Puerto Rico Retirees Committee reaches deal with fiscal board
A ‘crucial step… for getting us out of the Title III debt restructuring,’ chairman says
SAN JUAN — The Official Committee of Retirees in Puerto Rico’s bankruptcy-like process has reached a deal with the island’s Financial Oversight and Management Board (FOMB) to reduce the degree to which the pensions of some 167,000 people would be cut versus what the oversight board proposed in the fiscal plan it certified for the island on May 9.
The fiscal plan established cutting public pensions up to 25%. Most retirees make less than $2,000 a month. Under the deal, which still needs to be ratified and approved by the court, retirees with monthly pensions of less than $1,200 would not see be affected, leaving the pensions of 61%, or 102,000 retirees intact, with the rest cut by only 8.5%. These reductions are slated to take place in July next year.
The tentative agreement negotiated by the Retirees Committee (known as COR by its Spanish initials) marks significant progress from the terms proposed by the board, which would have impacted 75% of the island’s retiree population.
“After almost two years of legal actions, mediation sessions and negotiations, we reached an agreement with the FOMB that will significantly limit pension cuts and provide other substantial protections,” said the committee’s chairman, former Judge Miguel Fabre.
The agreement would benefit former workers of Puerto Rico’s Employees, Teachers and Judiciary retirement systems. However, the Retirees Association came out against it during an interview with Caribbean Business.
The deal will limit cuts to a maximum of 8.5% for retirees who receive a pension of more than $1,200 a month, ensuring they will get a minimum of $1,200 a month after the cuts are effected.
The committee said Social Security benefits and the monthly medical insurance benefits for retirees will be fully protected.
The agreement is “an integral part of the plan of adjustment” that the board will file in court “that concerns over 300,000 pension beneficiaries and restructures over $50 billion in unfunded pension liabilities,” the board said in a release Wednesday.
“We are pleased to announce the agreement with the Official Committee of Retired Employees (COR), which is a crucial step to presenting the Plan of Adjustment for the Commonwealth of Puerto Rico and for getting us out of the Title III debt restructuring process, while ensuring the future benefits of our retirees,” board Chairman José Carrión said.
The deal calls for a raise in the minimum pension threshold to calculate cuts from $600 per month to $1,200 per month, increasing the number of retirees who are protected from the cuts, from 25% (45,000 retirees) to about 61% (102,000 retirees).
“If Puerto Rico’s economy exceeds the financial projections in the fiscal plan by a certain level in a given year, retirees whose pensions were cut will get a portion of cuts restored for that year,” the committee said.
The deal also protects future retirees’ payments despite the government’s pay-as-you-go, PayGo system, whereby agencies remit fees to the Department of Treasury to cover the pensions and benefits for each employer’s current pensioners and beneficiaries.
Under the agreement, there is a provision for the creation of a potentially multibillion-dollar pension reserve to help fund payments for years. The fiscal plan projects government deficits by 2038.
The fund is proposed to be managed by an independent board composed of retirees who will be elected by retirees. It would supervise PayGo payments and ensure compliance with the terms of the pension benefit agreement included in the fiscal plan.
“Although the COR would have preferred no cuts, we believe that significantly worse cuts would have been sought by the FOMB in the bankruptcy process and that ignoring said reality would have been irresponsible from our part and lethal to our community of retirees. Under the circumstances, the COR is convinced that this agreement is the best option to ensure the well-being of our community and the continuity of our pensions,” Fabre said.
The proposed deal will be included in the Commonwealth’s Plan of Adjustment (POA) under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (Promesa), and will be subject to the vote of impaired creditors at a later date that will be announced by the U.S. District Court.
The committee will provide information “at the appropriate time” regarding voting on the POA. The plan will then be considered for confirmation by federal Judge Laura Taylor Swain, who oversees Puerto Rico’s Title III proceedings.
“It is important to emphasize that pensions cannot be modified until at least the time when the Court has confirmed a POA for Puerto Rico,” Fabre indicated. Confirmation of the plan will take place after the affected parties have evaluated details of the POA and voted.
María Teresa Rodríguez, a Puerto Rico Government Development Bank retiree, said the proposed 8.5% cut to some of the pensions was unacceptable and one of the largest cuts ever made.
“We have researched this and if there has been a higher cut, they should let us know,” she said.
Rodríguez noted that the crisis in the pension systems was not caused by retirees but by poor management. There have been more than three cuts to pension benefits, starting with the change to a defined-contribution system in 2000. To make matters worse, she said, the government stopped contributing to the pension payments years ago.
“We still do not know where the pension money is. We do not know where the retirement system assets are. We do not accept cuts and we are going to fight them. The government wants…a group of people who contributed to society to become indigents,” she said.
Eva Prados, of the Citizen Front for an Audit of the Debt, stressed that the committee does not represent all retirees “as they make others believe.” She said the group has gathered more than 2,000 signatures against the pension cuts.
The committee will be providing information and educating retirees about the agreement and its impact, as well as the voting process.