The $1.5 billion MBTA pension system is in crisis. Fund returns and asset values have plummeted while the liability gap to thousands of its pensioners has skyrocketed. The system needs significant and lasting reform.

The trend at the pension fund is disturbing. Subpar investment performance and a drop of over $100 million in asset value in the past year have contributed to a funding gap of more than $940 million. If adjustments are made to existing actuarial smoothing practices, the unfunded liability gap exceeds $1 billion. This means the pension has less than 60 cents on hand for every dollar needed to meet promised obligations. If poor investment returns persist, this gap could reach $1.2 billion by 2017, pushing the funded ratio well below 60 percent. In the pension industry, this is considered the red zone. Some estimates already put the T at a dangerous level of only 58 percent funded.

The T pension has failed to keep pace with a rapidly changing investment world. The post-financial-crisis economy is one of rapid market swings, slow global growth, and near-zero interest rates, challenging even the best-run funds to meet targeted returns. In this new investment climate, the T pension no longer can assume strong market returns will bail it out. Its investment performance over the last two years has been puny, with 2015 under 1 percent. It appears that 2016 will not be much better. Lower return expectations in the future and rising benefit costs also mean more taxpayer money will be required to plug the growing funding gap. Taxpayers are on the hook for the lion’s share (75 percent) of this shortfall, with the rest paid by MBTA employees. Taxpayer annual contributions to the T pension continue to climb. Currently it stands at $84 million, a 10 percent increase from the previous year. In less than a decade, at the current rate, taxpayer annual contributions could top $200 million.

Ill-advisedly, the T pension has enormous concentration risk (about $450 million, or one-third of its assets) in hard-to-value and less liquid private equity, real estate, and hedge fund related bets. Over the last decade, returns have significantly lagged the market. The 2013 disclosed loss of $25 million in a hedge fund Ponzi scheme is further proof that the investment vetting process leaves much room for improvement.

Meanwhile, lack of transparency plagues the MBTA pension, fostering an insular culture and reducing accountability. In April, the state Supreme Judicial Court ruled in favor of The Boston Globe, requiring the fund to open its doors and make meeting minutes public. Unfortunately, senior management and the Carmen’s Union Local 589 continue to resist openness. The Markopolos-Williams report “A Pension Fund at Risk,’’ issued in June 2015, identified 12 red flags relating to possible questionable practices. Since this report, the pension fund has made, or is being pushed to make, $259 million in adjustments to unfunded liability.

Meaningful reform needs a win-win approach so that taxpayers, MBTA pensioners, and union officials all see that each stands to gain from a T pension fund with system stability, greater professionalism, and openness. Implementing the five initiatives below would go a long way toward ensuring lasting reform:

PTransfer management of the MBTA pension to the Massachusetts Pension Reserves Investment Management Board (MassPRIM). This highly respected state-run pension manages more than $60 billion of assets of the Massachusetts Teachers’ and State Employees’ Retirement Systems, and assets of many county, authority, district, and municipal retirement systems. In addition to gaining superior investment management, outsourcing would help eliminate the excessive $4 million administrative fees the MBTA pays itself annually.

P Union leaders must acknowledge the existing crisis and work in a collaborative manner to help forge a sound and stable pension system. As part of collective bargaining process, T employees need to take on more of the funding burden to better reflect industry standards. Also, T employee benefits need to be rightsized, with realistic expectations set on what payout levels are fair and sustainable. As learned from the past, excessive benefits only weaken the system and undermine the ability to honor future payouts.

P The existing legal charter should be updated to bring the T pension fund in line with other state transit authorities, including requiring timelier, transparent reporting, and, with it, greater accountability. The “private trust’’ designation must be rescinded, since it has proved detrimental to the more than 12,000 workers and retirees, and to taxpayers, who have had to greatly subsidize pension operations despite being kept in the dark.

P Reduce the outsized exposure to underperforming alternative investments, including private equity, real estate, and hedge fund related holdings. Diminishing holdings would also free up funds to invest in less opaque and more liquid assets. At minimum, if the Pension Board decides to retain such holdings, it should outsource management to MassPRIM, which has built a reputation on managing such challenging asset classes.

P Replace the existing accounting and actuarial consulting firms. KPMG and Buck Consultants have monopolized these important gatekeeper roles. Given the crisis, putting these tasks out to bid would allow a fresh set of eyes to independently evaluate pension assets, financials, reported returns, and stated liabilities. A new actuarial firm is also crucial to validate or refute previous assumptions used when calculating fund liability. These assumptions form the basis for understanding the T pension’s financial health and ability to meet its future obligations. Inappropriate or overly optimistic actuarial assumptions can dangerously understate the true amount of unfunded liability.

Massachusetts taxpayers will have to pump many millions of dollars more into the fragile T pension system; shouldn’t the goal be to ensure that they get a fair return? Working together, taxpayers and MBTA employees can build a fiscally sound pension system which is better for all.

Mark T. Williams teaches finance and risk management at Boston University’s Questrom School of Business.