Sunday, September 22, 2019

[Editorial] Pension Reform Comes Home to Roost

By on July 1, 2019

Editor’s note: The following was first published in the June 27 to July 3, 2019, issue of Caribbean Business.

When it comes to the myth of abundance, few are the areas where it is most painfully exposed than in the realm of pensions that are too good to be true. In Puerto Rico, sadly, the rude awakening commenced with some bitter medicine prescribed by the Financial Oversight & Management Board in its fiscal plans for pensions to be cut up to 25 percent. An agreement on the about $50 billion in unfunded pension liabilities that affects more than 300,000 beneficiaries could not come a moment too soon.

For decades, this newspaper has been warning about the need for defined contributions to backstop the Puerto Rico government’s severely unfunded Employees Retirement System (ERS). In one story after another, Caribbean Business sounded an alarm that not a single person heeded.

In 2003, we reported that the unfunded obligation of the ERS represented $4,038 per capita while the average stateside was $1,458 per capita. A 2003 actuarial report prepared by Mellon Human Resources & Investors Solutions, former actuaries of the ERS warned: “At present levels, the contribution deficit will continue to deteriorate the financial status of the ERS. The strained actuarial condition is not expected to correct itself anytime soon without significant additional contributions from the government.”

And, thus, the massive deficit continued its unrelenting growth as confirmed in a 2008 actuarial valuation report prepared by Milliman, the ERS actuaries at the time. Such was the catastrophic magnitude of the pension black hole that unfunded liabilities skyrocketed 500 percent from 1989 to 2009. Yet, not one administration had the political resolve to defuse the ticking pension time bomb.

In 2010, then-Gov. Luis Fortuño announced the creation of a special commission to reform the public pension system. At the time, most observers calculated the unfunded pension obligations at $14 billion. This newspaper reported that they actually reached $18.9 billion. Caribbean Business explained at the time that “this means that while the ERS obligations were $18.9 billion, net assets to pay those benefits were only $1.85 billion”—less than $1 for every $10, the lowest funding ratio anywhere in the United States and its territories at the time.

Alarming as those numbers were, little concrete action came from the Fortuño administration. The same held true for Fortuño’s successor, Gov. Alejandro García Padilla, whose pension reform may have just as well been written on toilet paper. What we got instead was the Puerto Rico Oversight, Management & Economic Stability Act (Promesa), which brought the chickens to roost in the form of an Oboard tasked with reining in benefits.

To be fair, the runaway gifts paled in comparison to the Christmas tree pensions given to the employees at the Puerto Rico Electric Power Authority (Prepa), where retirees’ entire families were entitled to benefits amounting to nearly $70,000 annually in some cases. Not too shabby for 30 years’ service. Such was the retirement bonanza at Prepa that expenditure amounted to nearly $39 million monthly for the government’s predictably bankrupt energy utility. Time was when people got jobs at Prepa, they were made in the energy shade. Now, Prepa pensions will likely be targeted for fiscal tightening.

Every pensioner will feel the pain. That those cutbacks in benefits in the ERS and Prepa are inevitable, have not sunk in with everyone. Particularly off putting is the insistence of Rep. Lourdes Ramos, who presides over the House Retirement & Veterans Affairs Committee, in benefiting from Act 301 of 2012, which allows former government employees to accumulate benefits despite not having worked at those government agencies in years.

In Ramos’ case, she is suing to have her time working at Prepa despite not having worked at that agency over the past 14 years. Ramos is also demanding to have her highest salary as a representative as the benchmark for her benefits. All told, this allegedly would represent a benefit of some $11,000 annually.

This newspaper condemns Ramos’ move as an affront to good and decent public service. In Puerto Rico, we have a saying—tiene cara’e lata, which literally translates to having the face of a can, but meaning to have no shame. There are hundreds of thousands of dollars being cut from retirees in the Promesa sweepstakes. Ramos deserves to suffer the same consequences, not a higher privilege. Hopefully, the people will make her suffer defeat at the polls in the 2020 election. Bad form.

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