ATU Local 689 President Jackie Jeter, left, and Metro General Manager Paul J. Wiedefeld. Jeter, whose union represents most Metro workers, said Thursday that the two sides have failed to reach agreement on a new contract. (LEFT: Bill O'Leary/The Washington Post and RIGHT: Marvin Joseph/The Washington Post/LEFT: Bill O'Leary/The Washington Post and RIGHT: Marvin Joseph/The Washington Post)

Metro and its largest union have failed to agree on a new labor contract, the union said Thursday, triggering the start of a lengthy and uncertain arbitration process as the transit agency faces increased budget pressures.

The stalemate won't affect rail or bus service, Metro said, but it signals a worsening of labor relations at a time when the jurisdictions that fund the agency want it to rein in costs and improve performance.

Jackie Jeter, president of Amalgamated Transit Union Local 689, said the union intends to formally notify management Friday that talks originally aimed at a three-year agreement have reached an impasse.

Either side can declare such a standoff, which automatically means a three-member arbitration panel is appointed to resolve the dispute. Metro says that process typically takes six to nine months.

The two sides are at odds over retirement benefits, wages, health care and work rules, with pensions apparently the principal obstacle.

Metro is concerned that the arbitration process is tilted in the union's favor, because the arbitrators don't take into account the jurisdictions' ability and willingness to pay the higher labor costs. But the union counters that it has lost valuable benefits under arbitration in the past and fears it might do so again.

Metro said the breaking point in the talks came when the union refused to consider management's proposal that future employees would have 401(k)-style defined contributions pension plans. Those are less generous than the defined-benefit pensions of current employees.

"What was conveyed to us was, the sticking point was on the pensions" for new hires, General Manager Paul J. Wiedefeld said. He noted that managers and other nonunion employees at Metro have had 401(k)-style plans since 1999.

Jeter said the new pension proposal would cost Metro about the same, but would leave workers exposed to market pressures that could hurt their retirement income.

"The employer wants none of the risk," Jeter said. "They are hellbent on a 401(k)."

She said the union also was unhappy about management's proposals to reduce pension and health benefits for current employees, and to offer minimal pay increases. She decided to go to arbitration after meetings with her membership Tuesday and Wednesday.

"The members are angry because of the things that [Metro] wants to take away," Jeter said. She said they're also upset over recent steps by Metro to intensify background checks of employees and to curb absenteeism.

ATU 689, which has about 9,200 members, has been working under an expired contract since July 2016.

Its contract typically sets the pattern for pacts with Metro's other four unions, which are much smaller.

Wiedefeld said he regretted the union's decision to seek arbitration. He said management's goal in the talks was "a sustainable business model" that would allow the agency to protect jobs and pensions of current employees.

"How do we sustain the service we're trying to provide when we're hearing from the local governments that they can't support [annual] growth rates of 8 percent [in operating costs] over the last 5 years?" Wiedefeld said. "If we can't get there by controlling some of these costs, where do we go? . . . If we cut service, that means cutting jobs."

According to a breakdown provided by Metro, the union's initial proposal called for wage and pension increases that would have raised costs by $213 million over three years.

By contrast, management's initial proposal was to freeze wages for the highest-paid employees, and to require that employees contribute more to both their health care and pensions. Metro said its package would save the agency $421 million, with $283 million of the savings achieved through reduced pensions.

Jeter said the union's most recent proposal, for a four-year contract, called for no pay increase in the first year, followed by increases of 3 percent, 2 percent and 2 percent. She said management was offering a one-time increase of 1 percent.

The dispute now must go to mediators under Metro's system of mandatory binding arbitration.

GOP elected officials — and some Democrats — have urged scrapping the binding arbitration system, saying it's too favorable to the union. If that were to happen, however, the union would be free to strike.

Although Metro and ATU 689 agreed on the last contract without resorting to arbitration, it isn't unusual for such mediation to take place. Over the past 20 years, Metro said, about half the contracts have gone to arbitration.

The second-to-last contract, which covered the period from 2008 to 2012, went to arbitration — and management went to court to try to overturn the result. Management said it could not afford the contract, but a federal judge sided with the union.

That contract provided workers three consecutive 3 percent annual pay raises, part of a package that cost Metro an additional $104.5 million over three years.

The arbitrators roughly split the difference between the union request for four annual raises of 6 percent, and Metro's offer of two 1 percent lump-sum payments, and then 1 percent raises for each of the next two years.

But the union noted that the arbitrators' ruling also ended a benefit for future hires under which retired employees received health insurance. As a result, about 4,000 current employees will lose ­company-paid health insurance when they retire.

The most recent contract, covering 2012 to 2016, did not go to arbitration. Under it, employees received an 11.4 percent pay increase over three years. However, they also began contributing to their pensions for the first time.

Tom Downs, who was Metro board chairman at the time, said the net effect was a 1.85 percent annual average increase for Metro employees.

The union and management pointed to different sets of comparative data to support their positions. ATU 689 cited a recent study showing Metro workers' pay and benefits are in line with those of other major transit systems.

Metro released charts showing that its workers contribute less to their pension plans than other public employees in the Washington region.