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Opinion | Mark T. Williams

MBTA pension crisis should be a priority

An MBTA employee sits in the drivers’ seat of a Green Line car on Commonwealth Avenue,Globe Staff/File

MBTA employees and retirees are at great risk — and taxpayers may be on the hook — to cover the $1.2 billion (and rising) shortfall in the T pension fund. The growing unfunded liability gap, the difference between assets owned and what is owed, widens as the fund edges closer to going broke. Annually the MBTA also has to divert increasingly larger sums of payroll to keep the fund solvent. Governor Baker and state lawmakers must make solving the growing MBTA pension crisis a priority in 2019.

Many factors have caused this, spanning both Democratic and Republican administrations. But the fundamental cause is that the MBTA employees Carmen’s Union has negotiated gold-plated terms for its members over time — including greater benefits, lower contributions, and earlier retirement terms than other state workers. After 25 years of service, and starting at 55, T workers can retire and collect checks equal to 60 percent of ending salary. This generous payout stays the same through age 65, giving little incentive not to retire. And as expected, half of MBTA workers retire in their 50s. This drains the already limited pension fund.


Under this scheme, MBTA retirees often collect checks for longer than the period they worked. And unlike state employees and teachers, MBTA retirees eat twice, collecting both a full pension and Social Security.

In contrast, other state employees with 25 years on the job aren’t eligible to retire until 60, and their benefits are less than 40 percent of ending salary. Collectively, these lavish terms have created a death spiral, putting immense strain on an increasingly underfunded pension plan.

The T pension fund has other structural problems. Since 2010 it has become increasingly lopsided. Currently there are fewer than 5,000 employees paying in, but more than 7,000 drawing benefits. For every 40 cents paid in, one dollar is paid out. This growing imbalance has morphed into a pension-asset depletion formula. At current payout rates, fund shrinkage, and weak investment returns, the pension fund could go bust by 2028. Immediate intervention is needed.


In what should have been a wake-up call on Beacon Hill, the Pioneer Institute reported in early 2016 that the T pension fund would need a $1 billion infusion to stay solvent. Since then, the estimate of funds required to stabilize the fund in the long term has climbed even higher. If it were any other pension fund it would have already been forced to develop a bailout strategy.

Disturbingly, a bull market can’t reverse the downward spiral. In 2017, despite returns of 15.9 percent, the unfunded liability gap grew by 13 percent to $1.2 billion. Increasingly, current and future T retirees are owed substantially more than what is in the bank. For 2018, stocks finished down over 6 percent, the worst performance in a decade. In a bear market, returns vital to meeting fund obligations vanish. For each 1 percent of underperformance, the pension loses $15 million. Negative returns for this past year will put added pressure on MBTA payroll to divert more taxpayer monies to keep the fund solvent.

By the end of 2019, the unfunded liability gap could reach $1.5 billion. At this tipping point, the unfunded gap will surpass actual pension assets owned, leaving even fewer funds to support greater liabilities.

Although T management publicly insists the pension is a private retirement fund without a governmental backstop, the Carmen’s Union sees it as an implied guarantee provided by the state. The T is vital to Boston, and to simply allow the pension fund to fail would have political and economic ramifications. If swift government action is not taken, this billion dollar difference in opinion will be tested by the courts.


The union claims it is representing pension beneficiaries. But despite the fund’s deteriorating health, it continues to deny that a crisis exists. It claims that this is all a scare tactic manufactured by management. This denial strategy has wasted valuable time and increasingly placed MBTA workers and retirees at risk — with taxpayers potentially holding the bag.

Over the last decade, some $1.9 billion has been paid out of the pension fund with less than $800 million paid in. In 2007, the fund was at $1.9 billion and 92 percent funded. Today it has fallen to under $1.5 billion, a danger zone in the pension industry.

Investment performance also has been subpar, well below MassPrim, the professionally run $70 billion state pension fund. Despite this decade-long underperformance, the Carmen’s Union, through its controlling vote on the pension oversight board, has continued to block MassPrim. The T pension boat has a gaping hole in its bottom; not allowing MassPrim, a superior manager, to take over will accelerate its sinking.

The taxpayer bailout is already happening, and subsidization of T pensioners continues to rise. Each year the T’s Retirement Board determines how much extra money it must pay to keep the fund solvent. It has been a steady increase. Last year it was nearly $90 million. Now about $100 million, or 23 percent of payroll, is diverted to meet this annual pension shortfall — reducing funds available for improving service and ridership experience. A decade ago, it was under $40 million. By fiscal 2022, this annual subsidy payment could reach$140 million. Without addressing this growing shortfall and larger unfunded liabilities problem, a taxpayer bailout eventually could be $2 billion.


The timing to fix the pension crisis is right, since the pension contract is open for renegotiation. The solution will need to be multipronged.

First, the pension plan design and benefit terms must be renegotiated, made equitable, and reflect what other state workers and teachers receive. Painful decisions will need to be made. Benefits simply cannot exceed that which can be comfortably supported by fund assets.

In collective bargaining, the T union must acknowledge the crisis and renegotiate in good faith. MBTA workers should be offered two options: Receive existing benefits only if contributions are increased to reflect the true market cost, or get less benefits for existing contributions. As a matter of fairness, benefits, including minimum retirement age, should be similar to those received by other state workers and teachers. If no agreement can be reached, this process should be forced into binding arbitration.

In parallel, lawmakers should reconsider how much they are willing to fund annual pension shortfalls — and place maximum caps to better protect taxpayers.


Though the Baker administration recommended, and the Legislature approved, that the MBTA Retirement Fund be merged into MassPrim in July 2017, it hasn’t happened. The Carmen’s Union remains defiant. Since this time, the T fund has continued to show declining assets and inferior returns as it creeps closer to bust. The T union must understand that further delay in fixing this problem only increases the risk to its workers and retirees — particularly if management proves correct and there is no legal obligation to bail out or make the fund whole.

The Carmen’s Union is the roadblock to a solution. But Governor Baker and the Legislature have the power to clear the rails.

Mark T. Williams teaches finance at the Boston University Questrom School of Business.