AS THINGS stand now, the price of paying pensions and health benefits to Metro retirees into the future is about $5.8 billion. That’s a big bill, and it looks only more daunting when you consider that Metro has barely half that amount. The deficit, roughly $2.8 billion and mounting fast, is a looming problem for Metro passengers and virtually every taxpayer in the Washington region, which sustains the transit agency through annual subsidies.
That’s why it is alarming that an arbitration panel, in settling a two-year contractual impasse between Metro and its biggest union last week, looked at Metro’s pension and retiree health benefits mess — and shrugged. In doing so, the arbitrators handcuffed Metro and its management for the foreseeable future, making further fare hikes, service cuts and layoffs more likely.
On salaries, the arbitrators split the difference between Metro’s management and its biggest union, Amalgamated Transit Union Local 689, granting the union’s 8,000 workers annual wage increases averaging 1.6 percent over four years. That was fair. But on the critical long-term issue of retirement benefits, it deepened Metro’s problems.
Unlike in many U.S. transit agencies, Metro workers are permitted to pad their pensions by piling up overtime late in their careers, with no limits, thereby inflating their salary base. That adds more than $8,500 to the annual pension of an average ATU 689 retiree and drains more than $40 million each year from the pension fund. When Metro’s management asked for a cap on counting overtime in determining pension payments, the arbitration panel said: Forget it.
Likewise, the panel refused to allow Metro to save tens of millions of dollars annually, far into the future, by shifting from a traditional pension plan to a 401(k) defined-contribution arrangement — even though the transition would apply only to future employees. In doing so, it ignored the fact that Metro’s second-largest union has already made that switch for new employees, as well as a study, led by former U.S. transportation secretary Ray LaHood, that concluded Metro is an “outlier” in terms of its lavish pension provisions. (Mr. LaHood’s group also noted that Metro’s hourly employees contribute just 3.1 percent of wages to their pensions, less than half the share other U.S. workers chip in for theirs.)
The arbitrators understood that ATU 689’s retirement plan is a sweetheart deal. Incredibly, they let it stand based on a deal struck by Metro management and labor in a single three-year contract during the first term of the Reagan administration. The fact that two of the three arbitrators — the third dissented — considered that 35-year-old deal relevant today suggests they ignored the budget vice now gripping Metro, whose ridership has been plummeting.
The arbitrators have backed Metro into a corner. Legislation enacted this year in Virginia and Maryland imposes a 3 percent cap on the agency’s annual operating subsidy growth. Add inflation to the wage increases awarded in arbitration, and Metro’s wiggle room shrinks to zero. It simply cannot afford to sustain the union’s gilded pension and retiree health-care plans, whose cost is growing fast. Faced with an unsustainable situation, the arbitration panel sustained it, thereby doing a disservice to hundreds of thousands of Metro’s daily passengers and the region as a whole.