Report Showing MBTA Pension Fund Performance “Too Good To Be True” Reinforces Pioneer Research

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BOSTON – Stories in The Boston Globe (“Madoff whistle-blower: The T’s pension plan may be $470M short,” June 27th, and “T pension board’s new members call for tough review of fund,” June 29th) validate concerns about the management and condition of the MBTA Retirement Fund (MBTARF) that Pioneer Institute first raised in 2013 (“Have the MBTA’s Retirement Plans Gone Off the Rails?“), and many times since then (here, here, here, here, here, and here).

According to the Globe, a new study by Harry Markopolos, the whistle-blower in the Bernard Madoff case, and Boston University professor Mark T. Williams, finds that the MBTARF may be overestimating its value by nearly half a billion dollars, as well as underestimating how long its retirees will live, and how much it will owe them. The report was presented to the US attorney’s office, FBI, Securities and Exchange Commission, and Massachusetts Inspector General’s Office.

A high-quality mass transit system is critical to Greater Boston’s economy and quality of life. That makes the financial health of the MBTA’s pension system a top public policy concern. The fund’s poor financial condition and high costs are exacting a heavy burden on an already debt-ridden system. Twelve thousand MBTA workers and retirees count on the retirement fund – and they should expect responsible and competent investment management. Taxpayers and T riders who also support the fund (contributing over $628 million during the last 18 years) rightly have the same expectations.

All would be better served were the MBTARF moved to the state’s Pension Reserves Investment Management (PRIM) Board, which already manages the assets of the state and teachers’ retirement systems as well as of dozens of local retirement systems in the commonwealth.

Pioneer has long argued that the MBTA Retirement Fund has been mismanaged, with conflicts of interest, millions of dollars of taxpayer money lost, and a total lack of transparency. In an earlier public statement, Pioneer drew attention to the $128 million undervaluation of the liability as of 2013, and the fact that the Fund did not use widely accepted accounting methods.

The Institute welcomes the work of Markopoulos and Williams to this much-needed discussion. We agree with their findings that the MBTARF has failed to provide clear information about financial results and audits, that it used three different accounting approaches in as many years, and increased its actuarial rate of return at a time when other systems are lowering theirs. These maneuvers affected projected pension obligations to retirees and artificially boosted funding ratios.

In an “Open Letter Regarding Reform of the MBTA Retirement Fund” (June 27, 2014), Pioneer issued 16 recommendations to reform the MBTARF. Here are two key recommendations to improve governance and rebuild the public trust at the MBTARF:

  1. Improve the governance of the MBTARF by changing the way board members are selected. Board members from the union quota must be elected by union members of the MBTA retirement plan rather than appointed by the union leadership; board members from the government quota should be appointed by the governor or secretary of transportation and not have any union or MBTA affiliation.
  2. Improve MBTARF transparency through:
    • Online publication of post-1980 annual reports and valuation studies; searches for new employees, investment managers, consultants and contractors; internal risk controls and an ethics policy based on state ethics standards; Statements of Financial Interest for all board members and management (see 268B MGL); a fully articulated investment policy (e.g.,; board meeting announcements and minutes; quarterly asset allocation and its target asset allocation rationales;
    • Preparation of financial statements in accordance with all GASB requirements, including disclosure in the MBTARF annual report payments made to each of its employees, board members and contractors;
    • Acceptance of the jurisdiction of the state’s ethics standards, public records and open meeting laws;
    • Establishment of two outside advisory boards with members serving on volunteer basis: investment professionals to advise on portfolio management, and experienced actuaries, lawyers, CFAs and CPAs to assist with operational and compliance issues as well as improving ethics and governance.

As noted in the Institute’s February 12th Public Statement on the MBTA, we believe this work is urgent and needs to be done as part of the MBTA reform package that the legislature is contemplating. We need to protect the interests of MBTA employees and retirees, taxpayers, and T riders. It is high time that we restore accountability at the Fund and rebuild the public trust.