Outraged Puerto Rico Gov. Clashes with Oversight Board, Yanks His Plan

The federally appointed oversight board for bankrupt, storm-damaged Puerto Rico, at loggerheads with the island’s governor over a new fiscal plan, has hit a new low point.

This week, Gov. Ricardo Rossello withdrew his proposal after the board called for cutting public pensions by 10% and implementing other austerity measures. Many in Puerto Rico believe the panel infringes on the territory’s sovereignty. It has the authority to impose its own plan if it doesn’t like what the governor proposes.

“The Oversight Board pretends to dictate the [government’s] public policy. This is not only illegal but is unacceptable,” Rossello said in a statement declaring his reasons for rescinding the labor proposal. He called the board’s actions an “unfair and abusive measure.”

Rossello’s plan featured several employer-friendly provisions, such as eliminating required Christmas bonuses for private-sector employees, as well as cutting mandatory back vacation and sick days, and allowing businesses to fire workers as they saw fit. On the other hand, he also advocated raising the minimum wage.

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The board has given the governor until April 5 to come up with his own plan, which includes the labor law changes—and how to deal with the commonwealth’s underfunded pension system.

The dispute stems from Puerto Rico’s tremendous debt crisis, a $120 billion bond and pension debt coupled with the aftermath of September’s Hurricane Maria, which caused widespread devastation. Today, some 16% of the population still lacks power.

At present, Puerto Rico’s general budget makes the payments to its $50 billion underfunded public pension system, which now has no assets. Reuters reports that this is one of few occasions where a large-scale US plan has been left to a “pay-as-you-go” basis.

The island’s huge debt has led to the biggest bankruptcy in US history. If Rossello continues to be at odds with the congressionally appointed oversight board, he risks the panel imposing a fiscal turnaround plan unilaterally if it wishes.

Tags: Pension, Puerto Rico, Ricardo Rossello

The Minnesota State Senate has unanimously approved a pension overhaul bill that proposes mandatory contribution increases, reduced cost-of-living adjustments, and a lower investment rate of return for the state’s public retirement plans.

Backers of the reform say the proposed bill would save Minnesota $6.1 billion over a 30-year period, $3.4 billion of which will be in immediate savings. They also say that if enacted, the state’s public pension plans’ funded status will be between 85% and 95% by 2048 from approximately 77.8% in 2017.

“This is the largest pension reform bill in Minnesota’s history,” said the bill’s author, Sen. Julie Rosen (R), in a statement, adding that it “took years of work and negotiations.”

The bill updates assumptions for investment rate of return and resets the amortization period for all plans to a new 30-year period that would end in 2048. The bill would reduce the assumption for investment rate of return valuation for each plan to 7.5%, down from 8% per year, except for the pension plan covering the state’s teachers, which is 8.5%.

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The proposed legislation also reduces or temporarily suspends the cost-of-living increases automatically applied to retiree pension benefits, and changes the method for determining the amount of increases for two of the plans to tie them to increases in federal Social Security pensions.

It also calls for the elimination of early retirement subsidies over a five-year period for all four of the state’s public pension systems. Early retirement benefits are calculated by adding in augmentation, typically 2.5% or 3%, depending on hire date, that an early retiree would have otherwise received had he or she waited until normal retirement age to begin receiving a pension.

Additionally, the bill imposes contribution increases for employers and employees in all the pension plans, except for the public employees’ general plan and the plan for employees of the state’s correctional facilities.

According to the Minnesota Public Employees Retirement Association’s 2017 annual report, all of its plans currently have a contribution deficiency, which it said means that the contributions scheduled to be made to the fund will not meet the goal of full funding by the statutory amortization date without changes. The pension plans cover approximately 329,000 current or former county, school, and local public employees, their survivors, and dependents.

Tags: Julie Rosen, Minnesota, Pension Reform