Puerto Rico's oversight board has taken several actions to force local employers to make required contributions to employee pensions and retirement accounts and to recover more than $1 billion from holders of bonds that it claims were unlawfully issued.
The Financial Oversight and Management Board for Puerto Rico said Tuesday that 28 public corporations and 66 municipalities have failed to pay $340 million in retirement contributions due since 2017, when Puerto Rico converted to a pay-as-you-go pension system and switched to a defined contribution system for government workers, according to a fiscal agency's latest report.
Of those, 20 municipalities and seven public corporations are not remitting employee payroll withholding for the defined contribution accounts, and the rest are past due on their pension payments.
The board said that the government of Puerto Rico should take immediate action to collect the payments by the end of the fiscal year to avoid impacting the commonwealth's budget as well as those of the delinquent local employers. The oversight board gave government officials until May 31 to submit plans for collecting them and avoiding future underpayments.
Board Executive Director Natalie Jaresko noted that the payments are required by law and that previous failures to make them led to "disastrous underfunding" of the pension system.
On Thursday, the oversight board filed lawsuits seeking to recover more than $1 billion from investors holding bonds that the board claims were issued in excess of a constitutional debt limit, as well as from financial advisers and others involved in issuing the bonds. The board is also fighting a legal challenge to its efforts to claw back bond payments made to bondholders with $2.5 million or more of bonds. Board officials said they will not pursue the clawback claims until the court overseeing Puerto Rico's Title III bankruptcy case determines that the bonds are invalid.
Legislation giving Puerto Rico and other territories the option of terminating their debt obligations under certain conditions was introduced Thursday in the Senate and House.
At a House Natural Resources Committee hearing Thursday on the lessons learned since passage of the Puerto Rico Oversight, Management, and Economic Stability Act three years ago, which created the oversight board and the special bankruptcy process, Puerto Rico Gov. Ricardo Rossello said that "one of the priorities will be paying those pensions."
On debt restructuring, Ms. Jaresko told the panel that the board has restructured 30% of the debt issued, but that it will take years to complete the process. "The reality is that Puerto Rico's debt is unsustainable and cannot be repaid in full," she said.