Massachusetts' former treasurer is calling for an independent review of the Greater Boston transit workers' retirement fund after a report co-authored by Bernard Madoff's whistleblower said the fund may be overestimating its value by roughly $470 million, or 29% of fund value.
Steven Grossman, a recent appointee of Gov. Charlie Baker to the MBTA Retirement Fund board, plans to propose at the July 17 board meeting that the fund issue a request for proposals for such an audit of a fund long criticized for its secrecy.
"Through the RFP process we could select some independent entity with a lot of credibility in this area to do a thoroughly independent review of assets, liabilities and methodologies related to the 'T' pension fund," Grossman said in an interview. "That to me represents the best-practices way to confront these issues in a manner that's acceptable to the public."
The $1.6 billion pension fund of Massachusetts Bay Transportation Authority operates separately from the MBTA — the "T," as locals call it — which operates Greater Boston's transit system. The fund, bolstered by state court rulings in its favor, has operated as a private trust since its founding in 1948. Fund officials have long fought to keep its books private.
The report, by Harry Markopolos with Boston University finance professor Mark Williams, said the dollar size of the potential risk may even be larger as limited reporting in the $320 million segment for alternative investments and hedge funds, which represent 20% of pension assets, has made it difficult to analyze what could be hidden.
Markopolos in 2005 reported irregularities in Madoff's business dealings to the Securities and Exchange Commission. Four years later, a federal judge sentenced Madoff to 150 years in prison after a jury convicted him of fraud estimated at $50 billion.
Markopolos and Williams presented their retirement fund report last week to the Securities and Exchange Commission, the US Attorney's Office in Boston, the Federal Bureau of Investigation and the Massachusetts inspector general's office.
The Boston Globe
"Individually, each of these findings were concerning and when combined, they pointed to a pension fund at risk and significant danger to plan beneficiaries," the authors wrote.
In addition, Markopolos and Williams said pension liabilities appeared understated by up to $211 million, factoring an outdated mortality table and a liberal increase in the expected rate of return. They also said the size of the pension fund ratio appeared understated by 5% to 6%; and payouts of excessive staffing fees reached $4 million annually.
They also cited "lack of board sophistication, investment experience and a pronounced unwillingness to provide reporting transparency" even after the fund lost millions in Ponzi schemes associated with Fletcher Asset Management and Weston Capital Management.
Fund spokesman Steve Crawford defended its operations in a response.
"Fund management is confident that an independent review of its investment return reporting, and asset and liability calculations, will validate its policies and practices, and the work of its audit and actuarial professionals," he said in a statement. "Fund management will fully cooperate with any appropriate third party designated by the board to examine its successful stewardship of the fund on behalf of MBTA retirees and beneficiaries."
Backed by a 1973 state Supreme Judicial Court ruling, the fund has resisted efforts to release pension data in the face of a sunshine provision to a 2009 transportation law and repeated prodding from lawmakers and transparency advocates, notably the Boston-based think tank Pioneer Institute. They say taxpayers funneled $1.1 billion to the authority in fiscal 2013 and that the "T" contributed $55 million in that year toward pension costs.
Pioneer
"The institute welcomes the work of Markopolos and Williams to this much-needed discussion," Pioneer said in a statement. "The fund's poor financial condition and high costs are exacting a heavy burden on an already debt-ridden system."
Pioneer this week recommended moving the fund to the state's $63 billion Pension Reserves Investment Management board, which already manages the assets of the state and teachers' retirement systems as well as those of several localities.
"That's always an option," said Grossman. "It's a complicated topic, but certainly one option would be to merge the fund into PRIM, an organization presumably with lots of expertise."
While treasurer from 2011 to 2014, Grossman chaired the PRIM board and was an ex-officio board member.
Baker in early June appointed Grossman to the fund's board along with retired Massachusetts Port Authority finance director Betsy Taylor and Michael Heffernan, a former Citi banking executive who founded tech startup Mobiquity Inc. Heffernan lost the general election for treasurer last fall to Deborah Goldberg.
"That it's been allowed to operate as a private trust is immaterial," said Grossman. "Those who pay the bills have a right to see anything and everything."
Baker's own panel on MBTA operations — formed after a record 109 inches of snow in Boston last winter paralyzed parts of the system — also recommended an independent audit of its pension fund.
Enhanced disclosure was a cornerstone of Grossman's tenure as treasurer. He gave up his seat last year in an unsuccessful run for governor and since March 1 has been the chief executive of the Boston nonprofit Initiative for a Competitive Inner City.
"I don't think the interests of pensioners and taxpayers diverge in any form," said Grossman. "The more transparency and disclosure, in my judgment, is good for everybody."
In August 2013 the MBTA, not the retirement fund, released some data that showed 17% of 6,359 listed people retired from the transit system while in their 40s. Published reports also have connected the fund's dealings to associates of convicted mass murderer James "Whitey" Bulger and Francis Fraine, who admitted to a role in a Boston arson ring in the late 1970s.
