Teachers invade the Puerto Rico Senate
In the municipal bond market news tends to get abstracted and formalized. For example, leading analyst Alan Schankel, of Janney Capitol Markets, wrote about the Puerto Rico legislative session addressing the reform of the teachers’ retirement system:
The Governor of Puerto Rico called the legislature into session yesterday to consider reforms to the Teachers’ Pension Plan. After sweeping reforms to the Government Employees’ pension plan were enacted in April, Commonwealth leadership promised to next tackle the Teachers’ plan. As of June 2011, the Teacher’s plan was 21 percent funded, better than the 7 percent funding level of the primary plan, but well below the 80 pecent level many analysts consider adequate. If no action is taken, assets of the Teachers’ plan will be depleted in less than 10 years, which would require pay-as-you-go payments from the Treasury. Unlike government employees, the teachers are not eligible to collect Social Security, so pushback to reforms such as extending the retirement age or increasing teachers’ contributions have been significant, including a disruptive protest at yesterday’s Senate session.
Schankel has the big picture view. A big struggle developed in Puerto Rico this week between the government and teachers. The governor of Puerto Rico, Alejandro García Padilla, launched reform of the teachers’ pension system early this week.
Despite the rejection of teacher organizations, Governor Alejandro García Padilla last night presented his project to the Legislature to reform the Teachers Retirement System and convened a special legislative session to evaluate it.
‘If not reformed, retirement will collapse. There will be no money to meet the pensions of thousands of retired teachers.Given this scenario, saving the retirement system is a moral obligation and an urgent task. We must act and we must act now,’ the governor said in the press release.
Meanwhile, it sounds like a fight took place in the Puerto Rico legislature. The sub-headline on the story in El Nuevodia was “Capitol employees show their wounds.” It began:
About seven wounded and vandalized public property employees, whose damage is preliminarily estimated at $55,000, is the balance at the time of the violent incident that was raised yesterday in the Senate at a time when it was trying to start the special meeting to discuss amendments to the System Teacher Retirement.
Here is how the teachers describe the pension reform legislation from El Nuevidio:
Teachers’ organizations grouped under the Broad Front in Defense of the Teacher Retirement argue that this change would cause pension reduction from 75 percent of salary they currently receive to 56 percent of salary.
Data provided yesterday by the Teacher Retirement System indicate that the minimum pension received by 38,752 pensioners who had in the system for November is $400 per month, as current legislation. On average, pensioners receive $1,375, while the highest pension is currently paid about $6,000 a month.
In the part which is under legislative consideration provides that the minimum pension will rise to $500 automatically to benefit current and future retirees. The proposal of the Executive states that a minimum pension of $ 1,562 monthly for active teachers who retire on reaching 55 years of age and 30 years of service are guaranteed.
The Teachers Retirement System is in very poor condition:
However, the Senate President Eduardo Bhatia reiterated the need to effect change in the way teachers collect pensions.
‘To have a retirement system you have to square the end of the month and it is broken. For every dollar you have to give a person who retires today there are 17 cents in the piggy bank. The question is where the other 83 cents go, and that is the decision we have to make as a country. Are there additional 83 cents in the General Fund? No, not there,’ said the Senate leader.
Puerto Rico public officials get some credit for trying to reform the teachers’ pension system. It appears that there is sufficient legislative support to get the reform passed. Moody’s identified this reform as one of the factors that will compose its review of Puerto Rico. It is clearly a priority for Governor García Padilla. It’s also a bum rap for teachers and retirees.
Video: Dozens of teachers took to the Senate floor as part of their demonstrations in opposition to the government’s proposals to reform the teaching retirement system. El Nuevodia