The Commonwealth Retirement System has an accumulated actuarial deficit of $13 billion, and if measures are not taken now to deal with the problem the system will not be able to pay out pensions in the next few years, officials say.
Between 2005 and 2007 the deficit went up by $5 billion, an unprecedented jump in its long history of deficits, which began in 1991. The entity has $4 billion in assets and $17 billion in obligations, said Angel Febos Marrero, executive director of the Special Permanent Commission on Retirement Systems.
The Legislature is currently evaluating two measures aimed at transferring to the Cooperative Bank and to the rest of the co-op banks the portfolio of loans from the retirement system as well as the Teachers Retirement System, the latter of which has a $3 billion deficit. Critics of the proposal have said it will leave the retirement systems without the added revenues of interest on the loans, but Febos Marrero disagreed.
"The cooperatives will be able to design a special loan program for public servants, and participants will be able to benefit from the low interest rates if they become members," he said recently during a Senate hearing.
The Commonwealth Retirement System avoided bankruptcy a few years ago because of a $2 billion bond issue. Héctor Mayol Kaufmann, administrator of the Commonwealth Retirement System, backed the bills to allow the co-op banks to take over the loan portfolios of the system.
"The number of retirees has gone up and the need to offer services has elevated operational costs significantly," he said at the hearing.
The Government Retirees Association opposes the measure because, it says, not only will it not ease the delicate financial situation of the systems, it will reduce revenues. "The retirement system will no longer receive a substantial amount of money on the interest rate of loans. For instance, the 12 percent on personal loan interest rates," association President Roberto Aquino said.
Teachers Association President Aida Díaz, who has said the fiscal crisis at the Teachers Retirement System could bring it down in at least 10 years, also objected to the bill.
The Education Department has been unable to increase contributions to the retirement system.
"The grave situation in the retirement system has been caused by the government by enabling retirement windows without any control. The contributions made by the government to the retirement system of teachers are lower than that of other public workers," she said last week.
Díaz objected to the legislation because she said it will allow the co-op banks to take the retirement savings of teachers who default on personal loans. This could leave teachers without any retirement money since public school teachers do not receive social security.
She urged the leaders of teacher union groups to join forces to find strategies to save the retirement system.