Financial Oversight and Management Board for Puerto Rico
2nd Listening Session
San Juan, Puerto Rico
My name is Jose Marin, a retired Sergeant of the Puerto Rico Police Force. I thank you for the opportunity to address you as the chairperson of the Official Committee of Retired Employee of the Commonwealth of Puerto Rico.
As you know, the Retiree Committee represents the interests of approximately 160,000 retirees, the vast majority of whom receive modest pension benefits -- on average $1,475 per month equating to less than $18,000 per year for retired teachers and on average just $1100 per month equating to approximately $13,000 per year for retired government workers. Many pensioners do not receive Social Security benefits and rely solely on their pensions for income. In addition, many pensioners support one or more other dependents - spouses, children, and extended family.
Our pensioners are people who entered into a simple but solemn agreement with the government - that in exchange for their labor, they would receive modest but reasonable compensation, including a deferred portion of their compensation in the form of a pension, never imagining that their claims for compensation would be threatened for compromise.
But as the economy in Puerto Rico has faltered in recent years, our retirees have already compromised their entitlements. Many retirees have experienced modifications to their pensions through legislative actions in the past several years, including the Pension Reforms of 2013. Employees who had already retired, saw a reduction of approximately 4% of their benefits and future retirees were subject to a reduction of approximately 15.2% because Special Laws were completely eliminated. Furthermore, the Pension Reform of 2013 greatly reduced the benefits of active participants under the “merit pension” of Act 447-1951.
Approximately 20,000 participants were affected by extending the time for retirement and by significantly reducing their pension benefit. If we take into account the modification of their future pension and the elimination of Special Laws, the total reduction of benefits, could reach up to 40% for participants under the “merit pension” of Act 447. Also, participants under Act 1-1990, that amounted to approximately 42,000 employees, saw reduction of pension benefits and the elimination of special laws.
We are all here today facing a new reality given the devastation wrought upon the island from Hurricanes Irma and Maria. We, like other stakeholders, have done historical research to identify case studies for what our island will experience over the next several years in the wake of these disasters.
We’ve looked at Dominica after Hurricane David in 1979 and we’ve looked at Louisiana and New Orleans following Hurricane Katrina in 2005. We’ve concluded that they are no perfect analogies to Puerto Rico, but we have also concluded that there are several key concepts/themes that will ultimately determine what our island looks like 10 years from now:
One key implication of this changing demographic is that if the Commonwealth is to transform itself and create a more welcoming business environment, the LAST thing it should be doing is further contracting the economy by reducing the income of the group that is not leaving the island today and that spends substantially all of its income on the island – the pensioners. Further downward pressure on pension benefits could have additional unintended consequences for Puerto Rico; reduced income could result in eligibility for other governmental programs that could prove more expensive to the Commonwealth like new entries to Mi Salud and other welfare programs.
Just some final thoughts with respect to pensioners. I noted at the start of my comments that our pensioners receive modest benefits, benefits that have already been reduced by recent Commonwealth actions in 2013. Almost 55% of pensioners receive $1,000 or less per month and almost 75% receive less than $1,500 per month. One would think that these numbers simply on their face are clearly modest amounts, but there’s been some talk about how these numbers compare to the federal poverty line which is about $1,000 per month for a single person.
Our view on this is very clear, this is the wrong benchmark for a host of reasons. As I’ve already stated, these pensions often support not one, but many people, across multiple generations, so comparison to a poverty level for an individual is not adequate. But a more fundamental reason is that the federal poverty calculation does not represent income sufficient for simple quality of life, including costs of food and the geographic variations in the cost of household expenses.
We are happy to work with the Commonwealth if needed to help define a more appropriate benchmark reflective of the true cost of living if that is helpful in putting the benefits of the pensioners into a more accurate context.
In closing, the impact of Hurricane Maria has only made the resources of pensioners more fragile and depleted and has made their lives more challenging. Many must now rebuild their homes and their lives, with little or no assistance from private insurance. One of the principal goals of the new Fiscal Plan is to bring economic stability to Puerto Rico. The retirees are an indispensable part of the economic fabric of the Island and their welfare is indispensable for the recovery of Puerto Rico. Under these circumstances, more than ever, the Retiree Committee hopes that the Oversight Board and AAFAF, as they amend the Fiscal Plan, will remember and maintain their concern for the protection of the most vulnerable in Puerto Rico, the pensioners.
While the Retiree Committee did not fully agree with the Fiscal Plan that was certified by the Oversight Board in March, the Committee noted the positive step reflected in the Plan, which acknowledges the unique and precarious position of the Commonwealth’s retirees, and the importance of this constituent group under Section 2.01 of PROMESA. We recognize that you have a great responsibility on your shoulders and we hope that this process will provide an equitable solution to all stakeholders and will result in a better future to all American citizens living in Puerto Rico.
It has been an honor to be able to share with you today our comments and thank you again for the opportunity.
José Marín, Chairperson
Official Committee of Retired Employees
of the Commonwealth of Puerto Rico