End the secrecy of the MBTA pension system

It’s time to open up the books of the MBTA pension system.

The MBTA derives two-thirds of its $1.9 billion budget from state and local taxes.  It contributes $71 million per year to pay pensions for its workers.  Historically, MBTA pensions have been very generous, although the legislature reformed the system in 2009 as to new employees.

Few would argue with the basic principle that citizens have a right to know how their government is spending their tax money.  As a result of legislation we passed in 2010, any citizen can look online and see how state funds are being spent, including funds spent on salaries and pensions for public employees.  Visit mass.gov/opencheckbook.

By contrast, the MBTA pension system has remained in the dark, inaccessible to public oversight.  Visit www.mbtarf.com to learn exactly how little you know about the system.

One point of interest is who receives MBTA pensions and for how much.  Some better-paid young MBTA retirees are double dipping.  But it is equally of interest to know who manages MBTA pension funds and how they are paid and at what other vendors are receiving fees for providing services to the entity.  Legislators have no better access to the answers to these questions than do the members of the general public.

The MBTA pension system considers itself a private trust and the Supreme Judicial Court agreed in litigation in the 1990s that the entity was not subject to the public records law and not subject to the oversight of the public Ethics Commission.

However, the Supreme Judicial Court’s decision was based on the technical definitions of “public” chosen by the legislature.  The Supreme Judicial Court has not held that the legislature is without power to open the books of the entity.

I offered an amendment  (#69) to the transportation finance bill to add the MBTA pension system to the listing of agencies subject to public records law disclosure. The Senate adopted the amendment unanimously on a roll call vote.  In its general budget debate, the House adopted a similar amendment #835.1, worded more broadly but with the same effect.  This amendment was also adopted by a unanimous roll call vote.

So, both branches have now unanimously voted that the MBTA retirement system should be subject to the public records law.  However, the provisions are riding in separate bills and are worded differently.

The state’s transportation finance legislation is still pending in a conference committee, appointed to work out the differences between the House and Senate versions of  the bill. In a couple of weeks, after the Senate reveals and debates its budget, then the budget too will go to conference with the House. Once both the budget and the transportation finance bill are in conference, the table will be set for negotiation and horse-trading between House and Senate leadership on all points of difference in the two pending bills.

The most important issue at stake is the amount of revenue pledged towards the Governor’s proposal to spend $1 billion per year to support a 10-year program to rehabilitate our road and transit infrastructure.  I’m hoping we end up closer to the Senate’s plan which comes closer to the Governor’s.

But I’m also hoping that we come out of the twin conference processes with a public records amendment that ends the secrecy of the MBTA pension system.  As we commit substantial additional revenue towards transportation, we should do all we can to eliminate questions about how it is being spent.

Click here for more on other transparency issues in state government.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

24 replies on “End the secrecy of the MBTA pension system”

  1. “I offered an amendment (#69) to the transportation finance bill to add the MBTA pension system to the listing of agencies subject to public records law disclosure.”

    Why must there even be a list of agencies subject to public records law? Shouldn’t they all be?

  2. Since the state legislature has exempted itself from the Open Meeting and Public Record Laws, it’s hard for them to get all indignant about secrecy in a state agency.

    Anyway, I think the MBTA itself is subject to these Laws, as was the Mass Turnpike Authority. I don’t know how the pension was put into a separate and private entity. Of course it has to be made public but I’m not sure how it would be done, legally speaking.

    Aaron Michlewitz got legislation making the private 501c3 Greenway Conservancy subject to these laws, so I guess it’s possible.

  3. Will: You’re certainly right to try to get transparency of the MBTA pension system. Who is defending secrecy? And what are they trying to keep secret? The coziness of various political, union, business and other entrenched interests in Massachusetts has been shown to be harmful to the public. Secrecy implies that there are practices that cannot stand the light of day. If there is nothing to hide, let’s have transparency and see if that’s true.

    I’m sure public pension are a third rail for most state and local politicians, but we all know that union support has been gained through the years in part by one concession after another on the benefits side of the pay package. All of those concessions are incremental and add up to an ongoing cost that crowds out other needed programs, or that require tax increases. Transparency of the MBTA program would be a step in the right direction. All other secret tax-supported pension programs should transparent as well. Then we would need courageous legislators to consider whether they need to be changed.

  4. How about some facts? For instance:

    (From: http://www.massbudget.org/report_window.php?loc=Pension_3_11.html)

    “One important distinction between public and private sector workers in Massachusetts is that public sector workers are not eligible to participate in Social Security. Thus, state employees and teachers do not contribute the 6.2 percent of their salary toward Social Security. On the employer side, the state also does not contribute 6.2 percent of employees’ salary (up to $106,800) toward Social Security. If the state were to abolish the pension system entirely for new employees and thus be required to participate in Social Security, costs would subsequently increase by about 3 percent of payroll, more than double what it pays now.”

    But then, this is apparently the land where Chained CPI is just a peachy idea:

    (From: http://www.willbrownsbergerforcongress.com/ask-a-question-2/)

    “I feel strongly that we need to protect the income security of retirees (Social Security and Medicare), but I will not close the door to responsible adjustments (as proposed, for example, by President Obama)”

    –Bill Mahoney

  5. Bill: Thanks for the information. It’s a pretty brief summary, though. It doesn’t mention retirement age. I can’t tell if hitting 20 years of service means an employee can retire right then with a full pension. If so, that’s a huge and expensive benefit. And can employees earn a pension of 80% of their final 3-year average salary after only 20 years or age 55? If so, that’s another huge benefit, much much higher than Social Security. The employee contribution is indeed high, but the comment that “many state workers are entirely funding their own pensions” seems strange in relation to the taxpayer costs cited later. (I used to be a pension consultant.)

    But the immediate issue is the secrecy of the MBTA pension system. I wonder if the MBTA follows the state system (which itself may or may not make sense) or have they tacked on some goodies they want to hide.

  6. Essentially all agencies are subject to the public records law categorically. The MBTA fund has been held to be outside that category. My amendment fixes that without changing the definition of the general category.

  7. When the MBTA was formed in 1948 from a collection of various PRIVATE streetcar and bus companies, the employees of those PRIVATE entities did not want to be a part of the MA State Employee Pension System because they noticed that the Commonwealth of Massachusetts was not setting aside any funds whats so ever for state employee pensions. It was stricly pay as you go. The state did not start setting money aside for any state pensions until like what 1993 or later. Definately not untill the state legislature became part of the MA state pension sydtem.

    Consequently, they did not want any part of that and are of the firm belief that the Commoneealth wants to steal their retirement funds to fund the massively unfunded state employees pension fund. Basicly, they believe the state wants to raid their pension fund. Thats why they have in a private trust like many/most non-public sector unions. Remember, these unions were private sector unions before the MBTA was established in 1948.

    This was explained to me by a transportation historian (rest in peace George), I may have some dates and details not exact. I am not a fancy Wall Street Lawyer. Just a working class man and proud of it.

  8. That’s useful information, Joe. You make a good case that the MBTA system should remain independently funded. But, given the taxpayer support of the system, it still should be transparent. Also, without transparency and oversight from outside the MBTA, who knows who may be raiding the pension fund right now with the many shenanigans possible in a secret pension system.

  9. “I can’t tell if hitting 20 years of service means an employee can retire right then with a full pension. If so, that’s a huge and expensive benefit. And can employees earn a pension of 80% of their final 3-year average salary after only 20 years or age 55? If so, that’s another huge benefit, much much higher than Social Security.”

    This type of information if readily available, I believe. If you are referring to the standard cookie-cutter state employee, the answer is — no, you cannot retire with 80% after 20 years of service, at any age. 20 years of service gets you 50%, at age 65. If you are referring to T employees, who as we know have a different pension structure, I am sure that you can find that information, just as any prospective employee could.

    My understanding is that the type of transparency being sought here is to have the ability to drill down into the status of individual pensions, similar to what the Boston Herald, for instance, provides to the public for each standard state employee. I can become as outraged as anyone with the discrepancies that exist for individual pensioners. But, to me, this is a matter for members of the retirement system, not for the general taxpayer. If the cost to “the employer” (the taxpayer) is less than the 6.2% contribution required by SS plus some type of 401K contribution which is standard among large employers, who cares? In such a case, the employer wins out, so why be concerned about the internal workings? That would be a matter for the members.

    Thus, regarding “But, given the taxpayer support of the system, it still should be transparent” … what taxpayer support of the system? As the piece I previously referenced (http://www.massbudget.org/report_window.php?loc=Pension_3_11.html) will tell you, the taxpayer contribution does not even rise to the level of SS. As stated in a previous post — “…It was stricly pay as you go. The state did not start setting money aside for any state pensions until like what 1993 or later…” — the state did not keep up with its payments for the first 75 years of the pension program. Thus, the “unfunded liability”. Unlike the SS system, which requires a 6.2% contribution from the employer with each paycheck, the MA pension system requires nothing of the employer upfront, nothing till the employee retires, some 20-30 years later. Nice deal. The standard response by the employer at that time seems to be — OMG, look at what we owe, we can’t pay that. And the complaining and cutting begins soon thereafter.

    I believe that the state still does not keep up with its payments. It’s the NJ model, where the state of NJ didn’t make payments for 10 years! and then claimed that it couldn’t afford to meet its obligations, so we just have to reduce agreed upon benefits. My understanding is that the same type of game occurs in MA. But I can’t verify that because I can’t get a clear statement of the annual activities of the state regarding its payments to the pension system. Sure, I can get lump sum figures, but how do I know how much of that lump sum is directed towards the “unfunded liability”, how much towards current retirees, to current employees (I can guess here — zero), how much of the annual membership contribution went towards the state contribution in a given year, how much of the return on investments went to the state contribution in a given year, how much did the state (as employer) contribute in a given year, etc…

    So, if you’re looking for transparency, to the benefit of the taxpayer, how about a little transparency in the actions of the state, the employer, on an annual basis? To me, that is much more informative than the pensions of given individuals.

  10. Bill, the data you express an interest in about state pension cash flows is available on the state pension system website. See the actuarial valuation reports to delve in to analytic questions that you are raising.

    The state is contributing approximately $2 billion/year to cover the costs of pensions and, as noted above, $70 million/year for T pensions. All information about both systems should be transparent. Those payments, if computed as a percentage of current payroll, are much higher than social security payments (ballpark, 20%, haven’t dug out the exact numbers) because we are transitioning from a pay-as-you-go system (like social security) to a forward-funded system. I don’t have historical data on how the taxpayer contribution to state pension costs as a percentage of payroll compared during old the pay-as-you-go days, but it’s safe to say that they were substantial — in those days, employees didn’t contribute at all. There may be a future in which pension costs are borne primarily by employees in a true forward system, but that depends on how the stock market does.

    Bottom line: In the past, today, and for the foreseeable future, the taxpayers are making substantial contributions to cover the cost of public employee retirement and the information should be fully transparent. The information about state retirement is complicated but all readily available. The same cannot be said of the MBTA.

  11. Will: thanks for the link and, yes, the data is there. Not exactly what
    I was hoping for, but the data is most assuredly there. And your point that the same cannot be said of the MBTA is well taken.

    Some points of clarification and disagreement:

    1) the state is contributing 1.5 billion, not 2 billion. 30% rounding error?

    2) of that 1.5 billion, approximately 20-25% is for the “normal cost”, 75-80% for the unfunded liability. Perhaps you don’t make the distinction? Others do.

    3) Not everyone agrees with you on the SS comparison. From the paper I cited earlier:

    “If the state were to abolish the pension system entirely for new employees and thus be required to participate in Social Security, costs would subsequently increase by about 3 percent of payroll, more than double what it pays now.”

    4) You wrote: “There may be a future in which pension costs are borne primarily by employees in a true forward system, but that depends on how the stock market does.”

    I think you know that under current projections, recently hired state employees will be just about fully funding their pensions. Yes, that is dependent upon market performance. But in the 20 year history, the 8.25% threshhold has been surpassed. There is no more reason to expect future performance to be worse, than there is to think it will be better. I’d say it depends as much on monetary policy as on economic performance.

    5) Finally, I recognize that pension reform/reduction is a bit of a passion of yours. Should your Washington ambitions be realized, I wonder if you will be bringing the same type of enthusiasm to reforming post-employment benefits of our federal representatives, in addition to your apparent support of the chained-CPI reduction. Those benefits are quite lavish and you of course would be a beneficiary of such.

    Thanks for listening. Although we differ on many issues, I have a great deal of respect for your openness and willingness to attack problems.

  12. Thanks, Bill. Yes, The FY14 pension amount is $1.630 billion.

    Yes, as to new employees, the paper you cite is correct — the contributions to social security would exceed the normal cost contributions. That’s why, as a state legislator, I have not favored moving new employees into social security. But that’s a different stat — the current catch-up costs as a % of current payroll are higher than social security.

    I agree that the federal pension system deserves a good look. My basic philosophy is that we should all be in the same boat.

  13. Will: A couple of comments. You wrote, “There may be a future in which pension costs are borne primarily by employees in a true forward system, but that depends on how the stock market does.” If, by a “true forward system” you mean a pension system where benefits that accrue each year (I’m assuming this is a fixed benefit system) are funded each year, such a funding practice can be followed whether employees or the employers pay all the cost or if the cost is shared. Pension benefits and employee contributions are still part of the basic employment deal no matter how the pension system is funded.

    Performance of the stock market is relevant if stocks are part of the investments of the pension fund and an important component of the interest assumption used in determining the annual cost of the pension program. If the program provides fixed benefits and the employee contribution is fixed, the employer normally bears the risk of an inaccurate interest assumption, which too often happens when employers are overly optimistic about the interest assumption in order to drive down the annual contribution they are expected to make.

  14. Bill: Don’t read too much into the terms “normal cost” and “unfunded liability” when they are used as you cited. These are terms created by actuaries using one of several approaches to calculating pension costs. For example, a brand new pension plan under which no benefits have yet been earned will have a “normal cost” and an “unfunded liability” because heroic assumptions are being made about benefits that will be earned and paid far into the future in order to calculate how much should be contributed to the pension fund in year one.

  15. The MBTA Retitnment system is not entirely “secret”. That’s just an inflammatory word used by anti-public sector politicians and media. If my memory serves me right the MBTA Retirnment Board is comprised of 5 Board members: 2 appointed by the Governor, 2 appointed by the Unions and 1 appointed by the other 4 board members.. .. Bill, could you verify or validate that information for us?? I just know its something like that.

    By the way, I am not advocating for or against ‘transperancy’. And in the interest of transparency I should mention that I am retired MBTA (Green Line).

    I am sure that this issue will go to the courts a THIRD time because I doubt that the , MBTA Ret Board, the fiduciary would expose themselves to legal liability by divulging member personal and private information publicly.. I think they would seek guidance from the court in order to protect themselves from liability. Just because you deposit your paycheck in your bank doesn’t give your bank the right to divulge your personal info in the newspaper. Or does it? I am not a fancy Wall Street Lawyer just a Retired Green Line Motorman.

    I lean in favor of transparency….for ANY Entity or Person who receives state funds or funding. Any.

    I do have a particular problem with politicians and media that intentionally with mal intent distort an issue.

    Remember the phrase “23 years and out”. ? Never used at the MBTA. It was just a propaganda phrase coined by politicians and media….a take off of the commonly used Army phrase “20 years an out”.

    Bill, could verify for us the make up of the MBTA Retirement Board. Does the Governor appoint 2 of the 5 members of the board… Or is it the Sec of Transportation (who is appointed by the Governor) who appoints 2 members of the board…..and then with 2 members appointed by the unions….jointly agree on a fifth member.

    That sounds sounds a lot like how private unions and companies govern their pension funds…so in 1948, when Harry Truman was president, these private unions collectively bargained with the MTA to have their pension fund governed this way…,because they noticed the Commonwealth of MA was not funding the pension fund for state workers. Is that nefarious ?

    Are politians and media who aim to distort this issue being nefarious? You decide.

  16. By the way, it is worth mentioning that there are a lot of anti-public sector organizations out there disguised as legitimate “think tanks” throwing around all sorts of crazy pension valuation numbers. Because of artificial repression of interest rates by the FED at this time (in order to kickstart the housing recovery) the discount rate is artificially lowering the value of assets on the balance sheets of pension funds which artificially affects their funding ratios. When the housing market stabilizes the FED will let rates normalize and rise and normalize pension funding. It’s a delicate balance for the FED. Help housing but hurt pensions. The anti-public sector politicians and media are taking advantage of the situation in order to dupe the public. Or perhaps the media and the politicians are being duped as well.

  17. Bill, could you enlighten us as to the make up of the MBTA Retirement Board. There seems to be an informational black out in the Media regarding the make up of the MBTA Retirement Board.

  18. Joe, we’ll see if we can nail the answer to that question down for you. It may be hard for us to get the information! I think you may be thinking of the membership of the MBTA board, but we’ll see if we can get the membership of the MBTA retirement board.

  19. Joe, the MBTA Retirement Board membership, including the election and appointment of Board members, can be found in the following decision, MBTA Retirement Board v. State Ethics Commission, 414 Mass. 582, 585 (1993). Here is the applicable text:

    “Under the pension agreement, the board is composed of the following seven members: three persons appointed by the MBTA, one of whom must be an MBTA director while the other two need not be otherwise affiliated with the MBTA; two persons appointed by Local 589; one person elected by a vote of members of the fund who are not members of Local 589 but are either management employees or members of unions other than Local 589; and one “honorary” or neutral member who is elected by the other six members of the board and does not normally vote on board matters. The board is responsible for carrying out the provisions of both the pension agreement and the 1980 trust agreement. As trustees, the board members understand that they must act in accordance with a fiduciary duty to serve the best interests of the members of the fund.”

    Here is a breakdown of the current membership of the Board including member’s name, Board role, and appointment category:

    Janice Loux- Chairperson, MBTA appointee.
    Jonathan R. Davis- Board member, MBTA appointee who is an MBTA director.
    Darnell L. Williams- Board member, MBTA appointee.
    John J. Lee- Board member, appointee of Local 589 as union president.
    James M. Evers- Board member, appointee of Local 589 as union secretary/ treasurer.
    James M. O’Connell- Board member, elected by members of the fund who are not members of Local 589.
    Katherine A. Hesse- Honorary member, elected by the 6 other board members and only votes to break a tie.

    Michael Buckley, Legislative Counsel & Policy Advisor
    Office of Senator William Brownsberger

  20. To add a bit to this info – Darnell Williams is the CEO of the Urban League of Eastern Massachusetts.

  21. The FY14 budget, signed by the Governor on Friday, included a provision offered by Senator Brownsberger during the Senate budget deliberations to increase transparency of pension funds like (and including) the MBTA pension fund by subjecting them to the public records law.

    The actual language (found here as part of the conference committee report: https://malegislature.gov/Document/Bill/188/House/H3538.pdf) reads as follows:

    “SECTION 4. Section 7 of chapter 4 of the General Laws is hereby amended by inserting after the word “purpose”, in line 137, as appearing in the 2010 Official Edition, the following words:- , or any person, corporation, association, partnership or other legal entity which receives or expends public funds for the payment or administration of pensions for any current or former employees of the commonwealth or any political subdivision as defined in section 1 of chapter 32.”

    The Boston Herald published a piece today about this new measure: http://bostonherald.com/news_opinion/local_politics/2013/07/lawmakers_post_t_pension_info_quickly

    Anne Johnson Landry
    Committee Counsel and Policy Advisor
    Office of State Senator William N. Brownsberger

  22. Well done, Will. I can’t tell from the language, or from the Herald report, but I hope the amendment allows public scrutiny of the way MBTA pensions are calculated, not just the benefits that are being paid.

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