A declaration of support for the first day pleadings filed by the fund’s administrator, Richard S. Villagomez, says the plan covers approximately 2,800 actively-employed members and 2,400 retirees. It was previously closed to new members.
According to Villagomez, the plan for the U.S. Commonwealth has had difficulty maintaining healthy funding levels due to a combination of factors, including: the failure of the Commonwealth’s central government and autonomous agencies to remit full employer contributions; a difficult investing climate over the most recent three to four years; and a benefit structure that has been continuously increased and made more generous by the Commonwealth government without a corresponding increase in funding to the plan to cover increased costs. In addition, the Commonwealth Government has passed laws declaring payment holidays, diverting earmarked revenues from the fund and reducing contribution rates for the Commonwealth Government, its agencies and political subdivisions.
The fund’s last actuarial report as of October 1, 2009, showed it was approximately 38.8% funded. However, the fund estimates it is currently 32% funded. It expects it will deplete its assets by July, 2014, and thereafter be unable to provide any level of benefits to current and future beneficiaries.
The declaration noted that on August 2, 2006, the pension plan sued the Commonwealth for failure to remit employer contributions. After granting a default judgment, on June 29, 2009, the Commonwealth Superior Court awarded the plan a judgment against the Commonwealth for the sum of $231 million. Post-judgment, this amount has grown to approximately $325 million as a result of the Commonwealth’s continued underpayment, and the accrual of interest and penalties.
A letter to the fund’s members stated that although the fund is filing bankruptcy, it will not be liquidated or closed. “We are just restructuring the Fund’s obligations to align them with the Fund’s current assets and revenues. Without such steps, there is a significant risk the Fund would be unable to continue operations beyond the middle of 2014,” the letter said.
The fund chose to file a Chapter 11 restructuring because it gives the best chance to provide a sustainable level of benefits to its members.
“The process we’re pursuing gives us powerful tools to align our current obligations with our current assets and revenues; and, with the court’s permission, to plan, develop and implement changes to the pension program that we did not have the ability to do without court intervention. Additionally, Chapter 11 allows us to focus on our priorities: providing benefit payments while pursuing our claims against the government with all our members having a voice during the restructuring process,” stated the letter.
To ensure that retirees continue to receive benefit payments during the court proceedings, the fund created a new entity, Pension Holdings Corporation. This is prefunded with up to two months of benefit payments.
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