Puerto Rico's oversight board and a retirees group have reached an agreement to protect retiree benefits as the commonwealth goes through bankruptcy proceedings, the parties announced Wednesday.
The Official Committee of Retired Employees of the Government of Puerto Rico, whose Spanish acronym is COR, was appointed by the U.S. trustee to represent more than 167,000 government retirees from the Employees Retirement System of the Government of Puerto Rico, the Teachers Retirement System and the Judiciary Retirement System.
The agreement calls for no cuts for retirees with monthly pension benefits below $1,200, roughly 61% of current retirees. Retirees with higher pensions will see cuts of no more than 8.5% and will have a minimum monthly benefit of $1,200. Social Security benefits will be fully protected.
This agreement will protect pensions for retired and active employees by allocating accumulated short-term surplus to a reserve fund to cover future pension obligations.
Oversight Board officials noted that the agreement would protect nearly 75% of current and future beneficiaries from any cuts as Puerto Rico deals with more than $50 billion in unfunded pension liabilities in the three pension systems.
Those assets were depleted after what board officials said were decades of financial mismanagement, underfunding and borrowing from workers' pensions. Puerto Rico now pays pension benefits out of its general operating budget at an annual cost of roughly $2.5 billion.
The proposed agreement with the retirees group, who are considered unsecured creditors, will be included in a plan of adjustment that must be voted on by creditors and confirmed by the federal judge overseeing Puerto Rico's bankruptcy proceedings.
"Although, the COR would have preferred no cuts, we believe that significantly worse cuts would have been sought by the (Financial Oversight and Management Board) in the bankruptcy process and that ignoring (that) reality would have been irresponsible from our part and lethal to our community of retirees," COR Chairman Miguel Fabre, a former judge, said in a statement. "Under the circumstances, the COR is convinced that this agreement is the best option to ensure the well-being of our community and the continuity of our pensions."
The agreement "is a crucial step to presenting the plan of adjustment for the commonwealth of Puerto Rico and for getting us out of the Title III debt restructuring process," oversight board Chairman Jose Carrion said in a statement.