A new report sharply critical of the MBTA pension fund urges state leaders to improve the health and oversight of the fund by firing its current directors and raising the retirement age for T workers to 60 from 55, in line with state employees.
Targeting the T’s relatively low retirement age could save the pension system at least $1.1 billion over several decades, according to the report, slated for release Thursday by the Pioneer Institute, a Boston think tank.
Changes in 2009 did away with the T’s controversial “23-and-out’’ provision that allowed workers to tap pensions after 23 years on the job, no matter their age. But the benefits remain rich compared with those for state workers, the report says.
Presently, an MBTA employee earning $60,000 a year could retire at age 55 after 25 years of service and collect a $36,900 annual pension, nearly 70 percent more than a state employee would be eligible to receive at age 60, the report says. With a life expectancy of age 85, the T worker would collect $1.1 million in benefits, more than double the state worker’s total benefit.
The Pioneer report also says the retirement fund’s directors have been ineffective as watchdogs and should be replaced. It recommended installing a new, independent board.
A spokesman for the MBTA said officials were reviewing the report and its recommendations. Steve Crawford, a spokesman for the T retirement fund, declined to comment.
Like most pension funds, the MBTA’s $1.6 billion retirement fund does not presently hold enough assets to meet its future obligations. The T’s pension accounts were 94 percent funded in 2006, but that coverage shrank to 68 percent by the end of 2011. The full-funding gap grew to $726 million that year.
The cash-strapped transit authority’s yearly contribution to the pension fund was nearly $55 million in 2012, a figure that has doubled since 2003. That money comes from riders who pay fares on buses and trains, as well as taxpayers. Employee contributions also have increased, from $14.2 million in 2003 to $20 million in 2012.
In his report, titled “Myths and Reality about MBTA Pensions,” Pioneer’s Iliya Atanasov writes that pensioners and taxpayers are at risk if the T does not further overhaul its pension program.
The notion that “taxpayers cannot be harmed by mismanagement at the MBTA’s pension systems is perhaps the most egregious myth of all,’’ writes Atanasov, senior fellow on finance at Pioneer. “It has been used to justify the lack of state oversight of [the fund] over its 65-year history and as an excuse to turn a blind eye to the lavish early retirement options.’’
The report was prompted in part by recent revelations that the T pension fund lost $25 million on a hedge fund investment and did not disclose the setback to members or the public until it was reported in news stories. The fund also did not disclose in its annual report that it had made the investment in Fletcher Asset Management on the advice of former MBTA pension chief Karl White, after he had gone to work for Fletcher.
For decades, the T pension fund has used its legal status as a private trust to shield itself against pressure to adopt common practices such as holding open meetings and barring former executives from selling products to the fund for their personal gain once they leave.
The investment with Fletcher, now under federal investigation for running a suspected Ponzi scheme, has fueled new outrage among politicians and T critics such as Pioneer. The design of the pension plan, including retirement age, is subject to negotiation between union workers and the MBTA, although legislation such as the 2009 changes also can play a role.
The Pioneer report also calls for folding the MBTA fund into the much larger state pension fund or at least bringing it under the oversight of the Public Employee Retirement Administration Commission. Under a 1993 Supreme Judicial Court ruling, the fund is not subject to state oversight.
Representatives of the fund in the past have suggested they have no obligation to share its operating details with the public because taxpayers would not be responsible in the event the fund cannot meet its pension obligation. The Pioneer report disputes that argument, citing the rising annual contributions to the pension system from the T.
One factor behind the rising contributions: Higher pension benefit expenses. The retirement fund paid out $174.6 million in benefits in 2012, a sum that has more than doubled from $73.4 million in 1996. There are now more MBTA employees in retirement than on the job, with 6,275 receiving pensions and 5,733 actively working.