Puerto Rico Supreme Court Upholds Pension Reform

July 1, 2013 (PLANSPONSOR.com) – Puerto Rico’s Supreme Court has upheld the constitutionality of a pension reform law.

Known as Act 3, the pension reform law was deemed constitutional despite reducing acquired benefits, according to Business News Americas. The court noted that without the reforms, Puerto Rico’s Employees’ Retirement System (ERS) would have gone bankrupt within the next few years due to years of being underfunded.

According to the news report, the ERS had $5 billion in assets at the end of fiscal year 2011, including $3 billion of previously issued pension bond proceeds. During fiscal year 2012, outflows for benefits and pension bond debt service were $1.7 billion, compared with employee contribution inflows of only $322 million.

Act 3, which was originally passed in April, will raise the retirement age for some state workers, increase worker contributions to the plan and lower monthly pensions and benefits for some public workers. It will also reduce state workers’ Christmas bonuses and eliminate summer bonus payments (see “Puerto Rico Governor Approves Pension Reform”).