* Government faces unfunded liabilities of $37.3 billion
* Measure will be submitted to legislature this week
Feb 27 Puerto Rico's new government on Wednesday
proposed raising retirement ages, increasing worker
contributions and other changes to a wobbly public pension
system that officials hope will help stave off bond downgrades.
Puerto Rico, whose government pension plans have unfunded
liabilities of $37.3 billion, had $38 billion of its debt
downgraded in December to near-junk status by Moody's Investors
Moody's and other credit agencies, whose ratings heavily
influence interest levels in America's $3.7 trillion municipal
bond market, say the Caribbean island needs to bolster its
pension systems and return to structurally balanced budgets.
Its economy only showing tentative signs of emerging from a
six-year recession, Puerto Rico pays the highest rates of any
big tax-free issuer.
The proposed pension overhaul, to be submitted to the U.S.
commonwealth's legislature this week, would increase employee
contributions to 10 percent from 8.275 percent.
The retirement age would rise to 65 years from 58 years for
employees in some categories, and to 67 from 60 in others. The
retirement age for police and firefighters would jump to 58 from
It also would cut back benefits to government retirees, such
as seasonal bonuses and money to cover medical benefits.
It is likely to pass despite expected opposition in the
legislature controlled by Governor Alejandro Garcia Padilla's
Popular Democratic Party.
Puerto Rico has ended defined benefit pensions for employees
hired after 2000. Officials are proposing that defined benefits
currently enjoyed by employees be frozen as of June 30, and
those workers be moved into a defined contribution plan.
MORE REVENUES NEEDED
Beyond these measures, additional revenues of more than $100
million annually must be found to invest in the system over the
next several decades, said Treasury Secretary Melba Acosta.
Acosta is analyzing revenue-raising alternatives as part of
drawing up a budget for the fiscal year beginning July 1.
Possible measures include tightening up compliance and
eliminating exemptions to a sales and use tax.
The government is also looking at unspecified possible new
Acosta said the additional revenue is on top of the
stepped-up government contribution enacted in 2011, which
increased the government's contribution of 9.275 percent of an
employee's salary, by a full percentage point a year for next
After that, the contribution would shoot up by an additional
1.25 percentage points each year for another five years.
The bonus changes will save an estimated $100 million
annually, and Retirement System Administrator Hector Mayol said
he expects the pension funds' unfunded liability to decrease
While the pension system was slated to run out of cash by
2018, the changes will keep the system afloat until about 2040,
as the system self-corrects as defined benefits for employees
hired after 2000 end, according officials.
Government Development Bank President Javier Ferrer has said
that the pension fix was essential to preserving Puerto Rico's
credit rating and allowing the government to return to the bond
markets before the June 30 close of the fiscal year.
Moody's rates Puerto Rico debt as one notch above a
junk-bond rating. Standard & Poor's (S&P) rates Puerto Rico's
general-obligation bonds BBB, which is only two notches above
junk-bond status. But the rating is under a negative outlook,
which means a downgrade could be on the horizon. Fitch Ratings
rates Puerto Rico BBB-plus, which is three notches above
Finance officials in San Juan said they would discuss the
proposed reforms with Wall Street credit-agency analysts in