Puerto Rico's main employee retirement system slipped to a 0.27% funded ratio in the most recent audited statement and has since fallen into a deficit, according to its auditor.
"Further depletion of the system's assets could result in the inability to pay benefits and bonds," the financial statement's creator, KPMG, said. KPMG also said that in its opinion, "if measures are not taken to significantly increase contributions, the system will become insolvent by fiscal 2018 [which starts July 1, 2017] depending on the timing of receipt of contributions and system's ability to dispose of illiquid assets."
The Employees Retirement System's fiduciary net position fell 89% to $80.6 million on June 30, 2014 from a year earlier, according to the system's financial statements for fiscal year 2013-2014 released Friday. Fiduciary net position is equal to the system's assets minus its liabilities (not including workers' pension liabilities).
The system has a total $30.22 billion in pension liabilities. If one takes this figure and subtracts the total fiduciary net position of $80.6 million one gets the employers' net pension liability of about $30.14 billion. The funded ratio of 0.27% is the net position divided by the net pension liability.
The Puerto Rico Judiciary Retirement System announced Friday that it had a net pension liability of $456 million and a funded ratio of 9.17% as of June 30, 2014.
"As has been amply disclosed in the past, the systems' financial condition threatens the present and future livelihood of [thousands] of retirees and public employees who have given their lives to public service," said Pedro R. Ortiz Cortés, administrator of the Puerto Rico Judiciary Retirement System. "At this critical juncture in Puerto Rico's history, the results announced today highlight the need for increased attention to the systems' net pension liability and long-term funding."
The employees retirement system solvency is further threatened by ballooning bond payments due starting in 2020, according to KPMG. The system is currently paying about $167,000 a year in interest and nothing in principal. This will abruptly rise to $1.012 billion a year of interest and principal in 2020, according to the financial statement. Combined principal and interest is scheduled to remain above $1 billion per year until at 2040, when it would start to decline.
On Tuesday, Janney Montgomery Scott municipal strategist Alan Schankel said there was a "low probability of payment" on the interest on the Employment Retirement System bonds due July 1. A missed payment on July 1 would be their first default.
In addition to the Employees Retirement System and Judiciary Retirement System, Puerto Rico has a Teachers' Retirement System. As of June 30, 2013, this last system had $10.3 billion in unfunded actuarial accrued liability.
