MBTA, union officials quietly renegotiating pension fund amid budget gaps

A red line train pulled into Porter Square Station.David L Ryan/Globe Staff/Globe Staff

As the MBTA’s top officials have publicly sounded alarms over its escalating retirement costs, the transit agency and its largest union for months have been quietly renegotiating the agreement governing what the T contributes to its $1.5 billion pension fund.

The closed-door talks surrounding the MBTA and Carmen’s Union Local 589’s pension agreement come as the agency is again facing a budget deficit, weighing a 6.3 percent fare hike, and openly fretting about the ever-increasing checks it’s cutting to its privately run retirement system.

The discussions are moving slowly, according to one union negotiator. But they could ultimately reshape the T’s finances and pension fund for years.

MBTA officials are preparing on Monday to discuss the impact of pension costs on next year’s budget, likely adding to the financial hand-wringing. Over the last decade, the amount the taxpayer- and rider-funded transit agency has funneled into the privately run trust has ballooned, from $30 million in fiscal year 2007 to $103 million this year.

MBTA officials warned in November that those costs could grow to $137 million within three years, depending on how the fund performs. The figures set off alarm bells with both the T’s Fiscal & Management Control Board and state transportation officials, who noted the current contribution already accounts for nearly 23 percent of the T’s payroll expenses.

Stephanie Pollack, the state’s transportation secretary, said then that the trend “is not sustainable.”

An increase could add to the T’s projected budget gap, which officials have pegged at $42 million for next year, assuming a slate of proposed fare hikes unveiled last month are approved.

Negotiations have plodded along over the pension agreement, a dense, 28-page document that governs the fund’s administration, retirement allowances, and contributions.

The last four-year agreement expired in mid-2018, and T officials say negotiations over a new deal first began in August. James O’Brien, president of the Carmen’s Union, says negotiators have met just twice since then, largely because of a number of cancelled sessions.

Neither side disclosed the specific focus of discussions. But they are an opportunity to begin restructuring a system that has for years produced red flags, said Mark T. Williams, a Boston University professor who’s previously questioned the fund’s financial health and professional management.

“In these crucial negotiations — and this is the pain that’s going to be felt — there has to be a reassessment of what level of benefits can be safely supported by the existing assets in the fund,” Williams said, pointing to the pension’s $1.2 billion unfunded liability, which grew by 13 percent in 2017, despite an over-achieving return on investments.

By Williams’s calculation, the fund could “go bust by 2028 if nothing changes. And MBTA employees and retirees will lose — taxpayers too.”

Joe Pesaturo, an MBTA spokesman, said the both sides are focused on ensuring the fund “can provide sustainable benefits to the hardworking men and women of the MBTA when they retire.”

O’Brien, citing the confidential nature of discussions, said that “everything is on the table.”

“It’s moving,” he said, “but it’s moving slowly.”

Publicly, the two sides have long clashed over the pension fund and its benefit packages. Many T employees can retire after 23 years of service, while more recent hires can retire at 55 after 25 years of service.

It’s helped create a fund where more retirees are collecting benefits than there are workers contributing to the system. According to the MBTA Retirement Fund’s most recent annual report, covering through 2017, it paid out $209 million in benefits to 6,800 retirees and beneficiaries, while 5,300 employees paid into it.

O’Brien said a retirement incentive package the T previously offered helped swell those numbers.

“When you push people out the door, guess where those people go?” he said. “Now it’s out of control.”

The fund’s performance has, too, inflamed the debate.

By the end of December, net returns slipped into the red over the previous year — minus-2.89 percent — following a tumultuous stretch in the financial markets that also caused the state’s pension fund to tumble $4.5 billion during the fourth quarter.

Steve Crawford, a spokesman for the MBTA Retirement Fund, said returns rebounded in January to 4.52 percent.

In 2017, the Legislature passed a measure pushed by Governor Charlie Baker that allows — but does not mandate — the state’s Pension Reserves Investment Management Board and the state’s $70 billion pension fund to manage investments of the MBTA Retirement Fund.

But there’s been little movement since. Cosmo Macero, a spokesman for the state’s pension board, said there were “several informational meetings and phone calls” between stakeholders in February 2018, but there’s been nothing since.

Crawford, the fund’s spokesman, said in order for the investments to be shifted to the state, both the pension agreement and a separate trust agreement between the T, union, and the fund must be first amended. That’s because, he said, the latter agreement identifies the “types of vehicles the fund is authorized to invest in.” The Carmen’s Union agrees with that interpretation, and believes it must be negotiated, O’Brien said.

The MBTA, however, disagrees that any amendments are required. It’s contributed to a stalemate of sorts, and one that doesn’t appear to be broken soon: There are no active discussions between the T and the union about changing the agreements to facilitate the transfer, and the T considers that decision to be independent of the negotiating process.

Brian Shortsleeve, a former MBTA general manager who now sits on the T’s board, said there needs to be “bold action on MBTA pension reform.”

Shortsleeve aruged that the state’s pension fund has been among the best performing public pension systems in the country. “Leveraging PRIM’s scale to increase MBTA pension fund returns would be a win for T employees, retirees, and taxpayers.”