MBTA is ‘rolling the dice’ on plan to pay off employee pension debt

A new report by a Boston-based think tank has found that the MBTA plans to undertake what it described as an “ill-advised, quick-fix” approach to pay off its $1.3 billion unfunded pension liability by taking out more debt.

According to the Pioneer Institute report, “Rolling the Retirement Dice,” the MBTA recently requested bids from investment banks, with the intention of seeking managers for a $360 million taxable pension obligation bond issue.

“Under this gambit, the Authority would borrow money to eliminate a portion of an unfunded long-term pension liability estimated at $1.3 billion, or nearly triple its total payroll,” the report states. “For the MBTA, a pension obligation bond would be a wrong turn at the worst possible time.”

This approach would compound the financial risk already built into the T’s pension calculations, which assume its retirement fund will earn 7.25% annually, “a gamble with especially long odds in the current financial and economic climate,” the report states.

“It would be much like taking out a home equity loan to pay off a credit card balance,” the report said.

The study found the MBTA retirement fund is projected to require $3.07 billion to cover pension expenses through the lifespans of its youngest vested employees, but its assets come up $1.3 billion short. When accounting for a more conservative 4% rate of return, the T’s total pension liability rises to more than $4 billion.

Study author E.J. McMahon said if the T wants to pay off its pension debt, it should talk to the union and reconfigure benefits to reduce long-term costs. Employees could also contribute more to the retirement fund, which he said is unlikely since they already kick in 9.33% of their salaries.

McMahon said the problem comes down to poor investment management and the T underfunding its retirement fund by $66 million from 2007-14. Employee pension benefits also continue to grow at an unsustainable rate, he said.

The T is reviewing the Pioneer report, and considering some of the options it raised for meaningful reforms, but “at this time, given rising interest rates, the MBTA has no plans to pursue pension obligation bonds,” spokesperson Lisa Battiston said.

Collique Williams, spokesperson for the Public Transit Public Good coalition, said on behalf of the Boston Carmen’s Union that “for years, the discredited Pioneer Institute has advocated for defunding the MBTA and slashing worker rights and benefits.”

“Pioneer is not a watchdog by any measure,” Williams said. “They are a public relations front group peddling bad data and bad policy to distract from the urgency of investing in public workforces and infrastructure in order to ensure the good service and good jobs that our communities need.”

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