The president of the Committee of Retired Employees (COR, Spanish acronym) in PROMESA Title III cases, Miguel Fabre Ramírez (right), estimated that, at least, since 2013 the Government had reduced the payroll of retirees in $ 250 million per year. (horizontal-x3)
The president of the Committee of Retired Employees (COR, Spanish acronym) in PROMESA Title III cases, Miguel Fabre Ramírez (right), estimated that, at least, since 2013 the Government had reduced the payroll of retirees in $ 250 million per year. (David Villafañe)

Carmen Haydée Núñez is retired and both of her parents, her son, daughter-in-law and grandchild depend on a portion of her income.

The last three lost their own income when they had to close their business after Hurricane Maria.

A cut in her pension, such as the one promoted by the Oversight Board for retirees -and that was also proposed by the central Government at one point-, would imply a new complication that threatens the quality of life of her family in the midst of the crisis.

"The reduction (in income) they propose is significant, affects the quality of life and we were already suffering cuts since 2013," said Núñez, in an interview with El Nuevo Día.

She referred to the reforms made to the three main retirement systems (teachers, judiciary and Commonwealth employees) that, among other things, reduced the benefits provided by special laws -such as the Christmas and Medicine bonus- to retirees. These changes in the laws during the Government of Alejandro García Padilla also modified future pensions for employees who were active in the Government, as well as the newly hired ones. 

The president of the Committee of Retired Employees (COR, Spanish acronym) in PROMESA Title III cases, Miguel Fabre Ramírez, estimated that, at least, since 2013 the Government had reduced the payroll of retirees in $ 250 million per year. With the new cut proposed by the Board, the accumulated reduction would exceed $ 450 million annually. 

"We understand that there is no need for an additional cut, such as the one proposed by the Board," said Fabre Ramírez.

On the other hand, the Board has argued that this reduction is necessary in the face of a debt adjustment process in bankruptcy lawsuits where all parties are supposed to contribute to the fiscal stabilization of Puerto Rico.

The premise of the proposal is that all Government creditors, including retirees, whose pensions are seen as unsecured debts, should contribute to alleviate the economic burden on the State. However, who will contribute the most and who will contribute the least is decided in the process. And considerations are not always clear. 

For example, the Constitution of Puerto Rico establishes a repayment priority that favors bondholders. On the other hand, PROMESA, approved by the US Congress in the summer of 2016, provides special considerations for Puerto Rican Government retirees. Similarly, several city bankruptcy processes have had a significant level of deference to pension systems in the past.

In the case of Detroit, for example, pensions were reduced by 4 percent, according to Fabre Ramírez. If that was the reference point, he explained, then that criteria was met with the reductions in benefits that were legislated for 2013. 

Therefore, according to the President of the Committee of Retired Employees, the process of debt adjustment must consider the reductions in benefits that retirees have already suffered. In a way, those cuts in benefits were the adjustment made in advance to pensioners in the process of straightening Puerto Rico's finances. 

"And that adjustment is even higher. Since 2008 there has been no adjustment in the cost-of-living differential factor in pensions. The cuts in the amount the pensioners receive have already been made and new cuts are not justified," said Fabre Ramírez.

His arguments are part of the offensive that the Committee will carry out against the provisions of the fiscal plan recently certified by the Board.

This document, which sets the fiscal road map to follow until 2023, is the one that establishes a progressive system of adjustment in pensions. The highest cuts would be around 25 percent of the pensioners income. The calculation would take into account the income of the person in the Social Security system.

According to the Board´s explanatory memorandum, the pension reduction would begin to be calculated by stipulating how much the monthly pension of a retiree is and reducing that amount by 25 percent.

The calculation ends up adding $ 150 monthly (or $ 250 if the pensioner does not have Social Security income) to reduce the economic impact to those who receive less money in benefits. 

Risk of poverty

As reported by the Board, retirees with pensions of $ 1,000 or less would not be affected by the change, however if the proposed formula were applied to a retiree who receives $ 1,000 monthly, the cut would be $ 100 per month. 

Marco A. López Reyes, one of the members of the Committee of Retired Employees, explained that these 10 percent reductions would basically guarantee poverty for the vast majority public service pensioners.

Currently, a person is below the poverty level if the monthly income is of $ 1,012 or less, according to the charts annually updated by the US Government. For a three-member family, poverty level would be reached if the monthly income is below $ 1,732.

"If a number of pensions are reduced, you may be save some resources for the Government, but many people will be impoverished and those resources saved would have to be used anyway, since the person will need the Government’s aid to survive. In the end, they would be spending more than they are saving," said Lopez Reyes.

Fabre Ramírez explained that the situation may also trigger more emigration, especially of retirees who seek places where the cost of living is lower. He also recalled that if the pensioners' incomes are badly reduced, some could move to the United States, close to family members who can alleviate the economic hardship they would suffer.

"The purpose PROMESA is to revitalize Puerto Rico’s finances and not to impoverish the retired population of the island," said Fabre Ramírez. Currently, some 167,000 people receive retirement income.

"Pensioners continue to be an essential component of the nuclear family. Many have their parents alive who depend on them, children who have lost their jobs or grandchildren they have to support. This is different from the North American scenario," said Lopez Reyes, emphasizing the far-reaching impact that this type of measure would have. 

Justification required 

According to Fabre Ramírez, they are currently in the process of demanding the Board to show the documents, along with the analysis that leads them to decide that the payroll of the Government pensioners should be cut by 10 percent. 

He explained that in several instances they have requested information from the Board´s executives, but until now they have not had an answer.

"They (the Board) say they have advisors and experts who raised data with the reasons for those decisions. We want to see the data or we want to have a  meeting with them so they can explain how this is justified," said Fabre Ramírez, former judge the Court of First Instance in Arecibo. 

Investment without risk

Fabre Ramírez argued in favor of the type of investment that each debt implies. The former judge stressed that bondholders, when lending their money to the Government of Puerto Rico and its instrumentalities, assumed a risk that, depending on when the debt was issued, can be considered to be high or low.

By contrast, pensioners signed contracts that were not supposed to imply any risk. Every fortnight, public servants contributed with a portion of their income to the retirement systems, expecting to receive a pension when it was their turn to retire.

"Bonds are in a speculative market. Pensions are not speculative. That risk is the difference. Pensioners should not take any risk nor pay for that risk. Pensioners have a social contract and make adjustments in their lives so that their income covers the expenses once they retire. Investors buy bonus speculating on the margins of the market for a return and, depending on how the market behaves, they either receive that return or they do not," said Fabre Ramírez. 


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