SAN JUAN Jan 15 In what Governor Alejandro
Garcia Padilla called a "dangerous decision," the Puerto Rico
Supreme Court late Tuesday halted implementation of a teachers
pension system reform as it agreed to hear a lawsuit seeking to
have the reform overturned as unconstitutional.
The reform, enacted Dec. 24, is one of a series of steps the
Puerto Rico government has taken in a bid to retain its
investment-grade credit rating, which stands just a single notch
above junk-bond status by all three Wall Street credit rating
agencies. In halting the reform, the Supreme Court said the
plaintiffs could suffer material harm from its implementation.
The court appointed a special commissioner to collect
evidence, hold a hearing and submit a report on its findings by
"The resolution emitted by the Supreme Court is particularly
dangerous in this historic moment in which we live because our
will to save the teachers pension system is being evaluated in
relation to the country's credit rating," the governor said in a
"The times call for intellectual generosity and historic
responsibility from the judicial branch," he added.
The ruling was handed down in the midst of a two-day strike
that kept public school classrooms empty to protest the pension
The lawsuit, filed by the Teachers Association and a number
of other plaintiffs, argues that due process was not followed
and says the commonwealth government could have taken less
onerous measures to shore up the pension system.
The Teachers Pension Fund has a deficit of $10 billion and
is slated to run out of cash by 2020 without the reform,
officials have said. There are 41,973 participants and 37,996
retired beneficiaries, with the fund receiving just 17 cents for
each $1 it needs each year to pay for benefits and operations.
The reform honors existing accumulated defined benefits but
closes down the system for all, switching over to a defined
The reform increases employee contributions to 10 percent
from 9 percent and pushes up the retirement age, currently as
low as 50, to 62 for new employees, and to 55 or 60 for existing
employees, depending on years of service. The reform enacted a
minimum $1,625 monthly pension, which is above the current
average monthly benefit of $1,371.
Meanwhile, the government's contribution increases between 1
percent and 1.5 percent annually for the next several years,
pushing up its current 9.5 percent contribution to 20.52 percent
The government is planning a return to the municipal bond
market by the end of February, as part of efforts to retain its
investment grade rating. Officials say the exact timing and size
of the deal are still pending. They have said in the past that
they would try to raise between $500 million and $1.2 billion
through bonds backed by the sales and use tax and sold through
the Sales Tax Financing Corporation, known as Cofina.
Both Moody's Investors Service and Fitch Ratings, which have
warned of a potential downgrade of Puerto Rico general
obligation and related credit to junk, have cited market access,
as well as budget and economic performance as critical factors
in retaining an investment grade rating.
The Puerto Rico legislature is also considering several
measures aimed at bolstering the government's fiscal position,
including a bill that would order government entities to
transfer about $2.8 billion in deposit with island banks to the
Government Development Bank.
The Supreme Court will also hold a hearing on a lawsuit
challenging the constitutionality of a separate reform of Puerto
Rico's pension fund for the judicial branch filed by the Puerto
Rican Judiciary Association. The suit argues that the
legislature overstepped its bounds in enacting the reform, which
increased the judges' contribution to the pension plan to 10
percent from 8 percent and lowered pensions to 60 percent of
salary from 75 percent.