Report Calls on FMCB to Seek Legislative Intervention on Projected 18-Year, $1.485 Billion T Pension Shortfall

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New evaluation commissioned by MBTA projects T contributions would increase by more than $1 billion under terms of current pension agreement

BOSTON – With the current MBTA pension agreement set to expire in June 2018 and a new evaluation projecting a $1.485 billion increase in retirement costs over the next 18 years under terms of the current agreement, the T’s Fiscal and Management Control Board (FMCB) should take immediate action to protect the authority’s precarious finances, according to a new Policy Brief published by Pioneer Institute.

To make matters worse, an evergreen provision means terms of the current pension agreement will continue to be enforced unless amendments are agreed to by both parties or imposed via final and binding arbitration,” said Pioneer Research Director and former state Inspector General Greg Sullivan, author of “The Bombshell Cheiron Report: The MBTA Just Got A $1.485 Billion Pension Bill That It Can’t Possibly Pay.”

The MBTA’s evaluation, conducted by actuarial consultant Cheiron, Inc. of Washington, D.C., finds that the biggest driver of pension cost increases is employer contributions, which would need to rise by more than $1.051 billion over the next 18 years. The additional increases would come from higher payroll costs and the resulting jump in Social Security contributions.

Since MBTA fare and other revenues only cover about a third of total expenses, the T has no way to close the pension funding shortfall without raising fares or cutting service.  In addition, final and binding arbitration leaves the MBTA virtually powerless to address the issue at the bargaining table.

Sullivan calls on the FMCB to seek one of the following solutions from the Legislature:

1)     An 18-year, $1.485 billion funding guarantee

2)     Legislative imposition of the terms of the commonwealth’s 2013 pension reform on the MBTA Retirement Fund (MBTARF), along with a mandate to restructure the agreement as a standard Social Security/pension contract.  The T is virtually unique among systems whose members are part of Social Security in that pension benefits are not reduced to account for receipt of Social Security benefits.

3) Request that the legislature suspend the MBTA’s final and binding arbitration law and in its place apply the one used by public safety systems. This would allow the FMCB to approve or reject the arbitrator’s decision based on a determination of whether the T can afford it.     

4) Declare the MBTARF insolvent under the terms of the current agreement  

About the Author

Gregory W. Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two terms as Inspector General of the Commonwealth of Massachusetts, where he directed many significant cases. Prior to serving as Inspector General, Greg held several positions within the state Office of Inspector General, and was a 17-year member of the Massachusetts House of Representatives. Greg is a Certified Fraud Investigator, and holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

About Pioneer

Pioneer Institute is an independent, non-partisan, privately funded research organization that seeks to improve the quality of life in Massachusetts through civic discourse and intellectually rigorous, data-driven public policy solutions based on free market principles, individual liberty and responsibility, and the ideal of effective, limited and accountable government.