My “short” Take on the Teachers Retirement Fund Opinion

The PR legislature enacted severe cuts to the Teacher’s retirement claiming that if it was not done, it would run out of money by 2020. Yesterday, the PR Supreme Court declared in Asociación de Maestros de PR, et als, v. Sistema de Retiro de Maestros de PR, that most of the reforms made to the Teacher’s Retirement were unconstitutional. Their reasoning was based on the Teacher’s expert witness evidence that due to these reforms, thousands of teachers would retire and that this would cause the fund to run out of money on or before 2020. The Court reasoned that any impairment of contractual obligations would need to further the important governmental interest it intends. If it does not, it is unconstitutional

Although at first glance it would seem that the PR legislature could order the needed actuarial reports in order to enact a similar bill, this is not the case. The majority opinion made clear that since it was making this determination, it did not need to review if there were less punitive measures which could be enacted in order to save the retirement fund or any of the other Constitutional issues raised. In other words, even if the PR legislature did its job, it could be declared unconstitutional for other reasons. Moreover, some of my sources in the legislature that question whether the legislature has the time to do the work, which may mean it lacks the will to do so. The Senate approved the measure by only one vote, 14-13.

That the legislature may simply ignore the Teacher’s Retirement fund crisis but this could trigger further downgrade of the island’s already bruised bonds. Moody’s, Fitch and Standard and Poor have all listed the woefully underfunded retirement funds for the island’s downgrade to junk status. Not doing anything could accelerate the slide.

Of further importance is that the PR Supreme Court has decided three cases on the constitutional issue of the impairment of contractual obligations, to wit, Trinidad v. ELA, 2013 TSPR 73 and Domínguez Castro et al. v. E.L.A. I, 178 D.P.R. 1 (2010), cert denied, Domínguez Castro v. Puerto Rico, 131 S. Ct. 152  (2010) and Asociación de Maestros de PR, et als, v. Sistema de Retiro de Maestros de PR of April 11, 2014. This last case would seem to make it more difficult for the Government to impair those obligations in which it is a party. If that were the case, it could make the proposed PR Bankruptcy law more difficult to enact, operative word, could. Further study on the subject is needed.

 

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2 comments

  1. If I understood you correctly, you are saying that there is the possibility that even if the legislature enact a new reform law it could be declared incostitutional again? If so, there is no way to reform the pension system and a default of the pension system inevitable?

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