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Puerto Rico employees pension fund joins government’s bankruptcy case

Puerto Rico Government Employees Retirement System, Hato Rey, was added to the government's bankruptcy case.

The government's request to include the pension system and the Puerto Rico Highway and Transportation Authority in the bankruptcy case was approved by the oversight board Monday. Oversight board Chairman Jose Carrion III said in a statement that the bankruptcy petitions under Title III of the Puerto Rico Oversight, Management and Economic Stability Act were needed to protect “the interests of creditors and pensioners and avoid further negative impact on the economy from a flurry of litigation and continued uncertainty.”

On May 19, Guy G. Gebhardt, the acting U.S. trustee for the bankruptcy case, said in court documents that he will appoint a retiree committee for participants in the commonwealth's five public pension systems. An ad hoc retiree committee had already asked the court to form an official committee.

“This case clearly needs a retiree committee and sooner rather than later,” Mr. Gebhardt said in the court filing. He expects to complete the committee solicitation process no later than June 16 and to meet shortly after that. He also intends to appoint two other official committees for the case, including one for general unsecured creditors, and one for general unsecured creditors holding sales-tax bonds known as COFINA.

Puerto Rico Gov. Ricardo Rossello announced May 3 that the commonwealth would seek protection from creditors to address a $7.6 billion budget deficit and an estimated $50 billion in unfunded pension liabilities and $74 billion in bondholder debt. At the time, Mr. Rossello said he expected other government entities to seek restructuring agreements under PROMESA, which created a fiscal oversight board.

Puerto Rico's fiscal plan, approved March 13 by the oversight board created by PROMESA, is expected to be finalized by June 30. It calls for a 10% cut in pension benefits based on income, with no cuts for people below the poverty line, and switching all active members and new hires into defined contribution plans. Creditors would get nearly $800 million per year under the plan.

Despite that plan, Mr. Carrion said in the statement: “The government's liquidity and solvency problems are massive, and Title III has now become necessary to protect the people of Puerto Rico. The oversight board takes these actions solely in order to fulfill its purpose as stated in PROMESA to provide a method for the commonwealth and its instrumentalities to achieve fiscal responsibility and access to the capital markets.”