A new report from a Boston-based think tank finds that MBTA plans to take what it describes as an “ill-advised, quick fix” approach to reducing its $1.3 billion in unfunded pension liabilities by adding more to pay off debts.
According to the Pioneer Institute’s Rolling the Retirement Dice report, MBTA recently solicited bids from investment banks to seek managers for a $360 million taxable retirement debt issuance.
“As part of this gamble, the agency will borrow money to eliminate a portion of its estimated $1.3 billion long-term pension liability, or nearly three times its total payroll,” the report said. “For MBTA, pension obligation bonds will be a wrong turn at the worst possible time.”
This approach would increase the financial risk already built into T’s pension calculation, which projects that his pension fund will earn 7.25% annually, “a gamble in the current financial and economic climate with particularly high odds,” according to the report . has gone.
“It would be like taking out a home equity loan to pay off a credit card balance,” says the report.
The study found that the MBTA retirement fund needs $3.07 billion to cover retirement expenses over the lifetime of its most recent vested employees, but has $1.3 billion less in assets. Taking into account the more conservative 4% yield, T’s total annuity liability exceeds $4 billion.
Study author EJ McMahon said if T wants to pay off his pension debt, he should speak to the union and reconfigure benefits to reduce long-term costs. Employees can pay more into the pension fund, which he says is unlikely given that it’s already starting at 9.33% of their salary.
McMahon said the problem was poor investment management, and T cut his retirement fund by $66 million from 2007 to 2014. He said employee pension benefits are also steadily increasing.
T reviews the Pioneer report and considers some of the options for meaningful reforms, but “MBTA currently has no plans to pursue pension obligation bonds in the face of rising interest rates,” spokeswoman Lisa Battiston said.
Colick Williams, spokesman for the Public Transit Public Good Coalition, said on behalf of the Boston Carmen Union that “for years, the disgraced Pioneer Institute has worked to protect the MBTA and undermine workers’ rights and benefits.”
“Pioneer is in no way a watchdog,” Williams said. “They are a PR front group that uses bad data and bad policy to distract from the urgency of investing in the public workforce and infrastructure to ensure the good service and good jobs our communities need.”