Pierluisi signs bill rejecting pension cuts

Puerto Rico Gov. Pedro Pierluisi signed a bill Wednesday rejecting any pension cuts and undoing pension reforms enacted in 2017, despite these cuts and adjustments being part of the proposed plan of adjustment and approved fiscal plan.

“The public pensioners dedicated years of their lives to the service of our people and were the engine of the development of our modern society,” Pierluisi said Wednesday, after signing the bill. “However, due to administrative and managerial irresponsibility that lasted for decades, the retirement systems were affected. The government of Puerto Rico completely reformed its main pension system in 2013, significantly affecting the benefits of our pensioners.

Puerto Rico Gov. Pedro Pierluisi said he signed the bill because public employees and pensioners should not receive another cut to their pensions.

Bloomberg News

“There is no fiscal or legal justification for the additional cuts proposed by the Fiscal Oversight Board since pensioners, as government creditors, have already received this adjustment,” the governor said.

He added, “the cut is unfair because it affects the finances of thousands of former public servants who would suffer another blow to their pensions, all due to a legal whim of the board. House Bill 120 seeks to send a message to the board that the government of Puerto Rico will fight not to give way to a pension cut.”

Pierluisi acknowledged Wednesday House Bill 120, which he signed, was inconsistent with the board-approved Puerto Rico fiscal plan.

The Oversight Board, in its April 2021 Puerto Rico fiscal plan, said it had sent letters on Jan. 29 and Feb. 20 arguing it believed the provisions of the bill were in violation of the Puerto Rico Oversight, Management, and Economic Stability Act, “rest on false economic assumptions, create an insufficient level of pension funding, reinstates a defined benefit plan in conflict with the 2021 fiscal plan, mortgages the future by establishing a vastly underfunded defined benefit plan, and makes false promises to participants.”

House Bill 120 rejects the board’s freeze on Judicial Retirement System and Teachers Retirement System benefit accruals and 8.5% cut to pension benefits over $1,500 per month in the Employees Retirement System and other two systems.

In addition, the law undoes most of Act 106-2017’s reforms. That law moved public employees to a defined contribution system of pensions from one where some were covered by defined benefit plans and others by hybrid plans.

House Bill 120 says the legislature will not approve any plan of adjustment with these cuts and changes to public pensions.

“It’s a smart move in a political game of chicken and it costs Pierluisi very little,” said Puerto Rico opinion writer and former government official Armando Valdés Prieto. “As he anticipates in his remarks, it is quite likely that the board will reject the bill, shifting the political cost to unelected officials. Signing the bill also avoids a confrontation with his own party over the possibility of having two of his vetoes overturned in barely six months in office. Recall that House Bill 120 was approved virtually unanimously in both chambers of the Puerto Rican legislature.

As to what this means for the plan of adjustment, Valdés Prieto said he is of the opinion that it changes nothing.

“Had Pierluisi vetoed the bill, an override would have been likely, and even if that hadn’t happened, the legislature has clearly signaled that it will not approve a plan of adjustment that includes pension cuts,” Valdés Prieto said.

The board did not immediately respond with a comment on Pierluisi’s bill signing.

The current proposed plan of adjustment, filed with the U.S. District Court for Puerto Rico in May, has cuts to the pension plans. The board and a range of bondholders and bond insurers have pledged support to this plan.

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