Yesterday, the American Federation of Teachers (AFT) and the American Federation of State, County and Municipal Employees (AFSCME) filed a lawsuit against Governor Ricardo Rosselló Nevares and the Oversight Board.
They argue that both the governor and the Board have failed in their fiduciary duty to safeguard hundreds of millions of dollars in pensions contributions of thousands of teachers and public employees.
In the litigation filed under Title III, the AFT and AFSCME asked Judge Laura Taylor Swain to order the Executive branch and the Board to comply with the provisions of Law 106-2017.
Law 106 was enacted last year with the objective to pay the pensions of current public retirees and teachers from the General Fund under the PayGo system. The second objective was to transfer those public workers who started in 2014 from a defined benefit system to a defined contribution system. Under this plan, it was expected that the government would create an account for each worker to deposit wage deductions made every fortnight, which allegedly has not happened.
The AFT and AFSCME represent educators and public employees in Puerto Rico members of the Puerto Rico Teachers Association (AMPR, Spanish acronym) and United Public Servants (SPU, Spanish acronym).
"We hope that, with this action, the government will immediately comply with its obligation and in so doing they will avoid wasting more money of the people of Puerto Rico and the teachers,” said Aida Díaz, AMPR president, minutes after filing the lawsuit in the federal district court.
"In theory, (retirement) account holders can invest to accumulate the retirement savings required for their future financial support," said Annette González, leader of SPU.
$ 316 million in contributions
The lawsuit was filed by attorneys José Luis Ramos Barrios, as well as Curtis C. Mechling, Sherry J. Millman and David J. Kahne -from the Stroock & Stroock & Lavan law firm, based in New York- and the document alleges that since the government and the Board failed to comply with Law 106, workers could not seek the best return for their savings.
The lawsuit claims that damage totaled $316 million. According to data published by the Fiscal Agency and Financial Advisory Authority (FAFAA) – that figure represents the total of workers´contributions since Law 106 was enacted.
The unions argue that the money has been deposited in government bank accounts at Banco Popular “earning virtually zero interest,” for the workers but benefiting the liquidity the government claims to have and that of the bank.
For the plaintiffs, violation of Law 106 joins the history of poor management of public pension plans that went bankrupt.
María is not an excuse
The lawsuit states that during the year since Hurricane María, the government, the FAFAA and the Board have found time to reach consensual restructuring agreements for the Economic Development Bank, the Electric Power Authority and Cofina.
"In contrast, during that same period, the government, FAFAA and the Puerto Rico´s Administration of Retirement Systems have done virtually nothing to implement Law 106," the lawsuit says.
The alleged violation of Law 106 in managing retirement funds is not new.
Last August, the Association of Retired Puerto Rico Government Workers filed a lawsuit against the Executive branch before the Department of Justice. This, after El Nuevo Día revealed that agencies, municipalities and public corporations were not sending budget allocations to the General Fund to pay pensions, either.
The retirement accounts issue is already familiar to Swain. Last week, the judge demanded the government to inform how they manage workers´contributions for retirement.
This, because the Vega Baja Savings and Credit Cooperative resorted to Swain for help because since 2011 they are in a similar situation. In that case, there was another law that established that public employees contributions for retirement should be in separate accounts, since this served as collateral to a loans program for public workers, promoted by the government through the cooperatives.
In that case, the government admitted that it has not created separate accounts for public employees and that their money for retirement is deposited in government accounts. The FAFAA had until yesterday to explain to Swain why the government has not fulfilled its responsibility, but by press time, the file did not have any information regarding that matter.
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