Future MBTA retirees would receive reduced pension payments and would have to work longer to earn the maximum benefit under a proposal to be unveiled at the transit authority’s board meeting Monday.
The plan is the latest effort to shore up the MBTA Retirement Fund, which officials say is on a weak financial footing because retirees outnumber active workers, a situation compounded by generous benefit packages and mediocre investment returns in recent years.
The MBTA’s proposal would decrease annual pension benefits by half the value of a worker’s Social Security income. The T also wants to create a system — similar to those used by teachers and most state employees — that has a sliding scale to determine the pension rate, based on the worker’s age at retirement.
Payouts to teachers and most state workers are determined by multiplying their years of service by an “age factor” — a number that increases from 1.45 percent for 60-year-old retirees to 2.5 percent for those over 67. At the T, in contrast, the age factor is 2.46 percent for all eligible retirees.
Brian Shortsleeve, acting general manager of the Massachusetts Bay Transportation Authority, said the higher factor gives MBTA workers little incentive to retire later in life. Many can retire after 23 years of service, while more recent hires can retire at 55 after 25 years of service.
“The retirement package is significantly higher than that of state employees,” Shortsleeve said.
His plan would also bar unpaid sick time from being credited to workers’ retirement.
The T’s pension contract with the union is set to expire next June, and any changes would most likely have to be negotiated.
James O’Brien, president of the Boston Carmen’s Union, Local 589, which negotiates the pension contract, responded to the proposals by criticizing Shortsleeve as being more focused on “bean counting” than on improving service on trains and buses.
The T’s contribution to the pension fund is about 5 percent of its operating budget, O’Brien said. That compares favorably with other major transit systems, according to an economist working for the union.
“If he can’t pay my members a pension, he can’t pay for anything at the T,” O’Brien said.
As it works to find savings to fund service improvements, the T has stepped up its criticism of the $1.5 billion pension fund.
Officials say that the fund is financially unsound because of the increasing disparity between the number of retirees and current workers, and that its middling investment returns over the past three years have not helped.
With no changes, the plan could need an additional $1 billion over the next 18 years, according to the T.
The union disputes that forecast.
During the fiscal year that starts July 1, the T will pay $94 million to the fund, a $9 million increase from the previous year. The T projects that figure could increase to more than $200 million by 2035, requiring either taxpayer funding or fare hikes to fill the gap, unless changes are made.
“Every analysis has told us the same thing, which is that it’s getting worse, not better,” said Shortsleeve, who is stepping down at the end of this month as acting general manager.
O’Brien has argued that Shortsleeve is overstating the fund’s troubles by projecting overly pessimistic returns of about 4 percent in coming years.
The fund’s problems, he said, stem from a recent retirement incentive program that led to fewer workers paying into the system and more retirees collecting benefits.
The T says those workers were eligible to retire anyway and that several hundred other eligible retirees are likely to call it quits in coming years, further destabilizing the pension fund.
Union members have made voluntary pension payments in the past to lock in the current age factor, and it would be unfair to retreat from that plan, O’Brien said.
And, he said, benefits for T employees should not be compared to those for teachers, but instead to those for other classes of state employees who receive more generous packages based on hazard pay; those state employees, however, receive escalating benefits based on retirement age.
O’Brien also criticized Shortsleeve’s plan to deduct pension pay based on Social Security benefits.
“He’s taking Social Security away. Let’s call a spade a spade,” O’Brien said. “I don’t know why he preys on the most vulnerable people, which is senior citizens.”
The T plan would still provide employees with a more generous retirement than teachers, Shortsleeve said, because the workers would receive added pay from Social Security, while teachers and state employees are not eligible for that entitlement.
Shortsleeve said his proposals would not affect existing retirees. The T does not yet have an estimate for how these changes would affect the fund, but it would be “significant,” Shortsleeve said.
The T is open to other ideas, he said, including restructuring the pension to tie payouts to the fund’s investment performance. O’Brien said his union is open to negotiations, but declined to outline any proposals before first discussing them with his union’s members.
The MBTA Retirement Fund declined to comment on the T’s plan, referring questions to the Carmen’s Union.
Shortsleeve said that depending on how negotiations develop, the Legislature could step in to set requirements for the T’s pension plan.
Representative William Straus, cochairman of the Legislature’s Joint Committee on Transportation, said he favors more closely aligning the state and T pension funds, but does not expect the Legislature to play a role in the near term.
“The preference, of course, is that the issue be addressed at the collective bargaining table, between T management and the union,” Straus said. “In my experience, if labor gets forced to the table painfully, it doesn’t play out well for bargaining issues in the future.”
The MBTA Retirement Fund is also under pressure from Governor Charlie Baker’s administration to move assets to the larger state pension fund. The T fund’s board has voted to create a group to consider allowing the state fund to manage some of its investments.