Monday, July 24, 2017

No option for Puerto Rico government to avoid 10% cut to pensions

By on March 15, 2017

SAN JUAN – The fiscal control board made it clear that the 10% cut to the Puerto Rico government administered retirement systems, which include the judicial, teachers and public employees’, has to materialize by 2020.

Fiscal board member Ana Matosantos said the government has to achieve savings in the retirement systems, and in order to do this it has to carry out a 10% cut to pensions.

How will retirees be affected by this measure? “We want to make sure that 70% of the retirees receive less than 10% of cuts [to their pensions],” Matosantos replied. This means that about 30% of retirees with higher incomes could experience a pension cut of more than 10%. Retirees with the highest incomes are from the judiciary and former governors.

Starting in 2018, Matosantos explained, the retirement systems will be left with few to no assets, which will be put up for sale, and it will be up to the government to pay pensions with general fund revenue.

“Basically, the assets are eliminated and the general fund takes over pension payments. The fiscal plan requires we achieve 10% savings and we have outlined some principles to achieve this. Those savings will be achieved progressively and are important to achieve. The biggest blows to the government are that it assumes the payment of pensions and the loss of federal funds in the healthcare area,” Matosantos said.

The fiscal board’s interim executive director, Ramón Ruiz Comas, added that the retirement systems only have 8% in assets, and that is “extremely low.”

In the roundtable with the press Tuesday, the oversight board members said the government will be defining essential services. For example, in the healthcare area, the government determined that maintaining the current level of insured people is most important, and will then specify which critical services the plans will cover.

“They have said dentists and ophthalmology will not be included,” Matosantos said.

Regarding the liquidity plan, she pointed out that the government will have to deliver it by April 30 along with the budget.

“The liquidity plan does not assume short-term financing,” she stressed.

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