(July 8, 2010) — America’s most poorly funded public pension plan, the Puerto Rico Employees’ Retirement System, is falling even farther behind.
With a funding ratio of just 9.7% — down from 16% in 2009, a result of required benefits eating into the investment portfolio – the Puerto Rico Employees Retirement System is in even greater straits compared to last year when they were profiled by ai5000. In a recent interview, system Administrator Hector Mayol acknowledged the point, noting that it was not so much poor investments, but a structural issue, that was causing further declines. “Valuations show that the required cash flow (for benefit payments) is eating into our investment portfolio,” Mayol noted. “Unless something is done, 2017 or 2018 look like the date where we run out of cash – but because of these cash-flow issues, it’s probably closer to 2014 or 2015, or even earlier. Right now, we’re liquidating a whole bunch of assets to cover the June 30 fiscal year end,” Mayol noted.
There is one bright spot, however: According to both Mayol and other sources, Puerto Rico Governor Luis Fortuno will dedicate the coming fiscal year to tackling the emergency at the pension system. For the past twelve months, Fortuno’s primary focus has been on reducing the Commonwealth’s steep deficit.
In addition to pronouncements of where he will devote his attention, Fortuno recently announced the appointment of a commission of experts to study pension fund reform, beginning work in early May. The goal will be for the commission to present recommendations to the governor, with legislation hopefully presented during the 2010/2011 session. “There are no preconceived ideas yet,” Mayol stated, referring to the potential solutions that the commission is likely to produce “Raise revenues, cut benefits – everything is on the table.”
Despite the developments to improve Puerto Rico’s pension, Mayol said he has a realistic set of expectations to make-up the system’s $20 billion in actuarial deficit (including the Commonwealth’s Teachers’ fund, which Mayol also oversees). “I think that some progress will be made,” he said. “I am not 100% confident that it will be a fully permanent solution in the sense that we will see the assets begin to grow. I hope to see some room in future budgets for contribution increases; on the other hand, cutting back on benefits is possibly something that has to be taken a look at. Of course, this is politically sensitive.”
<p>To contact the ai5000 editors of this story: Kristopher McDaniel at <a href="mailto:kmcdaniel@assetinternational.com">kmcdaniel@assetinternational.com</a> and Paula Vasan at <a href="mailto:pvasan@assetinternational.com">pvasan@assetinternational.com</a></p>