STATE HOUSE NEWS SERVICE
THE MBTA RETIREMENT FUND, which set its assumed annual rate of return on investments at 7.75 percent, will probably earn about a half-percent of return in 2015, according to its executive director.
Executive Director Michael Mulhern on Monday announced completion of the fund’s 2014 audit, which has delayed the finalization of the state’s Comprehensive Annual Financial Report, or CAFR, for fiscal 2015.
MBTA Chief Administrator Brian Shortsleeve said now that the 2014 audit is in, the MBTA will be able to complete its audit in two weeks, which will allow the Massachusetts Department of Transportation to complete its audit soon after that, enabling the state to complete the CAFR.
The pension fund audit took longer than usual as the retirement fund looked into allegations by Wall Street watchdog Harry Markopolos, who according to the Boston Globe said the $1.6 billion fund’s performance appeared “too good to be true.” A forensic audit performed by FTI Consulting concluded the allegations are “unfounded” and “lack merit.”
Mary Connaughton, a Republican candidate for state auditor in 2010 and former Massachusetts Turnpike board member, pushed for increased transparency in the fund, which has considered itself a private fund despite the contribution of public dollars from the MBTA.
“The majority of the fund’s trustees have not favored transparency,” Connaughton, director of government transparency for the Pioneer Institute, told the MBTA Fiscal and Management Control Board on Monday. Connaughton said “the $84 million the T will have to contribute to the fund this year” shows the fund is public.
Transportation Secretary Stephanie Pollack asked Mulhern how the control board could better understand what its expected contributions would be and said pension contributions are “one of the fastest rising expenses in the budget.”
According to the MBTA budget approved two weeks ago, total MBTA pension contributions are expected to rise to $92.7 million in fiscal 2017, up from $79 million in fiscal 2016. About $10 million of that increase is for the “Main Fund.”
The pension fund, which is available to all MBTA employees except Transit Police, has about 6,000 active members and 6,000 retirees, according to the Boston Carmen’s Union, which holds two of the seven seats on the pension board. According to the union, the fund pays out $180 million annually and is about two-thirds funded.
The MBTA pension fund paid out an estimated $187 million in 2015 and received $98 million in contributions, according to the T budget. Employer contributions accounted for $70.6 million in 2014, while member contributions added up to $25.3 million, according the 2014 audit performed by KPMG.
Pollack also pushed Mulhern on the issue of transparency. The Globe sued the fund for release of the investment documents. In March a Superior Court judge ruled in favor of the Globe in the newspaper’s bid for the fund’s records.
Pollack asked Mulhern whether the T pays any direct or indirect legal costs and asked whether a decision had been made about an appeal in the Globe lawsuit case. Mulhern said the fund is responsible for legal costs and the case is “still unfolding.”
After the presentation, Pollack told reporters she “was not able to tell from that answer exactly how the litigation is being paid for so we will continue to pursue questions.”
“To me it is unfair to ask the MBTA and our riders to pay for a lawsuit to fight transparency that we think is the wrong thing to do so if we think there is any evidence that we are being billed for those funds we will have to work with the pension board on that,” Pollack said.
“I think there’s a general move toward transparency,” Mulhern told reporters after his presentation to the control board. Mulhern said the 2015 audit should be completed this summer and the Retirement Fund plans to publish additional information on a new website.
Mulhern said the net return in 2014 was 4.8 percent, and defended the 7.75 assumed rate of return, telling reporters since 1982 the annualized rate of return was 9.3 percent, and for the five years ending in 2014 the return was over 9 percent.
The state pension fund, the Pensions Reserves Investment Trust, uses an actuarial rate of 7.75 percent but officials are in the process of reducing that rate to 7.5 percent, according to a spokesman for the state pension fund managers. The $59.6 billion state pension fund’s rate of return in 2015 was 1.1 percent.
Mulhern said new MBTA employees are older now than they were years earlier.
“Twelve years ago the average age of a new hire was 31 years old. Today it’s over 39,” said Mulhern, who said eligibility and other changes put in place in recent years would take a long time to reduce the pension liability.
