Disarming Puerto Rico's Pension Time Bomb

With the long-delayed commencement of negotiations between the new government of the Commonwealth of Puerto Rico (the “Commonwealth”) and its financial creditors finally underway, and the expiration of the existing stay on creditor actions looming, much of the financial press' attention over the next several weeks will undoubtedly be focused on whether the government of Puerto Rico can reach an out of-court settlement with its financial creditors. One issue that has received less attention in the financial press, but which is of paramount importance to a financially secure local economy, is the challenge Puerto Rico confronts in reforming its multiple pension systems. This article identifies the two legal mechanisms available to the Commonwealth government to reform its public pension systems — namely, legislative action or implementation of reforms through one or more Title III proceeding(s) under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Focusing on the central government's Employee Retirement System, which is the largest of the Commonwealth's public pension systems, we analyze the key considerations that will undoubtedly influence the decision of how to proceed