MBTA Pension Transparency: Update

This year’s state budget includes language which I sponsored that changes our approach to achieving transparency for the MBTA Pension Fund.

Last year, I sponsored language applying the public records law to the MBTA Pension Fund, which for many years had operated under conditions of secrecy.

Last fall, Boston media outlets sought to use the new legal tool to obtain records from the fund and the fund declined to produce records. The matter was appealed to the Supervisor of Public Records who found in the fund’s favor despite our new law. The Supervisor’s reasoning turned on a particular statutory interpretation which I differed with, but also raised broadly the issue of whether the retirement fund is a public entity.

In response, last February, the Committee on Public Service, of which I was then the Senate Chair, convened a hearing on the issue. The MBTA pension fund appeared and testified. Their testimony altered my legal understanding of the situation. I came to accept that, unlike every other pension fund in the Commonwealth, the MBTA pension fund was originally created by a collective bargaining process. Although it receives contributions from the taxpayers, it is, in fact, a private entity.

The history is interesting. In the 30s and 40s, as the automobile became widespread, private companies that had made money providing urban bus and rail service went bankrupt. In a process that happened in region after region across the country, state and local governments took over the necessary role of supplying public transit, in many instances taking over the assets and liabilities of the private companies. The MBTA is the descendant of a consolidation of private entities in the late 40s. These takeovers were specifically protected by federal law and state/local ability to alter the terms of the underlying labor agreements is limited.

While I had previously seen the fund’s refusal to comply with records request as entirely a matter of recalcitrance, I now see its refusal as the result of conflicting legal obligations. The collectively bargained pension agreement that governs its behavior does include language which appears to impose an obligation of confidentiality. So, when we imposed a disclosure obligation on the fund’s board, they were in an uncomfortable legal squeeze.

Through the spring, we engaged in conversations with the board. I found that the board, and in particular, the head of the Carmen’s union, were very open to improved disclosure, but just not in a way that conflicted with their legal obligations. We eventually agreed on a three part solution to the problem:

  • First, we would repeal the flawed language we had passed last year.
  • Second, we would put in place new language requiring the MBTA itself (as opposed to the fund) to routinely place all the details of who is receiving pensions and how much on the state’s open checkbook website. While the fund has an obligation of confidentiality, the MBTA is a distinct entity and obviously a public entity and has all the same information as to pensioners. The MBTA had previously made the details of pensions available upon request from journalists, but our language will make that disclosure routine and accessible to the public.
  • Third, we reached an understanding that the Carmen’s Union would negotiate with the MBTA a change in the pension agreement to require the fund to produce an annual report meeting the high reporting standards of the Government Finance Officers Association. My view is that a report meeting these standards will require the fund to actually create new audited schedules that go well beyond what could be obtained by public records requests. (Note: At this time, the Carmen’s contract is still in negotiation on other issues, but this issue is not in dispute.)

These improvements in disclosure will take some time to implement.  I am very hopeful that if remaining gaps in disclosure of important details become of concern, the leadership of the fund will work with the public to fill those gaps.  The current President of the Carmen’s union, Jimmy O’Brien, is very oriented to disclosure of the fund’s operations — something that his members fully support.  Union members also contribute to the pension fund and do not wish to see their contributions squandered on expensive consultants or poor investments. As one commented on the Carmen’s union website:

I have no problem with . . . OUR retirement fund reporting the handling of the investments and losses to the state for the proper transparency. [T]his will protect WE THE PARTICIPANTS.

See recent Globe coverage here.  Note: perhaps in response to this mixed press, the Governor vetoed our repeal of the language that we passed last year — language which sounds good, but is ineffective for the purpose of improving MBTA pension fund transparency.


Published by Will Brownsberger

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

24 replies on “MBTA Pension Transparency: Update”

  1. W
    Good to see progress on this. Thank you for the leadership. I think your a bit generous in your acceptance of why the pension bod was unwilling to comply with the request of greater transparency ( ie their conflict on legal obligation). As a public agency the MBTA should be doing everything possible to show the public how the pensions are funded, managed, performing and funds distributed.


  2. Very weak and disappointing approach to a major problem. Given recent and past performance, expecting a “high-quality” annual report is naïve.

  3. Will:
    Thanks for a lucid explanation. However, I have one question: If the Pension fund goes bankrupt or loses vast amounts of funds due to poor returns, are Massachusetts Taxpayers obliged to make up the difference? That is, are the taxpayers on the hook to guarantee the Carmmen’s pension income?

    The answer to that does more to describe to me whether this is a public pr a private entity.

    Charlie Foskett

    1. You are right on target, Charlie. We are on the hook — so we have a deep interest in the performance of the fund and need to insist on good financial disclosure.

      But we are on the hook to the pension fund in the same way that we are on the hook to bond-holders: Through contract, as opposed to statute. The pension fund is a legally private entity to which we have made promises.

    2. Charlie makes an excellent point. What exactly is our financial liability if the pension has a shortage? If the taxpayers are liable to cover any shortages, then the financial reporting should be held to the same standards as other government unions.

  4. Will, in today’s Globe article you are quoted as saying, “The information that the public most wants to know – namely, who’s getting public pensions and how much …” I have to respectfully differ. The public most wants to know if the pensions are fair and not a rip-off. If I see a report of a Mr. Jones receiving a pension of $50,000 I might consider it fair if it is based on an average 5-year final salary of $100,000 and Jones retired at age 65 after 30 years of service. But if Jones had his pay for pension purposes goosed up by overtime, severance pay, sick pay and other goodies, and it was based on only his last year of service, and his years of “service” were supplemented by public work outside of the MBTA, and he retired with full pension at age 50 with 15 years of service, I might well consider the pension a rip-off. What the public needs to know are the terms of the plan, the basis for calculating pensions, not just the amounts being paid. Do we know the terms of the plan, or where that information can be found?

    A related point is how well funded is the plan. If it is seriously under-funded, for whatever reason, and may require a taxpayer bailout, that’s important to know, so that remedial measures can be taken before it is too late.

  5. Don and Tony, we the taxpayers are on the hook to make up any funding deficit. That is why I have been concerned about transparency of the fund for some years. You are both 100% right as to the public’s right to know the terms, financial condition and funding position of the plan.

    This information is already online in the fund’s annual report which you can view here. The information in the annual report should get richer and more timely over the next few years, but the basics are already there. The 2012 report shows the fund to be 68% funded (see page 28).

  6. Here’s a nice summation of the pension situation, written
    by one of the nation’s leading experts on the topic:


    Here’s a highlight passage:

    The bottom line is that, while taxpayers in other states are paying an average of 14.2 percent of payroll (6.2 percent for Social Security and 8 percent for public pension costs), taxpayers in Massachusetts are paying less than 3 percent of payroll for public employee retirement benefits. Thus, in terms of benefits, the Massachusetts plans serve the taxpayer very well.

    Lest one proclaim bias in the data, the “free market” oriented Pioneer Institute confirms these numbers in its work:

    The state’s share of the cost of earned benefits is known as the net normal cost. By 2010, it had declined to 2.6% of payroll, while the employees’ contribution had risen to 9.1% of payroll or about 78% of the total normal cost. Correspondingly, net normal cost declined from 1.09% of the state budget in 2001 to 0.88% in 2010. By comparison, if the state were to abolish its pensions altogether, it would have to contribute 6.2% of payroll to Social Security, more than double its net normal cost in 2010.

    Perhaps if the employer displayed a little more concern about paying its fair share there wouldn’t need to be so much concern about bailouts.

  7. Point well made, Bill, and Alicia Munnell is certainly an informed observer. I particularly agree with her point that Massachusetts does poorly by short term workers.

    If the comparison is to other states, then Massachusetts taxpayers may not be getting a bad deal. Of course, it’s difficult to do that comparison — one can’t just look at the portion of retirement paid by the public employer — one has to look at the total compensation picture, factor in cost-of-living, etc.

    An even more complicated comparison is with the private sector — how does compensation for public sector workers compare with compensation for the private sector workers who pay taxes? There are a lot of variables there, including how one factors in skill, training and risk. Also not an easy comparison to bring into focus. More on that issue at this thread..

  8. Will, thanks for providing the links to the fund’s AR and the GFOA rules. Now that I see the AR, it seems the fund already is pretty transparent. And now that I see the pension plan’s benefit provisions, I see that it is a very generous plan. (Nothing “stingy” about it since it seems that SS also is deducted and paid.)

    The main issue may be the level of funding, which has dropped precipitously from 2006(94%) to 2011 (68%), only 10 points of which were due to the market crash in 2008. And the 2011 level of funding may be overstated since the normal retirement age assumption for funding is 65, while people are retiring much earlier. Since taxpayers and/or MBTA riders are on the hook for any need to bail out the fund, legislators should ask the fund and the union about their plan for adequately funding the promised benefits.

  9. The pension agreement requires both the MBTA and the MBTA employees to adjust their contributions annually to maintain a finite schedule to full funding. See page 57-58 of the annual report. The language in the agreement does not fully define the Total Required Contribution Rate. That is developed in the actuarial valuation report, which is only partially reproduced in the annual report which appears online. The improved GFOA compliant annual report, which we expect as a result of the agreement we have reached, will include that information.

    I have seen the actuarial valuation report and next week when I am in the office, I will attempt to dig out the schedule for retiring the liability.

  10. The AR seems to say that employees will pay 1/4 of the annual contribution to the fund, and we see on p. 31 that employees have been paying about that (27% to 30%). That leaves the balance to be paid by the MBTA – i.e., by taxpayers and riders. I don’t know what percent of the overall MBTA budget is payroll, but clearly any dramatic increase in pension funding to make up for recent declines will pressure the budget and, therefore, fares. So, the key is how the fund (which controls the investments)and the union and MBTA (who negotiate the benefits) plan to make up the funding gap. At the same time, if aggregate pensions are increasing faster than aggregate payroll, that will increase the gap and needs to be dealt with too.

  11. That’s correct — the MBTA picks up roughly 3/4 of the contribution. I want to nail down for you the expected schedule of payments. But I don’t think we are looking at any new spike in costs — my recollection is that it is already baked in. I will report back within the next couple of days.

  12. My concern is based on recent sharp increases in the Annual Required Contribution (ARC), which increased by 95% from 2007 to 2012, and the resulting increase in MBTA contributions, which increased by 83% in that period ($30mm to $55mm). And even with these sharply increased contributions, the level of funding dropped from 94% to 68% in about the same period. If whatever is driving the increase in the ARC continues, and, on top of that, the fund needs to be supplemented to make up for the sharp decline in the level of funding, the pension plan could become a very serious budget issue for the MBTA, and for the rest of us.

  13. Don, most pension funds do their actuarial calculations using a five year moving average of their valuations to smooth market fluctuations. The result is that the big dive in 2008 gets phased in over a period of years — that is what has driven the ARC up in stages. I got a little sidetracked this week with other work, but still do mean to fact check these statements which I am making from memory and to post a fuller explanation.

  14. Further replying after having read the Actuarial Valuation Report dated December 31, 2011 released in June 2013 (haven’t received the latest).

    Some observations:

    1. The June 2013 actuarial analysis reflects new assumptions based on an “experience study” that the board did. Experience studies are used to recalibrate expectations about termination, disability, mortality, etc., based actual experience, in this case, over the preceding 5 years.
    2. The board is basing contributions on a schedule to amortize the unfunded liability over a closed 30 year period beginning on December 31, 2009.
    3. The assumed rate of investment return is 8% — up from 7.5% “in recognition of a change in the Fund’s target asset allocation”.
    4. The fund does use a 5-year moving average asset valuation. The valuation of the fund dropped 32% in 2008 — that loss was still being smoothed-in in this report, which was based on valuations from 2007 through 2011. With the continuing recovery of the stock market, future valuations will increase but will continue to reflect the lower immediately post-crash valuations for several years.
    5. The total contribution required to amortize the unfunded liability in 28 more years of the schedule is 11.69% of payroll. Normal cost is 8.75% of payroll and, with administrative and investment expenses of 0.45% of payroll, the total required contribution is 20.89% of payroll.
    6. The contribution is split according to a roughly 75-25 formula, so the MBTA’s contribution works out to 15.33% and the employees’s contribution works out to 5.56%.
    7. These amounts are adjusted annually to preserve the amortization schedule termination in 2039, which is late, but not too different from many pension funds in Massachusetts.
    8. Prior to the stockmarket crash in 2008, the fund was relatively healthy — 90.93% funded using the more conservative computation mandated by GASB 25.


  15. Thanks for the information, Will. Two comments: If the total required contribution of 20.89% of payroll is an ongoing figure, this means that the T’s contribution will be about double in future years (e.g., $55mm in 2012) than it was in the 1996-2007 period ($28mm average). A very hefty increase probably due to more systemic factors than the investment loss in 2008. Related to that, one wonders about the generosity of the plan. Today’s Globe reported on the MBTA pension of Jim Rooney, now head of the Boston Convention Center, but formerly a senior executive of the MBTA who had worked his way up over years from an entry level job there. He is reported to be receiving a pension of $68,000 a year (on top of his Convention Center salary) and he is age 56. Could he have been making that much as an MBTA executive to earn a $68,000 pension at age 56, or maybe starting at age 55. Pensions starting at that early age are very expensive.

    1. Yes. The schedule is built as an escalating schedule — most pension funding schedules do escalate, not a straight line amortization.

      I agree the early executive retirements are very troubling. We’ve pushed the retirement eligibility age up in connection with transportation reform, but that leaves some young retirees collecting. Too much was given away in the form of plush retirements in return for limited wage increases — it is a result of collective bargaining, but it’s another way to kick the can down the road.

  16. Most organizations look for level funding of their fixed benefit pensions as a percentage of payroll. When they face a huge increase like this one, it is because of a fundamental change in one or more of the cost factors. It could be a big benefit increase, or an accelerating imbalance between active workers and retirees (which full pensions at an early age in a static organization can do),or years of manipulating actuarial assumptions to hold down employee and employer contributions (as many municipalities do). If the new level of cost is more realistic, and the T has figured out how to pay for it, that’s a plus. And if it brings more reality to the next benefit negotiation that’s a plus too.

  17. In an earlier post I used the example of Jim Rooney, former MBTA exec, now head of the Convention Center, as an example of generous MBTA pensions. I had read in the Globe that he was receiving a pension of $68,000 a year at age 56, thinking he may have started getting it at age 55 (a very costly deal). Today, the Globe reports he started getting this pension at age 41. Wow! No wonder the T’s pension cost has doubled in recent years. Maybe now they are recognizing actual retirement ages rather than assuming age 65 as before.

  18. Yup.

    That kind of individual pension information will all be consistently visible on the open check book system as a result of the law we passed this year.

    Additionally, new employees are going to later retirement dates as a result of our 2009 reforms.

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