Amid controversy over secrecy, T pension fund head to resign
Michael H. Mulhern, whose tenure as chief of the MBTA retirement fund was marked by controversy over its investment performance and penchant for secrecy, said Monday he would step down in August.
A former bus driver who served as general manager of the transit authority before moving to the $1.5 billion pension fund, Mulhern said he was leaving with “decidedly mixed emotions” after a decade in the job.
His resignation notice, made in a letter to the retirement fund’s chairman, came just days after Governor Charlie Baker signed a bill that makes the pension plan subject to public records law, a move its leadership opposed.
Mulhern, 57, has been under pressure from union and administration officials over the pension’s lack of transparency, after a $25 million hedge fund loss in 2012 went undisclosed for more than a year.
The pension fund for employees at the Massachusetts Bay Transportation Authority is organized as a private trust and has used that status to avoid disclosures that are typical of other pension funds for public workers in the state. The fund does not hold open meetings, for example, and for years has published late and incomplete annual reports.
The Globe sued the T pension board after it refused in 2014 to release meeting minutes and other records concerning the $25 million hedge fund loss. That investment was made in 2007, when Mulhern was in charge, at the recommendation of his predecessor, Karl White, who was by then working for that hedge fund.
In March, Suffolk Superior Court Judge Kenneth Salinger ruled that the pension system records should be made public, but he allowed the board to make additional arguments about records it does not want to release.
Mulhern retired from the transit authority in 2005, after three years in the top job. At the pension fund, he earned $282,000 in 2014, according to its recently released 2014 annual report. He also collects $149,302 in pension payments annually from his years at the T, including $84,437 in deferred compensation, according to the authority.
“Mulhern was grossly unqualified and grossly overpaid,’’ said Mark Williams, a Boston University finance professor who, with Wall Street whistle-blower Harry Markopolos, issued a scathing report on the fund a year ago for questionable accounting and investment reporting practices. Their financial review said the fund might have been overstating its financial health by as much as $470 million.
The T pension board denied wrongdoing and hired a consulting firm to investigate the allegations. The resulting report, by FTI Consulting, rebutted what Mulhern called in his letter “unfounded allegations.”
Mulhern, through a spokesman, declined a request for an interview on Monday.
Former state treasurer Steve Grossman, who was appointed to the six-member pension fund’s board after a housecleaning by the Baker administration in 2015, said, “I look forward to working with my fellow board members to conduct a broad-based search” for Mulhern’s successor “that will serve the interests of the members and the taxpayers of the Commonwealth.”
The fund has already undertaken changes as a result of the Markopolos-Williams report, including lowering its expected rate of return to 7.75 percent from 8 percent and updating the 1994 tables it was using to project how much it will owe about 12,000 active and retired workers and their beneficiaries.
Those and other changes increased the pension system’s unfunded liability by $53 million to $868 million. That bumped up the T’s annual contribution for the fiscal year starting in July by $8 million, to $84 million. The pension is funded by taxpayers and riders, as well as employees.
There are other potential issues lurking in the projections, critics say, including the valuation of alternative assets such as hedge funds and private equity that the FTI report did not fully examine. The fund also has adopted a “smoothing” type of accounting that many pension funds use, but that in the near term makes the fund’s assets look larger than they are.
In addition, the fund disclosed in a recent audit that it assumes 100 percent of its employees are men, while, in reality, one-quarter are women.
Brian Shortsleeve, the MBTA’s chief administrator, declined to comment on Mulhern after the authority’s weekly fiscal control board meeting Monday. Shortsleeve has publicly pressed the pension fund for greater openness.
In a statement, T spokesman Joe Pesaturo said: “The MBTA has been made aware of Mr. Mulhern’s decision, appreciates his service, and looks forward to working with his successor and the board to further the pension fund’s transparency and ensure the investments of workers and taxpayers are safeguarded.”
Pension fund spokesman Steve Crawford declined to offer details on the process for hiring Mulhern’s successor.
“The process for finding his replacement will be determined by the board,’’ he said in an e-mail. He said Mulhern will not receive a severance package because he is leaving voluntarily.
In his letter, Mulhern said he is proud of the fund’s returns over the past 10 years. According to the 2014 annual report, the fund has returned 6.5 percent on average annually, over a decade, compared with its benchmark return of 6.3 percent. The return does not account for fees.
In a newsletter posted on the pension fund’s website, the preliminary investment return for 2015 was 0.86 percent, before accounting for expenses. The fund’s assets have declined by $109 million over two years, from over $1.6 billion to less than $1.5 billion.
For 2014, the fund reported a 5.5 percent return, below the 6.2 percent goal it would have hit if its investments had reached their benchmarks. After expenses, the return was 4.8 percent, according to the annual report.
Mulhern counted among his accomplishments the fund’s expanded 2014 annual report and its “increased transparency.” He praised his staff for having “patiently and professionally endured unprecedented internal scrutiny and ill-informed public criticism.”
Mulhern hinted that he may seek a new job in the transit field, writing, “The time is right for me to move along to consider other opportunities, likely in the transportation industry where I spent much of my career.”