The Oversight Board sent a letter to the local and federal Justice departments expressing concerns over three public corporations and 11 municipalities allegedly failing to follow Act 106-2017 “in particular not remitting individual employee payroll withholdings to the employees’ defined contribution retirement account.”
The Board warned that, in total, these entities withheld $4.5 million from their employees, but the money never reached the defined contribution retirement accounts, which since 2013 represents the main source for public employees pensions.
"The people of Puerto Rico need confidence in their pensions. Not to transfer money already withheld from employees' paychecks into their retirement accounts is unconscionable and potentially unlawful," Board Executive Director Natalie Jaresko said in written statements.
The Executive Director of the entity that oversees Puerto Rico's finances recalled that Act 106 was approved in 2017 and provides “that officials that knowingly and without just cause fail to remit employee contributions to their defined contribution account could be subject to significant penalties under Act 106-2017.”
The Act establishes that any person who does not refer or remit the money of public employees to the defined contribution retirement accounts is exposed to paying penalties ranging from 2 percent to 24 percent of the money withheld, depending on the delay in transferring the funds. Similarly, those responsible could be criminally prosecuted on serious charges which, if successful, could result in six months in jail and an additional fine of $5,000.
The list of entities identified by the Board for illegally withholding retirement system's money includes the authorities of the Maritime Transport Authority (ATM), Spanish acronym), Integrated Transit Authority (ATI, Spanish acronym), Metropolitan Bus Authority (AMA, Spanish acronym) and the municipalities of Arecibo, Arroyo, Ciales, Guánica, Maricao, Naguabo, Ponce, Vieques, Villalba, Yabucoa and Yauco.
In some cases, there have been significant delays according to the chart the Board released yesterday. For example, the municipalities of Ciales, Guánica, Maricao, Naguabo, and Yabucoa had not sent the money withheld, at least since 2017. The same happened with ATM and AMA.
The Secretary of Justice Wanda Vázquez said yesterday, in written statements, that they received the document and that, "if these allegations are correct, it is unacceptable."
Meanwhile, the executive director of the Fiscal Agency and Financial Advisory Authority (FAFAA) Christian Sobrino confirmed the situation denounced by the Board and noted that, for months, the government has been working to identify fundsand transfer them to the retirement accounts, so that they return the money to employees.
He explained that, in the case of ATI and ATM, yesterday they sent the money they owed. These public corporations owed $4,869 and $46,283, respectively, to employees' retirement accounts.
Sobrino also said that they are working to use surpluses from the municipalities' Special Additional Contribution (CAE, Spanish acronym) fund to settle that debt with public employees. This fund is sustained by surpluses in municipalities once they have paid municipal debts guaranteed by property tax contributions.
"This is a serious issue. It is unacceptable that retirement contributions are withheld and not remit to employees' accounts. We are working to resolve this and to cover those balances, funds from municipalities have been identified through CAE. That will be corrected in June," Sobrino told El Nuevo Día.
The official said he did not know what situations caused these entities not to remit the money from public employees to the Retirement Systems Administration. Sobrino did not comment on the penalties that should be imposed.
"I have to be deferent to the analysis of the Department of Justice. I am focused on the money and resolving this," he said in an interview.
This is not the first time that the government stopped transferring the money to the retirement system. In fact, this is one of the causes of the serious fund insufficiency in the three main pension systems of the government of Puerto Rico, which are currently under threat in the debt adjustment process as part of the territorial bankruptcy case under PROMESA.
"Decades of fiscal mismanagement decimated Puerto Rico’s pension funds... That is why we are very concerned with the repeated practice of non-transfer of employee contributions that are required to be set aside, as well as the failure of many municipalities and public corporations to remit their required monthly PayGo fees," Jaresko said.
Funds insolvency in the pension systems led to a prospective change from a retirement system to a defined-contribution system in 2000, similar to the 401k accounts in the private sector. Employee accounts, however, were not segregated, an issue that is currently being corrected, Luis Collazo, administrator of the Retirement System, said Friday.
The previous defined benefits system, which provided a pension of up to 75 percent of a public employee regular salary is currently being threatened with cuts as part of the debt adjustment process. The Board proposes a 10 percent reduction in what the government disburses to retirees under this system. Specific cuts to retirees paychecks will vary depending on the pensioner´s total income and will not exceed 25 percent, according to the certified fiscal plan.