By Jason Fichtner
Interim Chair of the Pension Reserve Board and Member of the Pension Benefits Council
The Plan of Adjustment that reduced the Commonwealth of Puerto Rico’s debt by 80% also established a pension reserve trust that strengthens the pension system to ensure pensions can be paid in the future regardless of who is in political power.
When PROMESA was enacted, Puerto Rico’s pension systems were virtually insolvent since previous governments underfunded pension plans for decades and added costly promises they could not keep. Had the Commonwealth not started paying for pensions out of the general operating budget through what is now known simply as PayGo, pensioners would have stopped receiving pension checks. Under the Plan of Adjustment, that will not happen again.
The Pension Reserve Trust provides confidence and dignity to government employees, so they know funds are being set aside to pay their pension benefits when they retire. To protect the funds set aside, the Pension Reserve Trust is specifically designed to function independently of the Government and decisions will be made solely for the benefit of current and future retirees who are participants in the government pension plans.
The Pension Reserve Trust is projected to receive more than $10 billion over the next 10 years. Last month, it received the first $1.4 billion contribution from the Commonwealth. This first transfer shows the government is serious about protecting and preserving the ability to make pension payments in the future. The contributions made by the Government will be prudently invested to increase the Trust’s balance over time.
Well over a decade from now, once certain criteria are met, the Government can request withdrawals from the Trust, and is expected to do so. That’s how the Trust was designed. However, the funds can only be used for future pension payments to participants of the government pension plans.
The Pension Reserve Trust consists of two separate governance bodies, the Pension Benefits Council and the Board, that work closely together to implement the Pension Reserve Trust Guidelines confirmed by Judge Laura Taylor Swain as part of the Plan of Adjustment, support the Trust’s objectives, and make investment decisions to increase the Trust’s balance over time:
- The 9-member Pension Benefits Council oversees the collection of contribution amounts required by the plan of adjustment and will review and approve withdrawal requests when made
- The 5-member Pension Reserve Board manages the investment of contributions made into the Trust and will assist in reviewing withdrawal requests
Both the Council and Board members are selected by various stakeholders, including retirees, active employees, the Government, and the Oversight Board.
The creation of the Pension Reserve Trust is a legacy Puerto Rico should be very proud of. It is an innovative, and important protection of the benefits retirees have earned.