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Pension costs to rise for MBTA and its employees

The MBTA will have to increase its annual contribution to its pension fund by $8 million, to $84 million, for the year that starts July 1, said MBTA chief administrator Brian Shortsleeve (above).
Keith Bedford/Globe Staff/File 2015
The MBTA will have to increase its annual contribution to its pension fund by $8 million, to $84 million, for the year that starts July 1, said MBTA chief administrator Brian Shortsleeve (above).

The MBTA pension board, yielding to criticism that it has been understating the fund’s financial obligations, is making changes that will require the cash-strapped transit agency and its workers to kick in millions more each year for retirement benefits.

Brian Shortsleeve, chief administrator of the Massachusetts Bay Transportation Authority, said Monday that the pension fund’s long-term liability will rise by $53 million to $868 million. That, in turn, will force the T to bump up its annual contribution to the fund by $8 million to $84 million for the year that starts July 1, he said.

“These are big numbers for us,’’ Shortsleeve said during a meeting of the T’s financial oversight board. And the authority’s costs could rise further. A special audit of the $1.6 billion pension system is holding up the fund’s 2015 financial report and is still weeks from completion.

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Shortsleeve, in an interview, commended the pension board for making changes but also urged it to “study carefully the long-term sustainability of the fund” at current benefit levels. He said the pension board should “share this analysis and findings with the T and with the public.”

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It’s been eight months since the pension board pledged to conduct an independent review of the fund in the wake of a critical report that alleged numerous accounting irregularities.

In June, Wall Street whistle-blower Harry Markopolos and Boston University finance professor Mark Williams said in their report that the pension fund could be undercounting its future pension obligations by as much as $470 million.

The fund’s board hired a consultant in December, and results of the forensic audit are expected by March. But the board acted ahead of that report by addressing two of the issues raised in the Markopolos-Williams report: overly optimistic investment projections and outdated life-expectancy tables, which project how long members will receive retirement checks.

The pension board told the MBTA it will lower its expected rate of investment return to 7.75 percent from 8 percent, in line with the larger Massachusetts state pension fund. The move decreases the amount the fund expects to have to pay benefits to its 12,000 active and retired employees, and means the T has to contribute more.

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Joseph Aiello, chairman of the T’s Fiscal and Management Control Board, at the meeting Monday, said lowering the investment assumption was painful but more realistic.

“It’s important that we get honest with ourselves about this liability,” he said.

Shortsleeve said the pension fund had an investment return of 4.5 percent in calendar 2014 — a full percentage point lower than the 5.5 percent stated in a preliminary reported in April.

That compares with a median 6.8 percent return in 2014 for public funds that manage more than $1 billion, according to the Wilshire Trust Universe Comparison Service. The state pension fund posted an 8.2 percent gain that year.

For 2015, a volatile year for the markets, Shortsleeve said the pension fund is expected to report a return of less than 1 percent.

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The median return last year was 0.4 percent; the state fund gained 1.1 percent .

The change in assumptions by the pension fund also will end up costing transit workers more, as their contribution next year is slated to rise to $30 million from $28 million.

James O’Brien, president of the Carmen’s Union Local 589 and a member of the pension board, sought to assure members in a statement that the changes “will result in long term viability” of the fund.

In the statement, he also said the union leadership was concerned about pension cost increases for “our members as well as the MBTA system.”

The authority is projected to run a $170 million deficit this year.

Both the T and the Commonwealth’s financial reports for the year ended in June have been delayed by the pension fund’s special audit.

On Monday, Shortsleeve warned that discussions about the T’s planning for fiscal 2017 would likely have to take place without full information from the pension fund.

“We’re going to have to make some estimates,’’ Shortsleeve said.

It’s unclear whether the pension audit will be made public, because the pension fund is organized as a private trust and says it is not required to follow public records laws.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.