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Exposure of pensions to cuts depends on judge’s reading of Act 53


José Luis Barrios Ramos, attorney for the Puerto Rico Teachers Association

By The Star Staff


The Financial Oversight and Management Board for Puerto Rico insisted this week during the bankruptcy case for the central government to restructure some $33 billion in debt that Act 53, the law enabling the debt deal, doesn’t bar changes to public employee pensions and that the plan was adapted to fit the strictures of the law.


Opponents, including teachers unions and other union groups, said changes to public pensions require changes to the law and legislative approval. When U.S. District Court Judge Laura Taylor Swain makes a ruling on the interpretation of Act 53, she will have to decide whether lawmakers need to approve laws allowing for changes to future pension benefits.


At Wednesday’s hearing, oversight board lawyer Timothy W. Mungovan of Proskauer Rose LLP said Act 53 enacted last month prohibits cuts to pensions only and permits the issuance of some $7.4 billion in new debt required to make the plan of adjustment feasible. The plan calls for an 80% reduction in the central government debt.


Mungovan argued that the plan is consistent with the law because it was modified in response to Act 53 provisions to remove a proposed monthly benefit modification that would reduce payments to government retirees making more than $1,500 per month by 8.5%. The plan maintains a freeze on the accrual of pension benefits once it becomes effective, and eliminates cost of living adjustments, or COLAs, going forward. The goal is to save $4.7 billion in the coming years, Mungovan said.


“As with the freeze, the elimination of the COLAs works to level the playing field for everyone, all commonwealth employees both active and retired,” he said.


The interpretation of Act 53 is crucial in that the island Senate and House adopted an amended version of the bill that requires “zero pension cuts,” which the oversight board said is only applicable to current pensions.


Attorneys representing teachers’ unions and other government employees said the law is not so clear on what “zero pension cuts” means.


“If it was so unambiguous then the oversight board wouldn’t be asking this court for an interpretation,” Jessica Méndez-Colberg of Bufete Emmanuelli CSP said on behalf of the Puerto Rico Teachers Federation. “Zero means zero. The teachers deserve better. The people of Puerto Rico deserve better.”


José Luis Barrios Ramos, the attorney for the Puerto Rico Teachers Association, said the teachers have a statutory right to their pension benefits that is protected by the island’s Constitution.


As a result, the judge will have to determine if changes to future pensions have to be made by the Legislature too.


The proposed plan of adjustment will cut the island’s current debt from more than $30 billion to $7.5 billion while cutting annual debt service obligations from $1.1 billion. During opening arguments in support of the plan on Nov. 8, attorneys for the oversight board said the proposal is intended to put Puerto Rico on the path to recovery.

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