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Pension Funds

Puerto Rico governor’s latest plan still leaves out pension reforms

Puerto Rico Gov. Ricardo Rossello submitted a revised fiscal plan late Thursday that repeats his refusal to consider pension benefit cuts and more shifting to defined contribution plans.

In a letter to Jose B. Carrion III, chairman of the Financial Oversight and Management Board, Mr. Rossello said the board "cannot reduce unilaterally pension benefits through the fiscal plan," and that pension payments are recognized property rights under Puerto Rico law.

A source familiar with the process said that the board is confident it can implement the pension changes unilaterally when it certifies a final fiscal plan by April 20.

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.

Mr. Rossello has resisted the board's call for shifting participants in pension funds for teachers and judges into a DC plan, along with other government workers.

Puerto Rico's main retirement fund for government employees has no assets and is paying benefits out of commonwealth revenues and asset sales. The funds for teachers and judges are close to insolvent as well.

The governor's latest fiscal plan calls for structural reforms aimed at reducing excessive regulation and other barriers to economic development. In contrast to a plan submitted in January that showed a deficit, the latest version projects a cumulative surplus of $6.3 billion through fiscal year 2023.

Once finalized, the fiscal plan with be used to work out restructuring deals with bondholders.

An independent investigator retained by the oversight board to look into factors behind Puerto Rico's debt crisis said in a preliminary report Friday that it will conclude its investigation in the next two months and expects to issue a final report in the summer.