Fiscal board files 8th plan of adjustment in Title III bankruptcy case
By The Star Staff
The Financial Oversight and Management Board for Puerto Rico has filed a proposed eighth amended Commonwealth Plan of Adjustment (POA) that includes no cuts to the pension benefits of active and retired government employees, as provided in Act 53-2021 to authorize the issuance of new general obligation, or GO, bonds.
The oversight board said the POA is a historic opportunity for Puerto Rico to reduce the commonwealth’s outstanding debt by almost 80%, from $33 billion to $7.4 billion. Working with the Puerto Rico Legislature and Gov. Pedro Pierluisi Urrutia, the board agreed to revisions that allow confirmation of the POA to proceed to end the bankruptcy process under Title III of the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA).
“The agreement with the Legislature and the Governor over pensions and the intent to put a greater percentage of any projected primary surplus into the Pension Reserve Trust places the Plan of Adjustment on an even more solid foundation ahead of the confirmation hearing next week,” said the oversight board’s executive director, Natalie Jaresko, on Thursday. “By increasing contributions to the Pension Reserve Trust from any projected primary surplus, we strengthen the commitment to ensuring adequate payment of pensions as required by PROMESA. The Pension Reserve Trust will be the retirees’ piggy bank for any future economic or fiscal challenges.”
The oversight board this week had nonetheless asked the court to interpret Act 53 of 2021, which is the bill that enables the POA by authorizing bond issuances, such that while pensions are not cut, the board can freeze benefits for future retirees and impact the cost of living allowance.
The POA includes a minimum base contribution to the Pension Reserve Trust of $175 million a year. If in any given year the Certified Fiscal Plan as of the effective date of the POA projects a primary budget surplus (with certain adjustments) exceeding $1.75 billion, the base contribution to the Pension Reserve Trust would rise to 50% of that projected surplus. In addition, the government would contribute to the Pension Reserve Trust for 10 years, compared to eight years in the previous POA.
Further, the eighth amended POA provides for an upside participation bonus of at least $2,000 per year to each member of the Public Servants United of Puerto Rico (SPU)/AFSCME Council 95, which could be higher if the government outperforms the Certified Fiscal Plan as of the effective date of the POA.
The changes that were made in the eighth amended POA do not specify the costs.
The costs of making the 8.5% pension benefit cut and the freezing of the Teachers Retirement System and the Judicial Retirement System benefit freeze in the previous POA are partially offset by increased costs associated with the expansion of Social Security. The modifications under the previous POA will initially result in more expensive pension costs of $38 million in fiscal year (FY) 2022 because of increased contributions to Social Security, but then the modifications will result in savings of $36 to $116 million per year from FY 2023 to 2032, and over $200 million per year beginning in FY 2037.