Puerto Rico's Retiree Committee files USD 58.5bn proof of claim

06 June 2018
 
 
Puerto Rico’s Retiree Committee is asserting a USD 58.5bn claim for pensions and other post-employment benefits (OPEBs) against the commonwealth as of 3 May 2017, according to an unpublished proof of claim seen by Debtwire Municipals.
 
This amount covers the full amount of accrued pension and other post-employment benefits held by the Employees Retirement System (ERS) as well as pension systems for island public teachers and the judiciary branch. Puerto Rico’s Financial Oversight and Management Board will hold off on calling for a 10% cut to public pensions until the court-ordered plan of adjustment.
 
The Retiree Committee’s claim is 17.3% larger than the USD 49.6bn in mostly unfunded pension liabilities for the island’s three public pension systems at the close of FY15, which ended 30 June, the date of Milliman’s most recent published actuarial report for the ERS.
 
At that time, ERS had a total pension liability of USD 32.7bn and the Teachers Retirement System had a total liability of USD 16.3bn, according to a Milliman pension funding study. Puerto Rico’s third retirement system, the Judiciary Retirement System, had an unfunded liability of USD 651m as of the end of FY16, according to its most recent actuarial report. Those reports showed an additional USD 263.8m net liability in OPEBs for the three systems.
 
“Although the claims procedure order obviates the need to file any proof of claim for pension claims, the Retiree Committee files these Proofs of Claim out of an abundance of caution on behalf of all beneficiaries,” states the document.
 
The Retiree Committee also asserts a claim against ERS, as secondary obligor, for at least USD 390.5m, the approximate amount of funds ERS held in trust for beneficiaries when the public pension system filed its Title III petition 21 May 2017. The Puerto Rico government will sell off ERS’ remaining assets to include these in the commonwealth’s general fund as part of a larger strategy of defeasing special revenue bonds.
 
The Retiree Committee also asserts an unliquidated claim against Puerto Rico Highways and Transportation Authority, as secondary obligor for the pension claims, for any amounts owed to beneficiaries on account of work actually performed on behalf of the PRHTA.
 
Unpaid pensions are ‘essential public services’
 
Various portions of the pension claims may be entitled to administrative expense priority, according to the proof of claim.
 
“Should the debtors cease payments on pension claims to current beneficiaries post-petition, the Retiree Committee reserves its right to assert an administrative expense claim for such unpaid amounts,” states the proof of claim. “The Retiree Committee asserts that the pension claims are claims for ‘essential public services’ under Article II, section 18 of the Puerto Rico Constitution and section 201(b)(1)(B) of PROMESA, 48 U.S.C. § 2141(b)(1)(B).”
 
The Retiree Committee calculated the USD 58.5bn claim using the census data, assumptions, methods, and plan provisions. The committee used a 3.82% discount rate, while Milliman used a 3.8% discount rate in the June 2015 report.
 
The Retiree Committee asserts that no reduction or modification of retirement benefits is warranted in the commonwealth’s Title III cases.
 
by Xavira Neggers Crescioni and Simone Baribeau