Public pension regime explained

By John McPhaul

Puerto Rico Government Retirement Board Executive Director Luis Collazo Rodríguez announced on Monday the beginning of the second phase of the Defined Contribution Plan for government public employees.

Retirement Plan Law 106 was established as a result of Law 106-2017, which created a new defined contribution plan for more than 110,000 public servants. Now, govern- ment employees will be able to view their account balances, select their investments, designate their beneficiaries, transfer bal- ances to other investment funds and increase their contributions.

Collazo Rodríguez said it is now public employees who decide how to invest their money.

“This has been a historic demand that we addressed with the new Plan 106,” he said in a written statement. “For the first time, the Government of Puerto Rico has managed to create a new and true defined contribution plan for the public servant.”

The official noted that during the first phase, which began on Dec. 19, employees have been able to educate themselves and select among investment alternatives such as basic funds and/or investment funds with a specific date (Target Retirement Date).

“It is important to note that if the employee did not select the fund to invest in during the first phase, he/she will automati- cally be directed to a conservative fund that guarantees the principal and is called the PR Capital Preservation Fund,” Collazo Rodríguez said. “The employee may change the selection of the fund without penalties at any time.”

A basic fund invests in a combination of securities, such as stocks, bonds, money market instruments, and other assets. On the other hand, the combination of funds in a fixed-date retirement fund is based on the time the employee lacks to retire. The combi- nation gradually becomes more conservative as its retirement date approaches.

The PR Capital Preservation Fund is a mutual fund with a conservative investment strategy, whose main goal is the preservation of the employee’s capital and the prevention of fluctuations in the balance of his or her account due to market behavior.

When the employee decides to retire, he or she will be able to choose between continuing to invest their money, requesting a full installment distribution, or making a transfer to another qualified plan in Puerto Rico or an IRA. Retirement systems have educational tools and resources available to help obtain the necessary knowledge to make investments according to the individual interests of each public servant.

Currently, the public servant makes a minimum contribution of 8.5 percent of his or her monthly salary, with the opportunity to increase it to a maximum of 20 percent of salary.

“I urge you to get oriented and familiarize yourself with the tools we have at our online Financial Education Center, where you will have access to courses, calculators, and tools to help you …” Collazo Rodríguez said.

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