Lucrative pension perks costly to MARTA

2. Eligible employees, generally those whose age and years at MARTA add up to 80, join the DROP plan by filing papers agreeing to retire within five years.

3. MARTA executives can buy up to five years’ work credit to get in DROP.

4. The employee’s pension benefit is frozen as though he or she is now retired. But the employee continues working and collecting a salary for the agreed period up to five years, and MARTA pays his or her monthly pension into a special account. Meanwhile, the employee’s contributions to the pension fund stop.

5. MARTA pays 5 percent annual interest on the accounts for most employees in DROP. MARTA cut the interest rate to 1 percent annually for those who got in after Jan. 1, 2013.

6. When they retire, employees cash out their DROP account. They can also withdraw all or part of their earlier pension contributions, plus interest, in exchange for a reduced monthly pension.

Under the strain

In response to falling revenues in recent years, MARTA reduced staff, increased fares and ran fewer trains and buses in recent years. But during that time, the system’s pension costs rose, adding to the budget strain.

Employees: 4,275 full-time employees in 2012, down 371 since 2008 peak

Service: 92 bus routes in 2012, down from peak of 132 in 2008. Train waits increased by up to 5 minutes in 2010; this past September, MARTA said it would cut the wait on the red and gold lines, which run to North Springs and Doraville, to 10 minutes.

Fare increases: $2.50 single trip in 2012, up from $2 in 2011 and $1.75 in 2008.

Pension contributions:

Union plan: Annual pension contributions up 37 percent since 2009, to $7.4 million in 2012

Non-union plan: Annual pension contributions up 19 percent since 2009, to $23.2 million in 2012.

Sources: MARTA comprehensive annual financial reports; actuarial valuations; news reports

To stanch losses in recent years, MARTA cut transit service and jobs. All the while, it preserved some pension benefits that allowed many employees to pile up richer retirements than most workers can hope to get.

One of the most lucrative benefits was available only to some employees in the smaller of its two pension plans. It allowed 44 senior staff to retire over the last two years after socking away about $8 million in pension payments, with guaranteed interest, in special savings accounts while they were still working and earning salaries.

They walked away with accounts often topping hundreds of thousands of dollars, along with their monthly pension checks, according to MARTA documents The Atlanta Journal-Constitution obtained under Georgia’s open records law. One retiring executive with the special pension savings account collected $399,663 last year, plus a $49,810 annual pension. Another retired in 2012 with a $365,394 lump sum and a $44,679 annual pension.

Other retirees — especially those who worked long careers — will collect pension benefits that could top their annual salaries. Many have been able to fatten their retirement checks because of overtime. They and other MARTA retirees will get Social Security checks to boot.

And employees in both MARTA plans – one for union workers, the other for non-union – have been able to cash out their own pension contributions, with interest, when they retire, and still receive a monthly pension check.

The benefits – some apparently unique among public pensions in the Atlanta metro area – accelerated the cash drain on the pension plans as they suffered severe investment losses in recent years. MARTA has had to pump in millions of additional dollars into the plans in recent years. While that has kept the union plan almost fully funded, its non-union plan had a $140 million deficit at the end of 2012.

MARTA officials defended the transit system’s pension plans and said they’ve been cutting benefits and getting employees to pay a larger share of the freight.

MARTA spokesman Lyle Harris said that pension features, such as lump sum perk and special savings accounts, help the transit system keep experienced employees in critical jobs.

“For us, retention of highly skilled transit employees is always a challenge,” Harris said.

But critics say that when the nation still hasn’t fully recovered from the worst recession in decades, other workers are available and the lucrative benefits are unnecessary and costly.

Many other government employers have trimmed their traditional pension plans in the wake of the 2008 financial crisis, as they’ve struggled with deficits. Most corporations have abandoned them. The average private sector workers lucky enough to have one retires on less than 40 percent of their working salary.

Meanwhile, employees in MARTA’s union plan can expect to retire on 75 percent of their salary after 30 years. If they work longer, they can collect even more.

Because Milton Johnson Jr., 65, worked well beyond the typical 30-year career, his pension would have been higher than his $40,643 salary under the pension plan’s rules. But when he retired from MARTA in 2012 after driving a bus almost 43 years, he accepted a lower pension so he could cash out nearly $104,000 of his own contributions from the plan, plus interest.

As it is, he gets a pension of nearly $38,000 a year, plus Social Security benefits and income from retirement savings.

“I’m pretty secure for the rest of my life,” said the Decatur man, who also tinkers with inventions and holds a patent for a car security system.

Working the system

As good as MARTA’s pension benefits may be, experts say some late-career employees may be able to pump them up by racking up overtime and cashing in on unused personal leave before they retire — maneuvers known as “pension spiking.”

MARTA also bases retirees’ pensions on the three highest-paying years out of the last eight they worked, so the pension plan makes it easier than most for employees to come up with three high-paid years that boost their retirement benefits.

“It’s not the norm to be able to stick stuff on the back end like that,” said Keith Brainard, research director for the National Association of State Retirement Administrators. “We have seen a lot of efforts to close those” rules allowing add-ons.

Lots of MARTA’s employees have been paid massive amounts of overtime in recent years that, if they were close to retirement, would have boosted their lifetime pensions.

In both 2012 and 2013, roughly 240 employees collected overtime and other pay that exceeded 50 percent of their regular pay.

There didn’t appear to be a very strong link between how much overtime employees were paid and whether they were potentially close to retirement, according to an AJC analysis of MARTA pay data.

Still, whether or not they deliberately piled on overtime to spike their pensions, some individual workers are in line to collect a heftier pension because of massive overtime. A transit police sergeant with 22 years at MARTA almost doubled his pay with overtime work in 2012, to $113,657. A bus driver with almost 33 years more than doubled his pay that year with overtime, to $88,438.

Other evidence that spiking was an issue: The types of workers who racked up the most overtime pay changed dramatically in 2013, when MARTA in a cost-cutting move stopped allowing police and other employees in its non-union pension to count overtime toward their pensions. In 2012, 20 out of 25 employees with the highest proportion of overtime pay were police employees. But in 2013, only four were. Most of the 25 with the highest proportion of overtime pay last year appeared to be members of the union pension plan, which still counts up to 220 hours of overtime a year toward pensions.

Johnson, the retired bus driver, disagreed that many MARTA employees work lots of overtime to get bigger pensions. MARTA employees take the overtime “because it’s available,” he said.

Johnson said that during most of his career, he worked 10-12 hours of overtime a week running the routes of absent drivers. He typically earned about $70,000 a year — about 60 percent more than his base salary.

Pension smorgasbord

MARTA’s smorgasbord of perks and options for late-career employees are more generous than many across the U.S.

Overall, MARTA’s retirement benefits cost about $22 million more each year than the national average of public and private employers of similar size, according to estimates by the accounting and consulting firm KPMG. It was hired by the system in 2012 to recommend ways to make its operations more efficient.

The most lucrative pension option for MARTA workers may be what’s called the “deferred retirement option plan.” Also called DROP, it lets some employees in the non-union plan accumulate money in special savings accounts, with interest, for up to five years while they continue to work and draw salaries.

When they retire, they collect handsome next eggs. In the past two years, 34 participants retired who had DROP payouts topping $100,000, records obtained by The Journal-Constitution show.

Only 229 MARTA employees have taken advantage of DROP since it was created 13 years ago. But they’ve been able to withdraw a disproportionate amount of cash from the pension fund.

MARTA didn’t provide an analysis of the cost of the program, but Davis Allen, a MARTA program manager and former head of the pension board, said that it benefits MARTA without undue expense. The pension fund gets to hold participants’ pension cash while they are working for up to five more years past the time they are eligible to retire. He also contends that employees who stay in their jobs because of DROP are usually lower-paid than their replacements will be.

However, it is clear that the lump sums paid to DROP participants were a sizable cash outlay for the strained pension fund.

In the past two years, the 44 DROP plan retirees accounted for less than 4 percent of the non-union pension’s total retirees and beneficiaries. Yet the $7.7 million they collected equaled roughly two-thirds of all lump sums that the pension fund paid out in 2011 and 2012.

It also represents 13 percent of all the benefits MARTA paid to its 1,200 retirees and beneficiaries.

Even a former MARTA board member questions the wisdom of the DROP.

“DROP plans are certainly a way to game the system,” said Ed Wall, chairman of DeKalb County’s pension. “I’ve never quite understood it. That’s why I haven’t approved it [at DeKalb].”

Retirees from both MARTA plans also can cash out lump sums that sometimes top $100,000. In exchange for a reduced monthly pension, they can withdraw all or part of their pension contributions — with 5 percent annual interest. By contrast, many retirees from traditional plans may have to forgo a monthly pension if they have the option of a lump sum payout.

The typical retiree from the non-union plan collected an average annual pension of $22,457 last year, in addition to Social Security benefits. The typical retiree from the union plan collected $18,263, plus Social Security. However, the average includes workers who may have worked only long enough to vest in the plan, and survivors of workers, who received reduced benefits.

Scaling back

As it has grappled with investment losses in recent years, MARTA has taken steps to shore up its plans.

It has required employees in both plans to contribute more of their pay toward their pensions.

It also has been cutting some benefits for those in its non-union plan, which covers 950 non-union employees and police and 1,200 retirees. That plan has long been underwater.

MARTA closed the plan to all new hires except police in 2005, and plans to close it to newly hired police officers this year. Last year, the agency also started excluding overtime and some other types of pay for employees in its non-union plan when calculating their pensions.

“We were trying to curtail some of the payouts,” Allen said.

Starting last year, MARTA also lowered the annual interest rate, from 5 percent to 1 percent, that it will pay on the DROP savings accounts.

“You can’t pay a higher interest rate than what you’re earning on your money,” Allen said.

MARTA estimates that last year’s changes saved the non-union pension $4.7 million.

But the cuts didn’t affect the ability of retirees to cash out lump sums. Nor did MARTA change a provision that allows executives who wouldn’t otherwise qualify for the DROP to buy extra work time credit to get in.

And the pension system’s interest rate cut also didn’t affect the 89 MARTA employees who were already in DROP before the lower interest rate took effect in 2013. They still are guaranteed 5 percent annual interest on their accounts.

So far, MARTA’s cutbacks also have not affected its retirement plan for union employees. It is MARTA’s largest pension, covering 4,500 employees, retirees and beneficiaries.

Unused leave is still counted toward pension calculations, as is potentially hundreds of hours of overtime. And employers can still receive 5 percent annual interest on lump sum withdrawals of their pension contributions.

MARTA’s union contract is up for negotiation, but officials wouldn’t say whether they are seeking pension cuts similar to those at the non-union plan. Officials with ATU Local 732, which represents MARTA’s union employees and co-manages their pension, declined several interview requests from the AJC.

Top pension perks from MARTA’s DROP program

In 2012 and 2013, 44 retiring employees cashed out almost $8 million from MARTA’s deferred retirement or DROP program. Here are statistics for the top 20 retirees during those years, including their years of work service counted toward pensions, how long they were in the DROP program, annual pension and lump sum.

* Includes both DROP account and optional withdrawal of employee’s pension contributions, if chosen.

Note: Median is the midpoint value at which half were higher and half were lower. The median and total are for all 44 retirees in DROP.

Source: MARTA documents