The Deceit of the “Dignified Retirement” Act

Op-Ed by the member of the Oversight Board: Antonio Medina

This column was originally published in Spanish by El Nuevo Día on June 22, 2021.

Our pensioners and public servants deserve to be treated with respect and to be told the truth. As the only member of the Financial Oversight Board residing in Puerto Rico, I am committed to ensuring the best possible treatment for all our pensioners and public servants, and the greatest economic stability for the future of this very important group of Puerto Ricans.

To that end, the Financial Oversight Board approved a Fiscal Plan, consistent with the PROMESA Act, and negotiated with the country’s creditors a solution for a sustainable and responsible retirement for our pensioners.

Our plan provides:

  • 100% payment to all retirees of the retirement system who receive up to $1,500 a month, which protects more than 72% of our pensioners.
  • A reduction of only 8.5% to pensions greater than $1,500 a month, but always ensuring the first $1,500 per month to all our pensioners.
  • Restitution of 100% of the funds and interest of System 2000. This is equivalent to a contribution of about $1.3 billion to restore the money that the government irresponsibly used for other purposes and that represented a viable economic future of thousands of pensioners, who managed to save this money by working tirelessly day after day.
  • It creates a mechanism to ensure that the money generated in surpluses in future years is used to further reduce cuts to pensions greater than $1,500.
  • It sets aside monies now while the economy is strong in a pension trust to ensure funds are available under all circumstances in future years to pay PayGo.

We were able to achieve this plan through extensive and complicated negotiations, which included a reduction in debt from $35 billion to $7 billion (an 80% decrease).  In addition, we managed to reduce the annual debt payments (including COFINA), equivalent to 30% of the annual budget of the government of Puerto Rico, to less than 8%.

But then, what is the problem with the new “Dignified Retirement Act”? 

For starters, the law scraps the deal we negotiated with the General Obligation bondholders, which deal is the main reason for the reduction of our debt from $35 billion to $7 billion.   So, while the politicians take credit for the Dignified Retirement Act’s extra benefits for pensioners, they do not mention that the new law undermines the whole deal and means there will be no deal for anyone, including pensioners.  We would have to start all over again and the Oversight Board’s term will last longer.  

This law repeats all the reckless practices that led Puerto Rico to bankruptcy and throws out the window all of the Financial Oversight Board’s achievements to protect our pensioners, without any concern for what is best for our people.  As designed, this law establishes a clear bifurcation between our Island’s goals and the interests of our politicians and demonstrates our political class’s obsession with trading unattainable promises in exchange for votes. Once again, we are witnesses of how they intend to sell empty and unreachable dreams, instead of doing what is right for the people and for our government’s finances. When we look into the details of this legislation, the proposals included in this law demonstrate that the architects of this measure are legislating for the spectators and not for the common good of Puerto Rico.

The members of the Oversight Board – as the persons charged with providing a method for Puerto Rico to achieve fiscal responsibility and access to the capital markets in accordance with PROMESA –expended considerable effort to understand the effects of the Dignified Retirement Act and to evaluate whether the law could be saved.  We met with the Legislature and the Governor, wrote multiple letters, and explained the reasons why this law is not compatible with the Fiscal Plan and why it violates the agreement we reached with the majority of the creditors of the PR Government.  We also presented the Government with empirical and clear evidence of why our plan provides the necessary protections to our pensioners, in a responsible manner but safeguarding, in turn, the fiscal stability of our government.  Despite our extensive engagement with the Government, the politicians proceeded with enacting a law that they know is unworkable and is bad for pensioners and for Puerto Rico, simply to win votes.   

As AAFAF itself has admitted, this law violates multiple sections of the PROMESA Act, assumes the availability of funds to return to a pension system that is not sustainable, which again causes shortfalls in the pension fund, mortgages the future of our Island, establishing benefits for which there is no money and lies to our pensioners and government employees, promising increases in benefits for which there is simply no money.

This law, as beautiful and eloquent as its name may sound, is disrespectful to our pensioners and public servants.  We must demand more of our politicians; it is time to act as responsible adults for the future of our island.

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