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FOMB Sues Governor Over Pension Law Implementation

By on December 22, 2021

Gov. Pedro Pierluisi (Courtesy photo)

Contends Added Retirement Benefits for Public Employees ‘Unaffordable,’ Endangers POA 

SAN JUAN – In a renewed clash between Puerto Rico’s Financial Oversight and Management Board (FOMB) and the administration of Gov. Pedro Pierluisi that could set back efforts to pull the island out of bankruptcy, the oversight board announced on Tuesday that it had filed a lawsuit against the governor in the U.S. District Court on the island to stop the government from implementing and enforcing pension laws the fiscal panel claims would add “unaffordable” retirement benefits for public employees.   

The lawsuit targets Act 80 for incentivized public employee retirement, Act 81 for dignified retirement, and Act 82 for liquidation of accumulated licenses for teachers and police — laws enacted last year — as well as Joint Resolution 33-2021, signed by Gov. Pierluisi last week to require the partial implementation of Act 80 within 30 days. 

FOMB had submitted on Monday a response to a ruling issued last week by U.S. District Judge Laura Taylor Swain, who ordered the fiscal panel to modify the 8th amended plan of adjustment (POA) to include adequate justifications for the treatment of eminent domain and inverse condemnation claims and proposed preemption of commonwealth laws, including acts 80, 81 and 82. 

Judge Swain, in a Dec. 14 order, said that after “having reviewed carefully the parties’ submissions and all of the evidence submitted in connection therewith,” the court “identified certain materially problematic aspects” of the oversight board-submitted amended POA that “appear to be inconsistent with” the plan confirmation clause in section 314(b)(3) of the federal Puerto Rico Oversight, Management and Economic Stability Act (Promesa), which created the oversight board to restructure the commonwealth’s debt. 

In last week’s order, Judge Swain had directed the oversight board to confer with “relevant parties in interest,” including the Puerto Rico Fiscal Agency and Financial Advisory Authority (Aafaf by its Spanish acronym), before submitting its justifications. Apparently, no agreement was reached. The judge, who is overseeing the Promesa litigation, will see the latest lawsuit. 

In Tuesday’s press release announcing the lawsuit, the FOMB said it had discussed with the administration “ways to make the laws affordable,” adding that it had “proposed an approach in June 2021 that could work with respect to a partial implementation” of Act 80.  

“The Government never made any proposal for implementing Acts 81 and 82. Ultimately, no agreement was ever reached on the implementation of any of these laws,” statement reads.  

Word Not Kept 

FOMB Chairman David Skeel said that the fiscal panel was “disappointed” at the Pierluisi administration for failing to “keep its word not to implement these pension laws that make promises the government cannot afford.” 

“The Oversight Board would have preferred to work with the government to find a viable alternative that would provide teachers, police officers, and other government employees with a real plan that Puerto Rico can afford rather than falling back into the old ways of making promises that cannot be fulfilled,” Skeel said in a statement, adding that the fiscal panel would “continue to try to engage with the government to create an affordable solution.” 

The FOMB said that based on information provided by the administration as well as the oversight board’s own analysis, the fiscal panel determined that   Oversight Board determined that acts 80, 81, and 82 together could increase the commonwealth’s expenses by as much as $8.3 billion over the next 30 years. The oversight board stressed that these additional costs would be in violation of the commonwealth’s board-certified fiscal plan and the proposed amended POA, which would reduce creditors’ claim by 80% but pay government pensions in full.   

The oversight board contended that if only partially implemented as contemplated by Joint Resolution 33, the administration’s own data show that Act 80 will increase costs well beyond the certified fiscal plans’ allocations for pension expenses.  

“Even partly implementing Act 80 could cause the Commonwealth to incur additional costs of close to $61 million in the first year alone,” the fiscal panel said in the release. “Unless the government permanently eliminated the positions of employees who retire early under Act 80, the cost would be far higher.”   

Skeel said that the three pension laws create new pension debt obligations tied to an already bankrupt pension system, after the oversight board has worked during the last five years to “reduce Puerto Rico’s debt to sustainable levels” and get the amended POA to the process of confirmation. 

“The government and the Oversight Board both hope the court will confirm the plan,” the FOMB chairman said. “The last thing Puerto Rico needs is more fiscal mismanagement, just as it is on the verge of getting out of bankruptcy and returning to prosperity.” 

‘God Faith’ Talks Fail 

In response to the lawsuit, Aafaf Executive Director Omar J. Marrero stressed in a press release that the Pierluisi administration would “continue to fight in favor of pensioners and public servants to provide them with a fair retirement.” He said that the administration had reached out “in good” faith to the oversight board to “reach a consensus” regarding the three laws with the purpose of “improving the quality of life of our non-essential public employees and those who are about to retire, in a fiscally responsible manner” 

Marrero said in a statement that “despite our efforts, and the multiple viable alternatives and solutions that we have presented to the Board, [on Monday night the oversight board] filed a lawsuit before Judge Swain to annul Laws 80, 81 and 82, as well as Joint Resolution 33,” which he said would launch the partial implementation of the Incentive Retirement Program, created under Law 80-2020.  

“Our attorneys are evaluating the… next steps to take,” the official said. 

In a missive addressed to Marrero, dated Monday, Skeel said the oversight board had requested that the Pierluisi administration not only suspend any implementation of the laws until their validity is adjudicated in the Title III court, but also “publicly announce such suspension to avoid any confusion on the part of the currently affected public employees.”   

The FOMB chairman said that Joint Resolution 33 and Act 80 will require “a reprogramming for which the Oversight Board has not received a request and has not granted its consent,” adding that “the purported savings to cover these costs is illusory” and that “the only mechanism to achieve the savings is to eliminate permanently the non-essential positions, but the Government does not ensure that any eliminated positions will not be restored.” 

Moreover, Skeel said in the letter that the pension laws “inequitably select certain groups of employees for  pecial enhanced pension benefits while other employees will only receive payment in full of their pensions pursuant to prepetition laws (subject to the [Teachers Retirement System] freeze as applicable), as provided in the Plan of Adjustment.” 

The FOMB chairman said that the governor ignored a Nov.16 missive the oversight board sent to the governor, Puerto Rico Senate President José Dalmau and House Speaker Rafael Hernández Montañez, which notified that “consistent with its determinations regarding Act 80,” the oversight board had determined that Joint Resolution 33 would “impair and defeat PROMESA’s purposes.”