Puerto Rico Oversight Board agrees to ax pension cuts for current pensioners

The Puerto Rico Oversight Board offered to eliminate further pension cuts for current pensioners from the Plan of Adjustment and to make funding promises if the local government approved laws, including new bonds, that would support the plan.

The board sent a letter signed by Chairman David Skeel on Thursday to Gov. Pedro Pierluisi, Senate President José Luis Dalmau, and House of Representatives Speaker Rafael Hernández Montañez with these positions in a reversal from previous statements that no cuts to pensions would force it to withdraw its proposed Plan of Adjustment because the costs were "impossible."
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Brian Tumulty

In the letter, Skeel said reducing the remaining “modest pension cuts” would increase the risk the “plan is neither confirmable nor ultimately affordable,” but since the governor and the legislature refuse to consider a plan with pension cuts, the board said it was willing to take these risks.

The board said it would support a Plan of Adjustment that did not cut benefits to those currently receiving them. However, the plan would still have to freeze the accumulation of defined benefit pensions to those employees in the Teachers and Judicial Retirement Systems. It would also eliminate the remaining cost of living adjustments for those in the JRS.

The board's pivot Thursday follows statements from various creditors this week who said they could withdraw their support of the debt restructuring without legislation to enact new bonds.

The board said that the current House Bill 1003, which covers the debt issuance, pension, and other funding issues, is unaffordable and would cost the island’s government tens of billions of dollars.

The board said it would “not oppose legislation” that:

• Would require the Plan of Adjustment not impose new cuts to those already receiving pensions. “This requirement does not extend to the plan’s freeze of the Teachers’ Retirement System and Judicial Retirement System pensions or the elimination of any remaining cost of living adjustments";

• Provides some additional funding to municipal governments;

• Provides at least $500 million per year of funding to the University of Puerto Rico for five fiscal years;

• Allots $1 million for a study of extending medical coverage to the currently uninsured residents;

• Creates a mechanism to advance the terms of payment and debt cancellation following the termination of the Oversight Board; and,

• Establishes a joint working group with the board, legislature, and the executive branch.

“While the Oversight Board is willing to meet to answer your questions and to talk about next steps, we are not willing to revisit the positions established in this letter,” the letter said.