Business & Tech

MBTA pension fund finally releases 2014 audit

Michael Mulhern, head of the MBTA pension fund,  spoke to reporters after Monday’s meeting.
Suzanne Kreiter/Globe Staff
Michael Mulhern, head of the MBTA pension fund, spoke to reporters after Monday’s meeting.

The MBTA pension fund released a long-overdue 2014 audit Monday, as the fund’s chief made a rare public appearance before the T’s fiscal control board and faced new pressure to be more prompt and open with financial reporting.

Michael Mulhern, the $1.6 billion fund’s executive director, pledged to deliver an accounting for 2015 in 30 to 60 days.

“We realize they are much delayed,’’ Mulhern said of the reports, “and it’s created a fair amount of problems” for the T, the state Department of Transportation, and the state.


The pension fund’s belated reports have held up financial reporting by the authority as well as the Commonwealth. Mulhern blamed the delay on a financial review that had to be done following a critical report last summer on the fund’s finances led by Wall Street whistle-blower Harry Markopolos.

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Mulhern said the review affirmed the pension fund’s accounting from 2011 to 2013 for assets and long-term obligations to 12,000 pensioners and active workers. But the inquiry led the fund’s longtime auditor, KPMG, to essentially “start from scratch” in its own annual reviews, Mulhern said.

Transportation Secretary Stephanie Pollack and other board members on Monday pressed Mulhern to produce a five-year projection of the fund’s liabilities: “It’s good that we’re finally catching up, but what happens going forward?” she said.

Pension expenses are one of the fastest-growing parts of the T’s budget, Pollack said. The T contributed $70.6 million to the pension fund in 2014, up from $58 million in 2013. And the figure will continue to rise as baby boomers retire and investment returns lag, officials have said.

But Mulhern made no promises to provide a five-year schedule, even though such projections of liabilities are standard fare at other pension funds for public workers in the Commonwealth. He said he has “never asked” the fund’s actuary, Buck Consultants, for that information.


“I’m not sure they’d engage in that type of a study,” Mulhern said.

The 2014 audit released Monday included more detail that in the past, including a management discussion section that had been omitted for many years at both the pension fund and the T.

The fund said its investment return of 5.5 percent for 2014 — or 4.8 percent after fees, according to Mulhern — was the result of underperformance across a number of sectors. The fund’s performance lagged in large and small US stocks, as well as bonds.

The fund recently lowered its target return rate to 7.75 percent from 8 percent. Annual returns below that over time will require larger contributions from taxpayers and members.

The audit said the fund had a huge return in real estate of 25.3 percent, beating its benchmark by more than double. The fund said some of its private equity investments produced a 7.6 percent return and beat their benchmark, while older “legacy” investments lost 5 percent of their value.


The fund appears to have taken steps at the end of 2014 to cut back some of its risk, by reducing its stock exposure. It also increased the amount it has allocated to bonds.

Brian Shortsleeve, the T’s chief administrator, again urged the pension fund on Monday to comply with the state’s public records law. Pollack asked who would foot the bill for the pension fund to continue a court fight over whether it has to release its records. The fund claims it is a private entity that’s not covered by the disclosure law.

Mulhern said the fund pays its own legal costs.

In case brought by the Globe, a Suffolk Superior Court judge ruled last month that the pension fund should follow an expanded public records law passed in 2013. The pension fund plans to present further arguments to remain private.

Mulhern said the pension fund will roll out a new website in the next 30 days with increased financial disclosure.

When Shortsleeve asked Mulhern to discuss the fund’s 2015 performance and the first quarter of this year, Mulhern said last year’s result was about a 0.5 percent gain, in a generally difficult year for investors.

But, Mulhern said, “I don’t want to be held to that.”

Beth Healy can be reached at Follow her on Twitter @HealyBeth.