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WMATA's pensions cost too much, Councilmember Mary Cheh declares

March 12, 2012 - 10:37 AM
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(Photo: flickr/elvertbarnes)

During last week's Metro fare hearings, Ward 3 Councilmember Mary Cheh ventured to the fifth of six in Tenleytown to voice her own WMATA concerns — namely, that the transit agency's union workers are costing too much money.

"In total, 70% of WMATA's budget is personnel expenses," Cheh remarked to an assembly of officials including Metro General Manager Richard Sarles, CFO Carol Kissal, and Metro Board Chair Catherine Hudgins.

The councilmember, who acts as the head of the transportation committee and has been a prominent voice in modernizing other institutions like our taxicab industry, urged Metro officials "to minimize" fare increases wherever possible and said she worried about the growing perception that the 36-year-old transit system is "declining," despite the officials' emphasis on aggressive rebuilding. Cheh referred to people farther from the core of the city who had begun to question the value, some who "think it's cheaper to drive instead of ride."

But her primary worry involved the amount of money WMATA spent on its transit employees ... specifically the way it awards pensions to union employees.

Chocolate strawberries
Metro's pension comparison.(Photo: WMATA)

Cheh articulated two major types of pensions that institutions can award to employees. The city, in contrast to Metro, grants what's called a defined contribution plan, where workers lend a certain percentage of their income to their retirement fund. But Metro offers these defined contribution plans to only a fraction of its employees: higher-ups rather than its union workers, who receive a much better deal. In 2005, the transit agency noted that it was experiencing professional and management employee turnover thanks to the "advent of Defined Contribution Plans."

But union employees, as part of the 7,000+-member-strong Amalgamated Local 689, didn't transition to these contribution plans. WMATA gives its union employees a luxury that's now, Cheh noted, "almost unheard of" in the form of its defined benefit pension plan.

Most of these union employees, as WMATA spokesperson Dan Stessel affirmed to me, don't contribute to pension or medical as part of the agency's defined benefit plan. Meaning Metro eats a lot of costs these days, as it illustrated in a pension comparison chart from January above. It's predicted overall pension costs will be $124 million and health benefits will be $151 million in the 2013 budget. The biggest driver of operating expenses was Metro's pension plans and fringe benefits. Current operation costs, from the fiscal 2012 budget versus the 2013 proposal, grew by $61 million. Pension and fringe costs account for $35 million of that increase, labor cost for $20 million, and non-labor came to $6 million.

Phil Andrews, Montgomery County councilmember, echoed Cheh's criticism at the Falls Church fare hike meeting, the Post reported, and other essays have questioned WMATA's pension payments going back years.

Stessel declined to comment on the pension plans because WMATA's negotiations with Amalgamated Local 689 are ongoing. The agency, however, has signaled a desire to reduce these pension and health benefits costs in a variety of ways, from how it phrases public survey questions to public statements to records of union arbitration ("The Authority proposes decreases in benefits in both the pension and health care areas," a January document noted about arbitration with Local 2). In 2009, Local 689 arbitration proceedings declined to change union employees' plans to defined contribution, which WMATA resisted in the subsequent years in the political battle that also concerned WMATA employees' 3%-a-year pay raise. 2011 court documents described the costs as "surging" and notes: "Ultimately, the [Arbitration] Board concluded that, in light of rapidly rising health care costs, some structural changes to the employment relationship were appropriate ... WMATA could not absorb the wage and benefit increases proposed by the Union, which would have resulted in labor cost increases of approximately 7.6 percent per year." Arbitration, then, "chose instead to adopt wages and benefits changes that would result in labor cost increases of approximately 1.76 percent per year, consisting of an average annual wage increase of less than 3 percent and certain offsetting reductions in WMATA’s health and welfare plan."

Amalgamated Local 689 was not immediately available for comment although in recent court documents, the union argued that the average total compensation of WMATA 689 union employees (in fiscal year 2008, that average was $82,076) was far lower than transit workers in comparable circumstances. Former ATU Local president Michael Golash from 2004 to 2006 defended the pensions in a Jan. 20 Post editorial and ascribed Metro's problem to the way they had invested its pension funds up until the last half decade.

"From 1997 until 2006, Metro made no contributions to the fund, relying on the stock market to fund pensions," Golash wrote. "Metro’s financial problems are caused by the federal and local governments and by businesses that receive services from Metro but do not pay their fair share of the operating costs."

In 2011, the court declined to change WMATA's 689 benefits from defined benefit to defined contribution for the following reasons, which give better insight into how WMATA has handled its pensions and acknowledge Golash's concern:

(1) the plan’s current underfunded status was largely the result of WMATA’s decision — apparently made against the recommendation of its chief financial officer — to cease making contributions to the plan over an eight-year period; (2) the trustees of the plan had adopted certain changes to plan asset valuation methods that would reduce WMATA’s pension contributions by some $190.8 million over the four-year term of the new collective bargaining agreement; (3) maintaining the status quo would not, in the Board majority’s view, “directly impact subsidies paid by the supporting jurisdictions, nor would the maintenance of the status quo necessarily increase tax rates or tax burdens”; and (4) any burden flowing from the maintenance of the status quo would be offset, at least in part, by savings from the health and welfare plan adjustments promulgated as part of the Award

WMATA, needless to say, disagreed. It said the pensions plan, as then established, would create "increased pension funding obligations" to the tune of scores of millions of dollars, as we've now seen outlined in the budget breakdowns for fiscal year 2013. The transit agency points unhappily to language in the opinion about how these benefits could "be funded, at least in part, by fare increases" — the very issue now at stake in the Metro hearings of the last two weeks. But the court, in turn, wrote that fare increases were not the inevitable conclusion of the union negotiations so much as one speculative option.

This week, meanwhile, the Metro and MetroAccess unions plan to distribute leaflets from a stagecoach near the two Farragut Metro stations in protest of "the current crisis of proposed fare increases, delays, and station shutdowns in Washington’s Metro system." Members plan to rally from 8 to 9:15 a.m. Tuesday morning in favor of functional mass transit and in opposition to its detracting forces, such as, the union alleges, the expired commuter tax benefit and foreign operation of the D.C. Circulator.

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