Study Calls for MBTA Employees to Be Transferred to State Pension System

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Despite claims to the contrary, overly generous benefits, early retirement perks render troubled MBTA Retirement Plan unsustainable

BOSTON – The commonwealth should develop a plan to transfer MBTA employees from the transit authority’s troubled retirement plan to the state system, according to a new study published by Pioneer Institute.

Myths and Reality about MBTA Pensions

“The MBTA plan modifications included in the 2009 transportation reform law were too little too late,” said Pioneer Institute Senior Fellow on Finance Iliya Atanasov, author of “Myths and Reality about MBTA Pensions.” “Far more radical measures are needed to ensure that MBTA employees’ pensions will be there when they retire.”

In the wake of transportation reform, the conventional wisdom has been that the MBTA Retirement Plan (MBTARP) has been fixed, that benefits are fair and the system poses no threat to Massachusetts taxpayers. In reality, MBTARP faced a $726 million unfunded liability as of the end of 2011. Atanasov’s study exposes several myths underlying the reform narrative.

MBTA Pensions Still Are Far More Generous than Those of Other Public Employees in Massachusetts

If an MBTA and a state employee earning $60,000 annually each retired after 30 years of service at age 60, the T employee’s pension would be over 50 percent more than that of the state employee. And unlike state employees, the MBTA retiree could also collect Social Security benefits.

MBTA employees can still cash in unused vacation time and back pay during their last year of work to “spike” their pension benefit. The practice has been prohibited for state employees.

Early Retirement Deals Remain

Although the notorious “23 and out” rule that allowed many MBTA employees to retire and begin collecting pension benefits while still in their 40s has been eliminated, it was replaced with a provision that grants a full pension as early as age 55 to employees with 25 years of service.

Taxpayers Are Not Insulated from MBTA Retirement Fund Losses

The MBTA put $3.65 into its retirement plan for every dollar contributed by employees in 2012. Unlike state employees’, T employee pension contributions are determined by collective bargaining. According to the current agreement, if more money is needed to keep the fund stable, the same 3.65:1 ratio would be used, meaning taxpayers would be on the hook for more than three quarters of any additional contributions.

Benefits Can Be Altered for Existing Employees

As MBTARP’s financial condition continues to deteriorate, workers could be terminated and those who want to continue working could be rehired as members of the state pension fund, with the actuarial equivalent of their contributions transferred to the state system.

To protect existing retirees, the actuarial equivalent of their accounts could also be transferred to the state pension fund, where they would receive benefits under that system’s rules.

About the Author

Iliya Atanasov is Pioneer’s Senior Fellow on Finance, leading the research tracks on pension management, data analysis and municipal performance. He is a PhD candidate in Political Science and Government and MA candidate in Statistics as well as a former Presidential Fellow at Rice University. He also holds BAs in Business Administration, Economics and Political Science/International Relations from the American University in Bulgaria.

About Pioneer Institute

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.