In August 2018, the District Court issued an Opinion and Order holding that the ERS Bondholders’ asserted liens on ERS assets (which the ERS Bondholders contended secured more than $3 billion in debt) were not perfected and could be avoided (i.e., disqualified) by the Financial Oversight & Management Board (FOMB). The ERS Bondholders appealed the District Court’s Order to the First Circuit.
On October 19, 2018, the COR filed a brief in that appeal in which it argued that the District Court’s decision should be affirmed, both because the ERS Bondholders’ liens were not perfected and because PROMESA and applicable Puerto Rico law give the FOMB the ability to avoid the ERS Bondholders’ asserted liens. The First Circuit is expected to hear oral argument on the appeal.
The COR will continue to keep the retiree community updated on this important appeal. A copy of the COR’s brief is here:
San Juan, Puerto Rico – [October 23, 2018] Today the Fiscal Oversight and Management Board for Puerto Rico (FOMB) certified a new Fiscal Plan for the Commonwealth Government. The Board’s latest Fiscal Plan includes the pension reform measures set forth in prior fiscal plans which calls for a 10% average reduction to pensions, and in some cases, much more.
Miguel Fabre, Chairperson of the Official Committee of Retired Employees of the Government of Puerto Rico (COR, for its acronym in Spanish) said, “the COR is disappointed that the FOMB continues to propose fiscal plans that fail to adequately fund pensions and thus comply with PROMESA’s requirement.
Explaining the impact of the Fiscal Plan, Fabre stated: “It is important for retirees to understand that the Fiscal Plan itself does not implement pension reductions. Pension reductions can only be implemented through a Plan of Adjustment confirmed by the District Court, and the COR will continue to advocate and defend the rights of the 167,000 government service retirees in Puerto Rico’s Title III cases before the District Court.”
About the COR
The COR, which was appointed by the U.S. Trustee in June 2017, represents government retirees in Puerto Rico’s Title III case under federal law PROMESA. The COR represents the collective interests of pensioners from the Government Retirement System, the Teachers’ Retirement System, and the Judiciary Retirement System.
How were the members of the Official Committee of Retired Employees from the Government of Puerto Rico selected?
PROMESA includes certain sections of the Bankruptcy Code that provide for the appointment of committees of creditors with similar collective interests to assure adequate representation of those creditors’ collective interests.
In Puerto Rico’s Title III case there are two committees: (1) the Unsecured Creditors Committee (UCC); and (2) the Committee of Retired Employees of the Government of Puerto Rico (COR). The members of the COR were selected by the U.S. Trustee.
In forming the COR, the U.S. Trustee considered applications from individual retirees and conducted interviews.
On June 15, 2017 the U.S. Trustee filed a “Notice of Appointment” with the District Court, in which it identified the members appointed to the COR.
On August 20, 2017, Kobre & Kim, the Independent Investigator retained by the Financial Oversight & Management Board (FOMB) to investigate the factors contributing to Puerto Rico’s fiscal crisis, as well as Puerto Rico’s issuance of debt, published its Final Investigative Report on the FOMB’s website.
The Retiree Committee’s professionals are carefully reviewing the 608 page report, a copy of which is available here:
On August 17, 2018, the Court issued its Opinion and Order Granting and Denying in Part Cross Motions for Summary Judgment.
In its Order, the Court held that the ERS Bondholders’ asserted liens on ERS assets were not perfected and could be avoided (i.e., disqualified) by the Financial Oversight & Management Board (FOMB).
The Court’s decision followed extensive briefing on the legal issues, as well as oral argument in December 2017, at which counsel for the Retiree Committee argued along with the FOMB that the ERS Bondholders were not perfected.
On August 20, 2018, the ERS Bondholders, the FOMB, and the Retiree Committee submitted a Joint Stipulation stating that the Court should deny the ERS Bondholders’ pending motion for relief from the automatic stay on the basis that the motion was resolved and rendered moot by the Court’s August 17, 2018 Order.
The ERS Bondholders reserved all rights, including to seek an appeal of the Court’s August 17 Order, and the FOMB and the Retiree Committee reserved all rights to oppose any such appeal.
To read the Order, download this document:
Impact of Judge Laura Taylor Swain’s Orders on the FOMB’s Motion to Dismiss the Governor’s and Legislature’s complaints.
The August 7, 2018 Opinions issued by Judge Laura Taylor Swain on the lawsuits brought by the Governor of Puerto Rico and the Legislature challenging the power of the Fiscal Oversight and Management Board (FOMB) to approve a Fiscal Plan and budget for Puerto Rico are not related to the adjustments to the pensions proposed by the FOMB in the certified Fiscal Plan.
Because retirees rights to their pensions are considered contract rights under Puerto Rico law, pension cuts can only be implemented through a confirmed Plan of Adjustment. The confirmation of the Adjustment Plan is part of the last stage of the Title III cases to restructure the debt, and when the time comes retirees will have the opportunity to learn about its content and vote in favor or against said document. At present, we are in the stage of a certified budget by FOMB. The Disclosure Statement and voting process must take place before the court can confirm an Adjustment Plan.
The COR is paying close attention and actively participating in the Title III proceedings that could have a direct or indirect impact in the pensions of government retirees. We will keep the community of government retirees informed about the matters that could impact their pensions in agreement with our responsibilities as an official committee.
To read a summary of Judge Laura Taylor Swain’s Orders click here.
To read the Orders, download these documents:
Federal Judge, Laura Taylor Swain, entered an order denying the challenge by the investment fund Aurelius on the constitutionality of the Puerto Rico Financial Oversight and Management Board under the Appointment Clause of the Constitution of the United States and the motions to dismiss Puerto Rico’s Title III petition and relief from the Automatic Stay.
The Official Committee of Retired Employees of the Government of Puerto Rico (COR, for its acronym in Spanish) was one of the interested parties that opposed to Aurelius challenge, because -if granted- it would negatively affect the government’s capacity to pay pensions and benefits to retirees.
According to Swain’s order: “Having examined the factors argued by the parties, the Court finds that Congress’ invocation of the Territories Clause is consistent with the entity it purported to create, that the method of selection that Congress fashioned for the membership of the Oversight Board is consistent with the exercise of plenary congressional power under that Clause, and that neither Presidential nomination nor Senate confirmation of the appointees to the Oversight Board is necessary as a constitutional matter to legitimize the exercise of the Oversight Board’s powers under PROMESA because the members of the Oversight Board are not 'Officers of the United States' subject to the Appointments Clause.”
On May 29, 2018, the Retiree Committee filed a proof of claim on behalf of government retirees from the Employees’ Retirement System, the Judiciary Retirement System and the Teachers’ Retirement System asserting a claim for their pensions and other post-retirement benefits in the Title III cases of the Commonwealth of Puerto Rico, Employees’ Retirement System, and the Highway and Transportation Authority in the amount of at least $58 billion.
As we previously indicated here, because the Court’s bar date order does not apply to claims for pensions or other post-retirement benefits, retired public employees do not need to file individual proofs of claim. Retirees with claims not related to their pensions or post retirement pension benefits now have until June 29, 2018 to file the Proof of Claim, according to the Order to extend the general claims bar date filed by the Federal Court on May 25, 2018.
During the last few months we have listened to the debate about the reality of government retirees. Let’s analyze this group, which is made of 167,000 retired public servants with a pension.
Government retirees built Puerto Rico’s economy. They gave their most productive years of their lives to public service trusting that upon retirement they could count on a fair income, based in part on their own contributions to the Retirement System. This formula represented stability and security. The amount of the pension was pre established. Many decided to go into public service for the security that the pension income represented, even if it meant lower salaries compared to other sectors of the economy.
The fact is that retirement pensions and benefits have been reduced drastically during Puerto Rico’s complex fiscal situation, which began over a decade ago. The benefits of pensioners who retired on or before June 30, 2013 have been reduced by $500, while those who retired after July 1, 2013 have seen a reduction of $1,200 a year, plus the elimination of the Christmas bonus ($600.00), summer bonus ($100.00) and medicine allowance ($100.00). In addition, since 2007 pensioners no longer receive the 3% cost of living adjustment that was distributed every three years, resulting in a further reduction in the value of their pensions as other costs increase due to inflation.
Furthermore, as a result of the reforms central government employees who will retire in the future will receive pensions that are substantially lower than current ones.
The profile of pensioners in Puerto Rico is unique. In many cases they are the main income in their family unit. With their income they help support their family, pay day care and schools for their grandchildren, take care of their own elderly parents and supplement the income of their adult children who are suffering the consequences of unemployment and low salaries.
In its latest report the Fiscal Oversight Management Board (FOMB) indicated the need of cutting pensions by an average of 10%, which means that in particular cases the cut could reach 25%. The impact of said measure in our already ailing economy would be severe. The intended cuts will represent less money circulating in our economy, therefore affecting contributions to the Treasury and commercial activity income across all sectors of the economy . Moreover, cutting the pensions would aggravate the vulnerability of retirees and increase their dependence in services and programs offered by the Government of Puerto Rico, which will have a yet unknown rising effect in government expenses thus frustrating supposed savings in pension payroll.
It is clearly unfair to impose additional reductions to retirees and active government employees, who have already suffered the effects of severe cuts in their benefits while bondholders and other creditors were getting paid. We are still waiting for the FOMB to express the basis to insist on the requested cuts. The FOMB’s positions is not justified, retirees and public employees have already made substantial contributions to Puerto Rico’s fiscal recovery.
The author, Miguel J. Fabre Ramírez, is the chairman of the COR, which was created by the U.S. Trustee to represent over 167,000 government retirees in the Title III case before federal judge Laura Taylor Swain. He is a retired Superior Judge, and is a past president of the Retired Employees of Puerto Rico’s Judicial Branch.
Read other updates here.
Official Retiree Committee says FOMB’s Overstatement on Detroit Pension Cuts is incorrect and Rejects Any Comparison Between Puerto Rico and Detroit
The Official Committee of Retired Employees of the Government of Puerto Rico (COR, for its acronym in Spanish) said today that it welcomes good-faith discussions of the circumstances surrounding Puerto Rico’s financial condition and its proposed fiscal plan, but that recent attempts by José Carrión, chair of the Federal Oversight and Management Board (FOMB), to justify the Board’s proposed cuts to pensions based on what happened to pensions in Detroit’s bankruptcy case is based on inaccurate data. Contrary to Carrion’s recent statements, Detroit did not cut pensions by 22% across the board. According official records, the pensions of retired police and fire department personnel in Detroit were not cut, while other pensions were reduced by only 4.5%.
Retired Judge Miguel Fabre, chair of the COR, stated that “these misstatements about what happened in other bankruptcy cases to justify the Board’s insistence on pension reductions are counter-productive to PROMESA’s goals. We welcome an honest discussion about the proposed fiscal plan, but that discussion must be based on accurate information.”
Public records demonstrate that retirees receiving their pensions through Detroit’s Police and Fire Retirement Systems experienced no cuts in their pension benefits, and that the only change in benefits experienced by these retirees was a reduction in the annual cost-of-living-adjustment (COLA) from 2.25% to 1%. In contrast, the last time retirees in Puerto Rico received a COLA adjustment to their pensions was more than ten years ago. Detroit retirees receiving their pensions through the General Retirement System experienced a cut of only 4.5% in their pension benefits and the elimination of future annual COLA increases. Fabre indicated that “the fact is that Detroit did not significantly reduce pension benefits from their pre-bankruptcy levels. In Detroit pensions were reduced, and in some cases, future increases in pension benefits were eliminated, but insisting on a 22% reduction is highly misleading.”
Equally incorrect is suggesting that the economic circumstances of pensioners in Puerto Rico is comparable to that of Detroit’s retirees. Data shows that while pensions in Detroit are relatively modest by U.S. mainland standards, they are still significantly higher on average than pensions in Puerto Rico, where the average pension is below the federal poverty level. The average pension benefit in Puerto Rico is about $12,000 per year, well below the $20,000 average pension benefit for general employees in Detroit, which after the adjustments was cut by $900. According to the COR, this data is sufficient proof to demonstrate that the case of government retirees in Puerto Rico is very different from that in the city of Detroit, and that any comparison with Detroit indicates that the Board’s proposed reductions to pensions are simply not justified.
The COR emphasized that any discussion about how Puerto Rico should emerge from its current financial difficulties must be based on facts, not information that has been manipulated. Fabre stressed that before Puerto Rico filed for Title III, government retirees had already suffered significant reductions to their pension benefits, something that the Board has ignored by insisting that pensions must be cut even further. “Additional cuts to pensions will be devastating, not only to retirees and their families, but, as economists have warned, to Puerto Rico’s efforts to restore economic activity and fiscal health.”