Saturday, September 19, 2020

FOMB: Incentivised-retirement bill is inconsistent with fiscal plan

By on June 23, 2020

SAN JUAN – The executive director of the Financial Oversight and Management Board (FOMB), Natalie Jaresko, sent a letter to Gov. Wanda Vázquez Garced, Senate President Thomas Rivera Schatz and House Speaker Carlos “Johnny” Méndez Núñez on Tuesday, in which she warned that Senate Bill 1616 on the incentive Retirement Plan cannot be approved as is.

“As proposed, it appears that SB 1616 would be significantly inconsistent with the 2020 Fiscal Plan, and it should not be enacted until the information requested in this letter is provided to the Oversight Board,” Jaresko said in her letter.

According to Jaresko, the measure as presented is intended to improve retiree benefits to certain currently active employees while simultaneously paying for the increased benefits by “freezing/eliminating certain of the positions held by early retirees.”

“However, the affordability of the proposed benefit improvements is dependent on the elimination of a certain number of these positions. Thus, failure to achieve the required down-sizing could potentially cause significant increases in long-term costs to the Government,” she wrote.

According to Jaresko, more than 20 early retirement windows have been offered since 1994, all of which failed to achieve significant savings.

The board, she went on, “requires a complete analysis of the outcomes SB 1616 is intended to achieve and the likelihood they will be achieved…. In addition, the Oversight Board requests additional information, pursuant to Section 104(c) of PROMESA, including all actuarial reports and any documentation evaluated that provide support for the savings and number of affected employees described in this bill, including analysis regarding the impact on individual agencies. The Oversight Board is requesting that this information be provided as soon as possible to allow for timely review of the proposed bill.”

The Senate passed Monday a package of measures related to Retirement Systems including Senate Bill 1616 of the New Progressive Party majority to create the “Law of the Incentive Retirement Program and Justice for Our Public Servants” and which was unanimously, with Sen. Migdalia Padilla abstaining because she is a retiree.

Said piece of legislation is for establishing a program by which eligible government employees may voluntarily choose to retire ahead of time. At the same time, it establishes the required years of service necessary to qualify for the program, regulates the period the employee has to exercise their decision to join the program, provides special incentives that will be granted to employees who participate in it and provides the necessary requirements for the program’s implementation.

As proposed, the agencies may establish a plan for the phased retirement of the participants of this law, so that the services they provide to citizens are not affected. For these purposes, the tiered plan shall not require the participating employee to retire after Dec. 31, 2022.

To be eligible for the Incentivized Retirement Program for participants of Act 447 of 1951, participants must meet, among other requirements, the following: be a career employee in public service; be a politically appointed employee with the right to reinstatement in a career position; be a politically appointed employee who, despite having the right to reinstatement, complies with the other requirements of the article and is contributing to the system at the time of the approval of the law; or an employee with a term appointment in accordance with a law.

According to the bill’s proponents, the Incentivized Retirement Program is created to offer an early retirement opportunity and to do justice to the government employees who entered the System under Act 447 of May 15, 1951, before April 1990, or who started working for the government as a transitory or irregular employee before that date, but were unable to contribute to the system due to their employment status and after April 1, 1990, were appointed to the career service, and requested pay those prior services on or before June 30, 2013 to quote years of service retroactively to a date prior to April 1, 1990 or did not choose to participate in the Retirement Savings Accounts program and have at least 20 years of services registered in the System as of June 30, 2017.

Likewise, the program created by the law offers an early retirement opportunity to employees of the eligible agencies that entered the System under Act 1 of Fe. 16, 1990, between April 1, 1990 and April 31, Dec. 1999, did not choose to participate in the Retirement Savings Accounts Program and have a minimum of 15 years of service as of June 30, 2017.

Under this proposal, employees under Act 447-1951 who are eligible under the Incentivised Retirement Program will receive a retirement benefit consisting of 50% of their last salary.

According to the report of the Joint Resolution of the Senate 1287, approved Saturday, through which the Finance and Government Committees investigated the feasibility of an incentivised retirement program (prior to the filing of the Senate Bill 1616), the Retirement Systems Administration reported that under Act 447 there are 9,465 active participants representing a payroll of $32,697,692 plus fringe benefits.

Meanwhile, there are currently 31,019 active participants in Act 1 that represent an approximate annual payroll of more than $1 billion annually, not including fringe benefits.

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