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FOMB Agrees to Higher Threshold for Pension Cuts

Up from $1,500 a month to $2,000 monthly

The Weekly Journal Staff

The Financial Oversight and Management Board (FOMB) has conceded an important point in the negotiations for the approval of the central government’s Plan of Adjustment: reducing the number of government retirees who would receive cuts in their pensions.

“Following extensive discussions with the [island’s] elected leaders, the Oversight Board is willing to agree to increase the threshold for retirees exempt from any reduction in benefits from $1,500 per month to $2,000 per month. This new threshold will exempt approximately 139,000 of government retirees, or 84 percent of government retirees, from any reduction in benefits,” the FOMB said in a statement.

“The Oversight Board is also willing to support restoring any reduction in pension benefits should Puerto Rico receive federal Medicaid funds in excess of amounts projected in the 2021 Certified Fiscal Plan for Puerto Rico and should such funds generate enough savings in the government’s general fund budget to permit a restoration of the benefit reduction,” according to the federally mandated entity.

The Oversight Board added that its members have been meeting with Senate President José Luis Dalmau Santiago, Speaker of the House Rafael Hernández Montañez, and Gov. Pedro

R. Pierluisi, regarding the confirmation of the Plan of Adjustment by the U.S. District Court for the District of Puerto Rico to restructure the Commonwealth’s debt to sustainable levels.

As reported by THE WEEKLY JOURNAL, pension cuts to public retirees has been a thorny issue between the FOMB and Puerto Rico government. During a recent public meeting, Pierluisi reaffirmed that he supports the Plan of Agreement, but not the pension cuts, as he called them “unnecessary.”

This new threshold will exempt approximately 139,000 of government retirees, or 84 percent of government retirees, from any reduction in benefits.

-The FOMB

The Plan of Adjustment for the central government is the largest part of Puerto Rico’s debt restructuring, with about $35 billion in claims by bondholders and creditors, and more than $55 billion in pension liabilities. The Plan originally included an 8.5 percent cut to public pensions of $1,500 or more each month.

In its missive, the Oversight Board also said it is willing to agree that municipalities share the benefits resulting from the reduction in debt service, contingent on Puerto Rico obtaining and maintaining adequate Medicaid funding. The Oversight Board proposes to include additional funding to the existing municipal equalization fund, to be distributed in accordance with the existing parameters at CRIM.

The Oversight Board would agree to those proposals if the Puerto Rico Legislature adopted the necessary legislation for the Plan of Adjustment and the Governor signs that legislation into law.

“After years of tough negotiations, a diverse group of creditors that includes retirees, unions, bondholders and bond insurers, and other creditors of the Commonwealth of Puerto Rico agreed to a Plan of Adjustment that is fair and provides a path out of bankruptcy,” said the Oversight Board’s Chairman David Skeel. “We are almost there. Let’s get to the finish line with the legislation necessary to restructure the debt so we can go into confirmation hearings in November with all of the necessary pieces in place to lift the burden of bankruptcy from the people of Puerto Rico.”

Before PROMESA, Puerto Rico had to pay up to 25 cents of every dollar it collected in taxes and fees to creditors; the Plan of Adjustment would reduce that amount to just over 7 cents of every dollar. The Plan of Adjustment would reduce the island’s outstanding debt by almost 80 percent, from $33 billion to $7 billion, according to the FOMB.

The FOMB said it will continue the “constructive dialogue” with the Legislative Assembly and the Executive Branch to find a solution that will result in the enactment of legislation to complete the Title III debt restructuring process under PROMESA, which is an essential step for the Oversight Board to complete its mandate under the law.