T’S PENSION RIDES MARKET TO BIG RETURNS
But unfunded liabilities grow
A banner year in the stock market saw the MBTA Retirement Fund more than double its investment return targets, but the embattled pension fund still saw its unfunded liability grow by nearly $150 million, according to reports from and commissioned by the fund.
In 2017, the fund saw a 15.8 percent return on its investments, blowing its 7.5 percent target out of the water, according to the fund’s annual financial report. The retirement fund’s returns were boosted largely by a strong performance in its stocks portfolios, which make up close to half of the entire investment portfolio. The domestic equity investments saw a 20 percent return, the international equity investments returned 30.91 percent and the global and emerging market stock portfolio saw a 39.87 percent return.
But even as its investments soared, the fund still found itself with a growing unfunded liability as it continues to struggle to find enough money to pay thousands of retired pensioners. The pension’s unfunded liability grew by $143 million in 2017 to $1.2 billion, according to a report prepared for the fund by consultant Conduent.
Mark Williams, a finance professor at Boston University and a longtime critic of the fund, said the fund’s performance in a strong market likely will mean even larger increases in the unfunded liability when the economy inevitably turns.
“Historically, we have recessions between every six and eight years. We are now in a nine-year bull market and there’s increasing signs the economy is slowing down, and there’s questions about whether this year’s returns can be matched,” Williams said. “In a downward market, with growing liabilities, the gap is going to be bigger.”
Steve Crawford, a spokesman for the fund, said a downturn, unless significant, likely would not be an issue.
“The Fund is constantly monitoring its investments and has sound long-term results in up and down markets,” he said.
Crawford also pointed to the annual report, which lists the change in unfunded liability as an increase of $80 million last year. The two reports use different methodologies to value the fund’s assets.
The MBTA and Gov. Charlie Baker have pushed for changes to the fund, which operates separately and differently from the pension fund for other state employees.
The fund is faced with paying the pensions of nearly 7,000 retirees using its investment returns and contributions from just over 5,000 employees, as of Dec. 31, 2017.
The MBTA’s contributions to the fund have steadily increased and this year are expected to be 22 percent of the payroll, roughly $94 million.
In a presentation last year, thenchief administrator of the MBTA Brian Shortsleeve said the fund is losing so much money that even excellent investment returns will not fix its structural problems.
“Market returns are not likely to rescue the pension,” Shortsleeve’s presentation said. “One bad investment year would be crippling.”
Representatives for the Carmen’s Union, whose members receive the pension benefits and hold several fund board seats, did not respond to multiple requests for comment.