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Pension Funds

Washington Metro misses out on chance to switch to 401(k) for new hires

A bid by the Washington Metropolitan Area Transit Authority to switch new hires to a 401(k) plan in an effort to address a $2.8 billion retiree liability was left out of a contract with its largest union upheld by an arbitration board on Wednesday.

"After two years of bargaining and a year of making our best case through binding arbitration, Metro's structural operating deficit remains completely untouched," said Paul J. Wiedefeld, general manager and CEO, in a statement.

The transit authority, known as Metro, has five union contracts. The largest union, AFL-CIO Amalgamated Transit Union Local 698, has been without a contract since the old one expired in July 2016. After failing to reach a new agreement, a three-member arbitration board stepped in.

The board ordered Metro to provide $82 million in wage increases and for employees to pay a larger share of their health-care costs, but it did not address the larger issue of $2.8 billion in unfunded liabilities for pensions and retiree health care. The order also did not include an overtime cap for pension calculations that was sought by Metro officials.

A statement from Metro said that Mr. Wiedefeld was "disappointed that the core issue of pension changes for future employees was not addressed, but is not inclined to appeal because the award provides relief on near term health-care costs, and he wants closure so Metro workers can focus on safety and customer service."

Not addressing the overtime cap leaves Metro "as the only large transit agency in the country with no overtime limit toward pension calculations," the statement said.

The contract with Metro's second-largest union, AFL-CIO OPEIU Local 2, did move members hired after 2009 to participate in a 401(k) plan.

According to the most recent actuarial report issued in November 2017, Metro's five defined benefit plans had assets of $3.6 billion and liabilities of $4.6 billion. The unfunded pension liability of $1.01 billion was down from $1.03 billion the previous fiscal year, while the funded ratio increased to 79% from 77.7%. The remaining $1.8 billion in unfunded liabilities was in retiree health care.