If the Puerto RicoTeachers Association (AMPR, Spanish acronym) gets its members to support the agreement with the Oversight Board, the union would be the first to withhold for itself a slice of the government’s resources to be distributed in the adjustment plan under PROMESA Title III.
The agreement is not written in stone, but in the opinion of the AMPR president, Aida Díaz, it is a deal that will bring more certainty to 29,740 educators in Puerto Rico once Judge Laura Taylor Swain decides on the adjustment plan that seeks to modify over $60 billion in central government obligations.
From today until Wednesday, teachers in the island’s public education system will have the opportunity to support or reject the agreement that the AMPR signed with the Board last month.
Although the public debate over the agreement was focused on teachers pensions, actually, the agreement is the first collective agreement negotiated between a union and the federal entity, that has been overseeing the island’s public finances for almost three years. As a result, this agreement between the AMPR and the Board only applies to active teachers in the public education system and not to retired teachers.
“We decided to sit and negotiate the minute we heard that the Board was negotiating with bondholders. We understood that teachers’ money was at risk. The teachers’ retirement system is an unsecured debt and if we didn’t do anything, the cake was going to be divided between suppliers, bondholders, and others,” Díaz told El Nuevo Día.
According to Díaz, due to the lack of funds, the AMPR agreed for the American Federation of Teachers (AFT) to start negotiating with the Board, a process that lasted over a year.
What are they voting for?
The educators represented by the AMPR will have the opportunity to vote whether to endorse or reject an agreement that covers three areas.
First, this is a new collective bargaining agreement that, in some cases, reaffirms and, in others, changes certain current clauses, such as those related to leaves, and accepts the possibility of a new round of layoffs, but, in that scenario, it establishes that the seniority principle would prevail.
In addition, the monthly employer contribution to the educators’ health insurance increased from $120 to $170, and the selected insurance will include pharmacy services.
The second aspect of the agreement focuses on retirement eligibility criteria and when the retirement plan for educators who still contribute to a pension under the Puerto Rico Teacher Retirement System (PRTRS) will ultimately be closed or frozen.
The third aspect in the agreement states, in a novel way, that if there were a budgetary surplus, the Board will have to contribute a 25 percent of that surplus to the payment of teachers pensions.
To questions from this newspaper, Díaz explained that the union unsuccessfully tried to reach better terms than those agreed and assured that although the fiscal plan approved by the Board includes salary increases, they sought to increase the pay that teachers receive. In particular, because once the pension plan is frozen and active teachers start contributing to their retirement accounts, retirement savings will only be financed by the contributions made by each educator.
Díaz insisted that since the government has not presented any alternative that prevents the freezing of the pensions plan, the agreement with the Board a better option than that of facing the entity´s own distribution of resources in the government's adjustment plan.
Above all, according to the president of the AMPR, the deal states that if any other union reaches better conditions or benefits in their negotiations with the Board or the government, those terms would be extended to teachers.
What is at stake
The AMPR vote this week is not binding because the approval of the central government’s adjustment plan requires a final vote. However, Díaz explained that the process in progress will allow them to know how educators feel about this.
AMPR estimates that a third of the 29,740 educators affected by the agreement will express themselves and, once they know their opinion, the union would be in a better position to sign a definitive agreement that would be part of the adjustment plan.
After learning of the agreement, Governor Ricardo Rosselló Nevares criticized the AMPR, saying that its action would be detrimental to pensioners.
On the other hand, the Board considers that the agreement with the AMPR could be decisive. While negotiating with AMPR, the fiscal entity did the same with the Official Committee of Retirees (COR, Spanish acronym). In the case of retirees, the group authorized to negotiate in Title III cases reached a preliminary agreement just over a week ago.
According to sources, in addition to negotiations withCOR and AMPR, the Board also is negotiating with other unions and they could other agreements similar to that with educators. The Board did not comment on the agreement with t AMPR nor did it confirm whether there are any other ongoing negotiations with unions.
If the educators support the agreement with AMPR and COR reaches a final agreement, the Board would bring before Swain an adjustment plan that would be supported by at least two types of the creditors.
That is educators (one of the largest groups among unsecured creditors) and COR which represents about 167,000 government retirees. In the case of COR – and contrary to the general perception – that agreement would address the central government's main debt. And that because, according to the government's financial statement for fiscal year 2016, the central government’s net pension debt is about $ 39,8 billion. Central government bond debt under Title III would be about $ 17 billion.
On the contrary, if the Board doesn’t reach such agreements, it could be forced to reach an understanding with General Obligations bondholders in order to file before Swain an adjustment plan supported by at least a group of creditors.
The collective agreement
Díaz argued that AMPR chose to negotiate with the Board a five-year collective bargaining agreement starting the date that the adjustment plan is implemented because teachers have not been able to enter into negotiations with the government of Rosselló Nevares to that effect.
She explained that, during 2016, AMPR negotiated a collective bargaining agreement with the administration of Alejandro García Padilla, but then they could only reach a half-agreement due to electoral restrictions. Negotiations, Díaz said, should have resumed with the change of administration, but it did not happen.
“What we did was to ensure that, for five years, those benefits and rights will not be touched regardless of who gets elected,” Díaz said.
“It's a shame and it's unacceptable,” said the president of the Puerto Rican Teachers Federation, Mercedes Martínez, when asked about the agreement.
Martínez, who said that the AMPR vote is a “rigged” and hasty process claimed that the collective agreement negotiated by AMPR undermines acquired rights. That would be the case, for example, of sick leave. According to Martínez, teachers accumulated one and a half days per month after the approval of Law 26 two years ago. The agreement promoted by AMPR reduces that to one day for every teacher who in the public system after February 4, 2017.
Martínez also argued that the agreement with the Board would impose a single medical plan for educators. When Law 158, 2006 was approved, Martínez said, it was AMPR, the union that advocated for teachers to choose the health insurance of their choice.
“The agreement establishes that a committee will be appointed to evaluate the medical plans and these will be presented in an assembly to decide which medical plan they want,” Díaz said, ruling out that that clause seeks to relieve the AMPR health insurance.
Martínez found it outrageous that the AFT negotiated with the Board for a year and that teachers were not informed before.
The agreement between AMPR and the Board states that the federal entity will reimburse the AFT for the costs incurred in reaching the agreement. Until a few weeks ago, according to AMPR, expenses were about $3 million.
“It's a betrayal to teachers that along a year of negotiations with the Board they did not call a consultation to bring proposals,” said Martínez.
She recalled that when Law 106, 2017 (which created the “PayGo” system) was approved, the FMPR proposed to unify the SRM with the Retirement System Administration and to create a trust fund that would be financed with a new tax on foreign corporations. She added that the foreign tax proposal was initially filed in 2016 and the Legislature should revive that initiative.
“That is a fair proposal because if they have identified taxes to guarantee payments to COFINA bondholders (Sales and Tax Financing Corporation) and they are going to do the same with the Electric Power Authority, they should also find a source to pay teachers' pensions,” said Martínez.
Retirement and $200 million
As for retirement, the agreement between AMPR and the Board, in essence, confirms what has been a law since 2014, when the formula and criteria for retirement were modified.
However, according to Díaz, one of the successes of the negotiation was to establish better conditions for those teachers who are at the threshold of retirement (who still do not reach the years of service or age) and who would be subject to the formula legislated in 2014 at a time when the pension plan was frozen. In those cases, Díaz explained, the agreement offers a six-month window for qualified teachers to complete their retirement. That window will depend on the effective date of the adjustment plan, but the agreement is based on the premise that the teachers' pension plan will be frozen in January 2020.
However, the agreement with the Board – which has adopted as a fiscal reform the policy of ending all government pension plans and turn them into savings plans – eliminates the $400 minimum monthly pension and the opportunity for teachers to pay for the months or years remaining in order to meet the years of service required. In addition, ateacher who is not 50 years at the time the pension plan is frozen will have to wait three more years to retire. Those who are not 50 or do not have the years of service at the end of the six-month period for completing retirement will be eligible to retire at age 63 and 10 years of service.
“Although they will freeze the plan, teachers (under 50) will be able to contribute to social security,” Díaz added, pointing out that the pension plan cannot be closed until that benefit comes into effect.
It was also agreed to compensate teachers for the loss of their defined pension. To that end, the Board will separate about $200 million to be distributed among all teachers, an amount that would be distributed based on a formula that will consider years of service, Díaz said. If that figure were divided equally among the universe of active educators, each would receive about $29,000.
On the other hand, and in what appears to be a change in the Board’s position, the agreement between AMPR and the fiscal entity provides for the creation of a trust fund to pay pensions. The agreement contemplates that in the adjustment plan the trust will be capitalized with an allocation of $175 million until fiscal year 2027, which would come out of the General Fund, exclusively for the payment of teachers' pensions under the “PayGo” system. Such trust will be administered by an independent third party and teachers will have a position in its governing body.
In contrast, according to the FMPR leader, the AMPR agreement cannot be implemented and will only condemn active teachers to indigence once they retire.
“Here the Board and the Association intend to legislate from the federal court,” Martínez said in explaining that the agreement between AMPR and the Board would imply modifying the retirement laws and that the federal entity and AMPR have no authority to do.
Martínez did not rule out that FMPR would take legal action if necessary but said that Rosselló Nevares could also intervene if he really wants to defend workers’ pensions.