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Pension Funds

GAO report warns Washington Metro about rising pension costs

Mounting pension costs pose significant risk to the Washington Metropolitan Area Transit Authority's financial operations, according to a Government Accountability Office report released Monday.

For fiscal year 2017, the transit agency known as Metro saw its pension plans underfunded by $1.1 billion. Also, its four retiree health plans were unfunded by more than $1.8 billion in fiscal year 2017.

Metro's annual pension costs grew by an average of nearly 19% from 2006 to 2017, making pensions its fastest-growing workforce cost, according to the GAO report. Over that same period, its total labor costs grew about 3% a year.

The size of Metro's pension plans and the overall maturity of the plans' participants — the plans have a high proportion of retirees compared to active members — pose a combined financial risk to the agency, the report said. In fiscal year 2017, Metro's pension assets ($3.6 billion) were about five times more and its pension liabilities ($4.7 billion) about 6.5 times more than its annual wages and salaries ($728 million), the report noted.

"Because of their relative size, changes in the value of these assets or liabilities — for example, as a result of underperforming investments or revisions to actuarial assumptions — could significantly affect WMATA's operations," the report said.

The report said that Metro has not fully assessed the risks. "If WMATA's pension plans' assets of $3.6 billion return significantly less than assumed, WMATA could experience a spike in required contributions," the report said.

The GAO referenced a 2017 WMATA board of directors pension subcommittee report that showed if Metro's assumed rate of return across all five pensions plans decreased to 7% from 7.66%, Metro's required annual pension contribution would increase by $42 million, a 26% jump.

The GAO recommended Metro's general manager conduct a comprehensive assessment of the financial risks to which Metro is exposed from its pension plans and communicate the results to its pension plan trustees and other stakeholders.

GAO was asked to review Metro's workforce management after "recent safety incidents and declines in ridership and revenues for Metro have raised questions as to how it manages its workforce and associated costs," the report said.

In a statement, Paul J. Wiedefeld, Metro general manager and CEO, said his agency "concurs with the findings and conclusions presented in the report and has already taken actions to address a number of issues raised in the recommendations. With respect to our growing pension liabilities, management is doing all that it can to relieve the pension burden and will work with the board and jurisdictions on a long-term resolution."