Puerto Rico Governor Convenes Legislature to Reform Teachers' Pensions

teachers-fotolia.jpg

Puerto Rico Gov. Alejandro García Padilla is convening the legislature in a special session to reform the underfunded teachers' pension system.

Late on Wednesday García Padilla used his constitutional authority to call for the special session. He also announced his proposals for changes to the pension system.

The Puerto Rico Senate and House of Representatives were expected to convene Thursday, Dec. 19.

Some observers expect the discussions and votes to be completed within a few days.

García Padilla's primary approach to bringing financial stability to the teachers' pension system would be to increase the teachers' contributions from 9% of their income to 10%.

The governor will submit legislation that would replace the defined benefit plan with a hybrid of defined benefit/defined contribution plan. It would eliminate merit and "Cadillac" pension bonuses. It would modify Christmas and medicine bonuses and the medical plan contribution.

Not all the proposals will be negatives for the teachers.

For retired teachers, the governor proposes increasing the minimum pension to $500 from $400. For those who have not yet retired, the minimum pension will be increased to $1,562 per month. The average pension would be increased by $187.

Teachers' pensions will not be cut. They will be allowed to transfer their pensions to their spouses and dependents under certain conditions. Future teachers will be allowed to opt for the Social Security system instead of the teachers' pension system.

The governor is proposing that active teachers with incomes less than $25,000 a year be given a health plan that includes drug coverage, starting in January 2015.

García Padilla said the teachers' pension would run out of money in 2020 if changes were not made. Others have said the dates would be 2018 or 2019.

When Moody's Investors Service put Puerto Rico bonds on review for a downgrade last week, it named Puerto Rico's possible reform of the teachers' pensions as one of five things it would keep an eye on in the review period.

In addition to reforming the teachers' pension system, García Padilla is proposing to create a Municipal Administration Fund Law.

He is calling for a board of directors to be created for the Puerto Rico Highways and Transportation Authority.

According to the governor's office, he will be proposing legislation to require government entities to formalize their prepay commitments and restructure and refinance their debts to the Government Development Bank of Puerto Rico. It will also require that they make the necessary budget allocations to make the principal and interest payments.

The government did not clarify this proposal immediately.

For reprint and licensing requests for this article, click here.
Puerto Rico
MORE FROM BOND BUYER