Have the T’s Retirement Plans Gone Off the Rails?
Study Finds Financial Condition of MBTA Retirement Plan Deteriorated Sharply, But Lack of Transparency Makes It Impossible To Know Why
Plan doesn’t post financial statements or investment performance online, isn’t subject to state pension regulations
BOSTON – The MBTA Retirement Plan’s financial condition has been deteriorating and a lack of transparency makes it impossible to know all the reasons why, according to Have the T’s Retirement Plans Gone Off the Rails, a Pioneer Institute policy brief by Senior Fellow on Finance Iliya Atanasov published today.
Have the T’s Retirement Plans Gone Off the Rail
The MBTA Retirement Plan (MBTARP), which until very recently did not publish a database of retiree benefits, was not established under Chapter 32 of the Massachusetts General Laws, which governs the commonwealth’s other 105 public pension systems, and is not subject to regulation by the Public Employee Retirement Administration Commission. MBTARP doesn’t post financial statements or investment performance reports online.
“The law calls for transparency in the MBTA’s retirement system. The T’s continued unwillingness to open its books is troubling to taxpayers, especially to its current and retired employees,” said Pioneer Institute Executive Director Jim Stergios.
Atanasov finds that MBTARP’s financial condition has worsened significantly in recent years.
MBTA wage costs increased by 41 percent from fiscal 2001 to fiscal 2012, but annual pension costs more than tripled over that time.
To make matters worse, the T has not been amortizing aggressively enough the unfunded liability of MBTARP and the MBTA Police Association Plan. The MBTA funded its retirement plans consistently until 2008. Since then, it has been contributing on average only about 80 percent of the money needed to fund the pension liability. In fiscal 2012, the T funded just 71 percent of the cost accrued that year, which includes the annual required contribution, the annual interest on the outstanding pension obligation and an amortization allowance for the unfunded liabilities.
As a result, the T’s carried pension liability (net pension obligation) more than quadrupled, from $21 million to nearly $82 million, between fiscal 2008 and fiscal 2012.
While the assets of other Massachusetts public pension systems grew substantially, MBTARP’s were about the same in 2007 as they had been in 2000. The plan’s liabilities increased by 36 percent during that period.
MBTARP was 95 percent funded in 2006. By 2010, it had just 70 percent of the money needed to meet its pension obligations and the unfunded liability had ballooned to almost $700 million.
“When it comes to things like the MBTA pension plans’ assets and system costs, the lack of transparency makes it impossible to know what has caused the deteriorating financial condition,” Atanasov said. “Possible explanations include poor investment management, excessive fees and other questionable uses of funds.”
To address MBTARP’s problems, Atanasov recommends that the plan publish its annual budget and a subsequent statement of financial condition on its website, along with the reports from all the plan’s financial managers and consultants, together with the investment strategy and annual performance evaluation of the plan. Its board’s meeting minutes, except those restricted by privacy laws, should also be posted online.
Atanasov also recommends that the MBTA post the complete audit and valuation reports of its pension and health plans, and that the T’s pension plans be subject to the same investment-management and solvency regulations as other Massachusetts public pension systems.
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.
Pioneer Institute recently unveiled the MassPensions.com online application that provides year-by-year comparative data and ratings for the performance of each of the commonwealth’s more than 100 retirement systems. Other recent pension research includes: Do We Need Them? How Many Retirement Boards are Necessary to Provide Pension Benefits for Massachusetts Public Employees, Improving the Investment Performance of Massachusetts Pension Funds, and Fiscal Implications of Massachusetts’ Retirement Boards’ Investment Returns.
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.