on volunteer basis must be created to assist the retirement board:
    1. One composed of investment professionals of different backgrounds (active/passive, wealth/401(k), venture capital, fixed income, etc.) to advise on portfolio management
    2. One composed of experienced actuaries, (labor) lawyers, CFAs and CPAs to assist with operational and compliance issues as well as improving ethics and governance
  16. All current board members, the executive director and his deputy must be replaced, in that order.



James Stergios