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Pension Funds

Puerto Rico governor rejects board’s pension benefit cuts

Ricardo Rossello, governor of Puerto Rico

Puerto Rico Gov. Ricardo Rossello told a federal oversight board Sunday that he would not agree to its demand for 10% pension benefit cuts and other labor reforms, and that he would be submitting his own fiscal reform plan before Thursday.

In a letter Sunday to Jose B. Carrion III, chairman of the Financial Oversight and Management Board, Mr. Rossello said he opposes pension benefit cuts because they would represent a disproportionate burden on workers and retirees. He also said any pension benefit changes require legislative and executive action.

"We insist that we will not give way to dismissals, reductions of pensions or a labor reform without increasing the minimum wage," Mr. Rossello said in a statement announcing the letter.

Mr. Rossello also said in the letter that while the federal Puerto Rico Oversight, Management and Economic Stability Act empowers the board to certify a fiscal plan, "the same statute establishes that the board cannot usurp the legislative and operational powers of the government of Puerto Rico."

On March 28, the board gave the governor's office until Thursday to submit a revised fiscal plan that includes 10% pension benefit cuts and other reforms. At the time, the board said it was on track to certify fiscal plans for the commonwealth and various agencies on or before April 20.

For the Puerto Rico Electric Power Authority, which is the subject of bondholder lawsuits, the board called for the pension benefit reductions and other measures to be reflected in the financial projections, but warned that any fiscal plan "should not assume payment of outstanding pension obligations to address underfunding."

Oversight board documents call for freezing pension benefit accruals by July 1, 2019, and enrolling all employees in defined contribution plans. Benefits would be reduced progressively to an average cut of 10%, with no cuts for participants whose combined pension and Social Security benefits are below the poverty level of $1,000 per month. Police, teachers and judges under 40 would be enrolled in Social Security, with their payroll taxes offsetting the mandatory pension contributions.