Despite Demands For Reform, The MBTA's Pension Fund Is Still Secretive And Underwater

As the MBTA struggles through the pandemic with a drop in ridership and revenue, another pressing financial problem looms largely outside the public eye: the bleeding of the pension fund for T workers.

It’s been three years since Gov. Charlie Baker urged the T pension board to start moving assets from its $1.5 billion fund into the larger state pension fund, where long-term investment returns are higher and fees are lower. And it’s been five years since he appointed three new directors to the pension fund’s board to press for greater oversight and transparency.

But these many years later, the T's pension board is still secretive and has agreed to move only a sliver of its money — less than 1% — to the state retirement manager. For years, the T pension fund hasn't kept up with the growing sum of money it will owe its retirees. It pays out millions more every month than it takes in, and taxpayers are providing more than $100 million a year to help keep the retirement fund afloat.

“The pension will consume an ever-growing portion of the T's operating expenses,” said Brian Shortsleeve, the transit system’s former chief administrator.

Shortsleeve also is a former member of the Fiscal and Management Control Board that monitors the finances of the ailing MBTA. That group voted last fall to press the T pension board to move assets into the state’s pension pool, he said, and he’d expected quicker action to follow.

Beyond history and inertia, it’s hard to know what's holding the T pension board back from moving the money. The board does not hold public meetings and insists it's not subject to public meeting laws. Unlike other pension funds for public workers, the T fund operates as a private trust — even though it has counted on half a billion dollars in taxpayer money in just the past six years.

"Taxpayers will have to bail it out."

Mark Williams

If the pension runs out of money, taxpayers will surely foot the bill, said Mark Williams, a finance professor at Boston University who has been a critic of the T pension’s management.

“Taxpayers will have to bail it out,” Williams said.

T pension executives declined multiple requests for an interview. And twice before the coronavirus struck, the board refused to allow a WBUR reporter into monthly meetings at its downtown office near City Hall.

By contrast, the $75 billion state pension fund holds regular public meetings and during the pandemic has made its meetings available to the public by phone.

Pressure from public officials for the T pension to improve its transparency followed news reports in 2013 and 2014 that it had hidden hedge fund losses from the public and failed to disclose investment returns on a timely basis.

For the rolling 10 years that ended in May, the T fund's performance has lagged the state pension fund, with a 7.8% return compared to the state’s 8.3%. That half of a percent may seem small, but can add up to millions of dollars over time.

In particular asset classes, like U.S. stocks, or private equity and hedge funds, the T pension has underperformed its own benchmarks for the past decade.

Andrew Farnitano, a spokesman for the T pension board, pointed to improved recent performance for the broader fund. In 2019, the fund reported a gain of 18.4% (before accounting for fees), which was almost two percentage points higher than the state’s return.

Amid the market collapse early this year, the state fund was less volatile, according to performance reports, losing 1.7% percent of its value for the 12 months through March, while the T fund fell 3.7%.

Farnitano declined to say why the fund has not moved more money to the state by now.

Former state treasurer Steve Grossman was one of the governor’s appointees to the T pension board until late last year. He said he’s encouraged by changes the board made during his four years there, like posting monthly investment results online, along with brief meeting minutes.

But he said more money should be moved to the state fund to take advantage of its lower fees, size and access to top managers.

“It’s the right thing to do. It’s good fiduciary responsibility,” he said.

Grossman also acknowledged that the meetings should be open to the public.

“I believe it would be in the best interests of the people of Massachusetts, the T workers, the T retirees and the public at large to see the meetings open to the press, to anybody who wanted to come in and observe,” he said. “There's nothing there to hide.”

Moving the money to the state fund won’t be the full solution to the T pension’s troubles.

"This is a time, from a fiscal standpoint at the T, that we need to be looking at every element of our cost structure really carefully."

Brian Shortsleeve

For one thing, the number of people receiving benefits far exceeds the number of employees paying into the system. At the end of last year, there were 5,507 members contributing to the fund, according to T pension records, and 6,813 beneficiaries.

Second, because many T workers are still eligible to retire in their 50s, benefits are being paid for longer than what was anticipated years ago, when the plan was designed. The pension fund’s total long-term liability — the amount it needs meet its obligations to retirees — now exceeds $3 billion. That’s more than twice its current assets, leaving a large hole to be filled in the coming years.

Meanwhile, the T itself has plenty of other problems. It received $830 million in emergency funding from the federal government this year to help shore up its finances amid the coronavirus. But the transit system’s financial challenges will certainly continue. Officials are expecting fewer paying riders on the subway, trains and buses well into next year due to the pandemic.

“This is a time, from a fiscal standpoint at the T, that we need to be looking at every element of our cost structure really carefully,” Shortsleeve said.