Photo: Puerto Rican classroom
Puerto Rico’s government said it will seek alternative ways of overhauling the U.S. commonwealth’s teacher pension system after the island’s Supreme Court ruled that a new law to modify the current retirement scheme was unconstitutional.
“Reforming the pension system is essential for Puerto Rico’s long-term financial and economic health,” the head of the Government Development Bank for Puerto Rico, David Chafey, and the island’s treasury secretary, Melba Acosta Febo, said in a joint statement Friday.
In that regard, they said the government had adopted “unprecedented” measures dating back to 2013 to strengthen Puerto Rico’s fiscal situation, including pushing through “comprehensive” and “significant” reforms to the main public pension systems.
“We disagree with the court’s decision to declare certain parts of Law 160 to be unconstitutional,” the statement said, arguing that it was consistent with a revamping of the general retirement system for government employees that the Puerto Rico Supreme Court upheld in June 2013.
“We will conduct a careful reading of the court’s decision” and analyze possible alternatives, the statement added.
“We remain committed to tackling the pension liabilities of the loss-making Teacher Retirement System with a view to protecting our retirees and ensuring the fiscal stability” of the U.S. commonwealth, the officials said.
The Puerto Rico Supreme Court ruled Friday that a significant portion of the teacher pension overhaul was unconstitutional, dealing a harsh blow to Gov. Alejandro Garcia Padilla’s efforts to get the island’s fiscal house in order.
The ruling said the overhaul “substantially” diminishes the “contractual rights” of the pension system’s beneficiaries.
The law was approved late last year as part of the government’s efforts to improve the island’s finances and jumpstart an economy that has been mired in recession for seven years, is $70 billion in debt and has suffered a massive exodus of members of its economically active population.
The overhaul, which raised the retirement age for newly hired educators from 55 to 62 and increased active teachers’ pension contributions by one percentage point, was also aimed at avoiding a debt downgrade.
Despite the law, the three major ratings agencies - Standard & Poor’s, Moody’s and Fitch - still cut Puerto Rico’s credit rating to junk status in February.
The pension changes were harshly criticized by the political opposition and teachers, who held demonstrations and staged strikes to protest the overhaul.
Puerto Rico’s teachers’ fund has accumulated a deficit of some $10 billion and will collapse by 2020 if it is not reformed, the government says.
A total of 7,000 teaching jobs have been eliminated over the past six years in Puerto Rico, which had 43,402 active teachers and 35,361 retired educators as of June 2013.