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  • Writer's pictureThe San Juan Daily Star

PR Symphony Orchestra pension plan could be in the red by 2025

The Financial Oversight and Management Board said the Puerto Rico Symphonic Orchestra Corporation Retirement Plan remains severely underfunded and is projected to lack sufficient funds to pay benefits by June of next year.

By The Star Staff

The Puerto Rico Symphony Orchestra pension plan is severely underfunded and will not be able to pay its retirees by the end of fiscal year (FY) 2025, according to information relayed by Financial Oversight and Management Board Executive Director Robert Mujica to Musical Arts Corporation (MAC) Executive Director Melissa M. Santana Frasqueri.

The assertion was made in a letter in which the oversight board answered a letter from the MAC asking the board to release the FY2023 and FY2024 pension support for the Puerto Rico Symphonic Orchestra Corporation’s (PRSOC) defined benefit pension plan.

The Commonwealth Fiscal Plan requires the PRSOC to contribute to its retirement plan at least $200,000 annually from the proceeds of at least four concerts to allow for the release of a $2 million annual allocation for pension support. MAC, as the sponsor of the PRSOC Retirement Plan, is responsible for ensuring that the plan is not only maintained, but also that the annual obligation to contribute is fulfilled. If PRSOC falls short or is unable to meet the entire contribution, MAC is responsible for covering any shortfall and should identify the funds within its budget or additional resources MAC is able to generate, according to the letter.

On Feb. 9, the oversight board approved MAC’s budgetary reprogramming request to reprogram $400,000 from prior year budgets to meet the contributions for FY2023 and FY2024. On Feb. 15, MAC notified the board that it made a total contribution of $400,000 to the PRSOC Retirement Plan corresponding to FY2023 and FY2024.

Accordingly, the oversight board approved the intra-governmental transfers of $1.55 million to MAC for the PRSOC Retirement Plan for FY2023 and $2 million for FY2024.

However, the board said the PRSOC Retirement Plan remains severely underfunded and is projected to lack sufficient funds to pay benefits by the end of FY2025. The Fiscal Plan provides roughly $20 million in additional funding, or $2 million per year through FY2032, to fulfill existing promises to current and future retirees under the PRSOC Retirement Plan.

“Further, the Oversight Board understands that an actuary engaged by MAC performed the required actuarial analysis and concluded that, with the $20 million of contributions set forth in the Fiscal Plan, the PRSOC Retirement Plan will have sufficient assets to fund existing benefit obligations even without the additional $200,000 funding from concerts,” Mujica said.

However, the oversight board said the actuarial report made some incorrect assumptions. It assumed an annual asset return of 7.5%, but no support was provided as to the basis for such an assumption.

“If PRSOC runs out of funds sooner than expected, if investment markets do not perform as expected, and/or if benefits paid are higher than anticipated, then the PRSOC Retirement Plan could be left with a deficit and retirees may not receive their pensions,” Mujica said.

Given the MAC’s responsibility for ensuring funding for the PRSOC, it is vital that PRSOC and MAC develop an investment strategy with the commensurate risk management needed for the PRSOC Retirement Plan, the oversight board official said. Moreover, MAC should regularly monitor the PRSOC Retirement Plan fund’s performance to determine whether additional contributions are necessary beyond those currently projected. As part of such a monitoring process, Mujica said, the actuarial report should be updated in the context of the investment strategy employed and reevaluated at least every two years.

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