MBTA – Actuarial News

Excerpt:

The MBTA Retirement Fund is going over a cliff, and the reasons why are well known. But neither the T nor its unions are in a hurry to do anything about it.

The new MBTA Retirement Fund Actuarial Valuation Report shows the fund’s balance as of Dec. 31, 2022, was $1.62 billion — about $300 million less than what it was just 12 months earlier. Its liability — the amount it will owe current and future T retirees — is over $3.1 billion, meaning the fund is about 51 percent funded. In 2006, it was 94 percent funded. A “death spiral” generally accelerates when retirement system funding dips below 50 percent.

In April, the Pioneer Public Interest Law Center got the MBTA to hand over an August 2022 arbitration decision regarding a pension dispute between the T and its biggest union. It contained a critical win for the authority: Arbitrator Elizabeth Neumeier decided that most employees would have to work until age 65 to earn a full pension, saving the MBTA at least $12 million annually.

But the Carmen’s Union sued to invalidate that portion of the decision, and the parties returned to the bargaining table. The new pension agreement they hammered out doesn’t include the historic retirement age victory; T management negotiated it away.

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As of Dec. 31, 2022, 5,555 active employees paid into the fund, but 6,783 retirees collected from it. The biggest reason for the mismatch is the age at which T employees retire. Those hired before December 2012 can retire with a full pension after 23 years of service, regardless of age. Those hired after December 2012 can retire with a full pension at age 55 after 25 years.

The arbitrator finally gave the MBTA the win it so desperately needed, and T management promptly gave it back. Many MBTA managers have long opposed changing the age at which employees can earn a full pension, fearing the reaction of T unions.

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Hard as it may be to believe, the T retirement fund’s financial outlook is even worse than it appears. Financial projections assume the fund’s assets will earn 7.25 percent annually. Over time, actual returns have been more like 4 percent to 7 percent.

These misleading projections are based on other faulty assumptions. In her 2022 decision, Neumeier refused the MBTA’s request to use newer actuarial tables, ruling that changing would be costly and that there was no compelling reason to update the tables. The ones in place are from 1989 — so old that they assume all T employees are men. Since women tend to live longer, the tables materially understate the retirement fund liability.

Author(s): Mark T. Williams, Charles Chieppo

Publication Date: 19 Jun 2023

Publication Site: Boston Globe

Union officials sue MBTA after arbitrator proposes slashing pensions of those who retire before age 65

September 27, 2022September 27, 2022 Mary Pat Campbell

Link: https://www.bostonglobe.com/2022/09/26/metro/union-officials-sue-mbta-after-arbitrator-proposes-slashing-pensions-those-who-retire-before-age-65/

Excerpt:

The MBTA’s largest union is challenging an independent arbitrator’s decision that would reshape the rules of the authority’s $1.66 billion retirement system, including slashing the pensions of those who retire before the age of 65.
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Still, after more than four years of negotiations over a pension agreement, it’s unclear what exact changes could come to the MBTA’s retirement fund, where the number of retirees has long outpaced the amount of workers paying into it, and MBTA officials have long pressed for sweeping changes.
As of the end of last year, the fund’s unfunded liability hovered at more than $1.3 billion, and, despite changes that went into effect a decade ago to stem what were considered lavish retirement perks, younger retirees have continued to flow into the retirement system, creating more financial pressure.
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The arbitrator’s decision included a series of changes, most notably in lifting the age at which a retiree would collect an “unreduced” pension. Under the ruling, workers who opt for early retirement — in this case, before the age of 65 — would have 6 percent deducted from their pension benefit for every year of retirement before the age of 65.
Currently, anyone who is 55 and has at least 25 years of service qualifies for a so-called normal monthly pension, calculated at 2.46 percent of the average of a person’s three consecutive highest-earning years, multiplied by years of service.

Author(s): Matt Stout

Publication Date: 26 Sept 2022

Publication Site: Boston Globe

Study Finds Pension Obligation Bonds Could Worsen T Retirement Fund’s Financial Woes

June 21, 2022June 21, 2022 Mary Pat Campbell

Link: https://pioneerinstitute.org/featured/study-finds-pension-obligation-bonds-could-worsen-t-retirement-funds-financial-woes/

Graphic:

Excerpt:

A new study published by Pioneer Institute finds that issuing pension obligation bonds (POBs) to refinance $360 million of the MBTA Retirement Fund’s (MBTARF’s) $1.3 billion unfunded pension liability would only compound the T’s already serious financial risks.
With POBs, government entities deposit revenues from bond sales into their pension funds and use the money to make investments they hope will deliver returns that outpace borrowing costs.
“Virtually every study of POBs finds that timing and duration of the bond issues are critical,” said E.J. McMahon, author of “Rolling the Retirement Dice.” “Bonds floated at the end of a bull market are the most likely to lose money, and that makes this idea a wrong turn at the worst possible time.”
If investments don’t meet a pension fund’s assumed rate of return, it could be left with debt service costs in addition to the pre-existing unfunded liability. In 2015, the Government Finance Officers Association bluntly warned that “State and local governments should not issue POBs.” It reaffirmed its guidance last year.

Author(s): E.J. McMahon

Publication Date: 21 Jun 2022

Publication Site: Pioneer Institute