Puerto Rico teachers fail to overturn pension changes in debt plan

Demonstrators wave Puerto Rican flags out of a bus window during the national strike calling for the resignation of Governor Ricardo Rossello in San Juan
Demonstrators wave Puerto Rican flags out of a bus window in San Juan, Puerto Rico July 22, 2019. REUTERS/Gabriella N. Baez
  • Teachers had opposed pension benefit modifications
  • Court says oversight board had authority to make changes

(Reuters) - A federal appeals court has upheld modifications to teachers’ pensions under Puerto Rico’s debt adjustment plan despite arguments from teachers’ associations that the changes violate commonwealth law.

The 1st U.S. Circuit Court of Appeals on Tuesday said that the federal law that authorized the commonwealth's debt restructuring allowed a federally appointed oversight board to modify the pension obligations. The changes were part of the board's wide-ranging restructuring for Puerto Rico, which was approved by a lower court in January after nearly five years in a bankruptcy-like process known as Title III.

The Title III cases were filed to address the commonwealth’s $135 billion in liabilities, which included $55 billion in underfunded pension obligations.

An attorney for the teachers associations, Jessica Méndez Colberg of Bufete Emmanuelli, called the decision "unfortunate."

"The case reinforces the powers of the oversight board over the government of Puerto Rico and the people of Puerto Rico and highlights, yet again, the consequences of Puerto Rico being a colony of the Unites States," she said.

Under the plan, which went into effect in March, government retirees’ existing pension benefits that had already accrued remain intact. But teachers’ associations in Puerto Rico opposed the plan on the grounds that it freezes defined-benefit retirement programs that cover active teachers and judges and replaces them with defined-contribution plans and enrollment in social security.

The teachers’ associations appealed Chief U.S. District Judge Laura Taylor Swain’s approval of the plan in February, arguing that the modifications to pension benefits violated existing Puerto Rico laws that created the defined-benefit plans years ago. They asserted that the laws entitling them to pension benefits have not been revoked by the legislature and are still in effect.

But the panel rejected that stance, finding that even though the legislature has not revoked those laws, the oversight board’s authority under the Puerto Rico Oversight, Management and Economic Stability Act to guide the commonwealth’s future fiscal practices trumps conflicting commonwealth law.

“Given this context, it would make little sense for the Board to have no ability to restrict accruals under the very pension payment regime that helped create the crisis in the first place,” U.S. Circuit Judge William Kayatta wrote in Tuesday's decision on behalf of a three-judge panel.

The panel, which also included U.S. Circuit Judges O. Rogeriee Thompson and Jeffrey Howard, also rejected the associations’ contention that the debt adjustment plan’s pension modifications can’t be enacted without legislation, saying there is no such requirement that legislation be passed for every component of the plan.

The case is Financial Oversight Board of Puerto Rico v Federacion de Maestros de Puerto Rico, 1st U.S. Circuit Court of Appeals, No. 22-1080.

For the oversight board: Martin Bienenstock and Brian Rosen of Proskauer Rose

For the teachers’ associations: Jessica Méndez Colberg and Rolando Emmanuelli-Jiménez of Bufete Emmanuelli

Read more:

Puerto Rico gets green light to end five-year bankruptcy

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Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.