A special commission last week recommended that Puerto Rico strengthen its pension systems by increasing employer and worker contributions, raising the retirement age, and placing limits on pension benefits, among other measures.

Gov. Luis Fortuño earlier this year formed the special panel to evaluate the commonwealth's retirement systems and offer solutions to help strengthen them.

The employees retirement system, which has 247,010 active participants and retirees, had an unfunded obligation of $17 billion and a funding level of only 9.8% as of June 30, 2009.

The teachers' retirement system has 79,052 current employees and retirees and had an unfunded obligation of $6.5 billion, as of June 30, 2009. Its funding ratio is 24.7%.

The judiciary retirement system's funding level is 15.6% and had an unfunded liability of $273 million, as of June 30, 2009. It has 759 active workers and retirees.

Combined, the three systems have an unfunded liability balance of nearly $24 billion.

The ERS and the teachers' pension system will run out of funds in the next eight to 10 years, according to the committee's report.. . Hector Mayol, administrator of Puerto Rico's Pension System Administration, said in a phone interview that the government will have actuarial calculations up to June 30, 2010, later this year.

"One of the biggest problems, if not the biggest problem, is that the system has not increased its employer or employee contributions for the last 20 years," Mayol said. "And actuaries have been saying over the last 20 years that you have to increase your contributions."

For the ERS, the employer and employee contribution rates are 9.27% and 8.27%, respectively.

Under the previous administration, Puerto Rico sold $2.9 billion of taxable pension bonds to help meet costs.

Potential changes include boosting the employer contribution rate by 1% per year for 10 or 15 years and also increasing employee payments by 0.25% for each 1% contributed by employers. Contributions levels have not increased since 1990, Romero said.

Pensions could also be capped at $60,000 for employees and $36,000 for teachers, and pension benefits could be calculated based on a three-year salary average rather than a five-year salary average, according to the committee's report.

The panel suggested raising the retirement age to 65, prohibiting all future early-retirement programs that are not positive to the pension system on an actuarial basis, and terminating holiday bonuses and medicine allowances for retirees. In addition, the committee suggests that personal loans made against the system be eliminated or reduced.

Potential revenue that could help shore up the systems include allocating 15% of existing lottery revenue and placing a new 1% tax on all government contractors.

Mayol said the administration anticipates filing pension reform legislation later this year or early next year.

Moody's Investors Service on Aug. 10 revised Puerto Rico's general obligation credit to negative from stable, due to the employee retirement system's low funding ratio. Moody's rates the commonwealth's $9 billion of outstanding GO debt A3. Standard & Poor's rates the credit BBB-minus with a stable outlook.

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