In suit, PREPA’s pension system alleges insolvency in coming months

By The Star Staff

The board of the Puerto Rico Electric Power Authority’s (PREPA) Employees Retirement System (SREAEE by its Spanish initials) filed an adversary complaint against Gov. Pedro Pierluisi Urrutia and PREPA on Thursday warning that the transmission and distribution (T&D) privatization contract with LUMA Energy will take the system into insolvency in the coming months.

The board comprises José Ramón Rivera Rivera, Ralphie Dominicci Rivera, Erasto Zayas López, Juan Carlos Adrover and Sammy Rodríguez, who said it is their latest effort to restore funding to the pension system.

For a little over a decade, PREPA “has disregarded its responsibility to SREAEE,” the pension system board said. “In recent years, PREPA has amassed nearly $603 million in debt to SREAEE which has been aggravated by the numerous austerity measures passed by the Puerto Rico Legislative Assembly. These measures have gutted pension benefits, causing mass retirements, burdening the pension system, and impairing its financial situation leading it to actuarial insolvency.”

They said the measures violate the federal Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), which requires that the fiscal plans provide adequate funding for public pension systems. The situation has been worsened by the imminent takeover on June 1 by LUMA Energy of the operations of PREPA’s T&D system. Most of the PREPA workers who did not apply for jobs with LUMA are being transferred to other agencies.

“This has caused SREAEE to come before this Court on numerous occasions to defend the trust and its priority from the attempts to subordinate it,” the Board said. “Now, Plaintiffs are presented with a new challenge. The execution of the Puerto Rico Transmission and Distribution System Operation and Maintenance Agreement with LUMA Energy on June 22, 2020, meaning the privatization of PREPA‘s functions, substantially impairs SREAEE‘s present and future ability to sustain the pension systems.”

The execution of the LUMA Energy agreement will result in the displacement of PREPA workers, will lead to additional mass retirements, withdrawal of funds, and reduction of employer contributions on behalf of its members, all of which will decapitalize the pension system, the board said.

“If allowed to continue, this contract will deprive more than 10,162 people of their pension benefits and future sustenance,” suit says. “Also, 5,542 active participants who are current PREPA employees will be deprived of their future benefits because the pension system will not survive additional strain and will likely become insolvent in the coming months. This amounts to 15,704 retirees and active participants that will be affected by the operation and management (O&M) agreement. Moreover, the O&M Agreement is an unlawful transaction which does not pass muster under Puerto Rico or federal law. To begin with, the O&M Agreement contains clauses and general transactions which are contrary to law and public order. These clauses and transactions make the contract null and void and, thus, non-existent.”

In a separate suit, meanwhile, the federal Financial Oversight and Management Board opposed attempts by the Electrical Industry and Irrigation Workers Union (UTIER by its Spanish acronym), which is PREPA’s largest workers union, to invalidate the LUMA Energy contract.

In a lawsuit last month, UTIER said the privatization agreement substantially impairs UTIER’s members, since it dismantles PREPA and does not recognize UTIER’s collective bargaining agreement at the same time that it hurts the pension system.

The oversight board said a preliminary injunction request should not be allowed to continue.

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