The San Juan Daily Star
AAFAF looks to maintain PREPA pension payments as system faces liquidity cliff
By The Star Staff
With time working against it, the Fiscal Agency and Financial Advisory Authority (AAFAF by its Spanish initials) said this week it is pursuing alternatives to ensure that Puerto Rico Electric Power Authority (PREPA) retirees are not left without pension payments.
The PREPA Employee Retirement System (SREAEE) informed its members in February that it may not have sufficient liquidity to pay retirement benefits starting as early as May 2023.
PREPA is seeking authorization from the Financial Oversight and Management Board to amend its budget to make an additional employer contribution from operating cash on hand, the AAFAF said in a status report to the federal Title III bankruptcy court filed by law firms O’Melveny & Myers and Marini Pietrantoni Muñiz LLC this week. It is also seeking budget allocations to pay employer contributions to SREAEE for former PREPA workers who were transferred to other agencies.
“AAFAF is also overseeing the central government transfer to the SREAEE of funds appropriated pursuant to Section 13 of the Commonwealth Amended fiscal year 2022 Budget Resolution of Puerto Rico’s Legislative Assembly, certified on February 21, 2022, for employer contributions related to former PREPA employees who were transferred to other government agencies and opted to remain in the PREPA retirement system,” the AAFAF said.
José R. Rivera Rivera, chairman of the SREAEE board of trustees, said in a statement in February that the actuarial deficit as of June 2021 was over $3 billion. While in 2022 PREPA was supposed to contribute 166.38% of the total payroll, or $23.8 million per month, it has not made payments to the pension system.
As of December 2022, PREPA owed the SREAEE $895 million in delinquent pension payments. Agencies who took former PREPA employees following the LUMA Energy takeover of the transmission and distribution system owed the system over $8 million.
“The privatization of the Authority has resulted in the displacement of hundreds of PREPA workers and in a wave of retirements, the withdrawal of contributions from members who resigned, and the subsequent reduction of SREAEE revenues, all of which have taken the system to the verge of imminent insolvency,” Rivera said.
SREAEE advisers Asset Consulting Group LLC informed the system’s board of trustees that the system’s economic resources to pay monthly pensions will be depleted in May, including money from active members who are contributing to the pension system, Rivera said.
AAFAF said the administration’s policy continues to be to protect pensions.
The debt adjustment plan for PREPA, which has been in bankruptcy since 2017 to restructure almost $10 billion in debt, proposes to convert the power utility’s pension system from a defined contribution to a defined benefit plan. It also would raise the retirement age and eliminate cost of living adjustments for the pension system.