Supreme Court Clears Bankruptcy Restructuring of Puerto Rico Government Pension Plans
On June 1, 2020, the Supreme Court of the United States issued a unanimous decision in Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, No. 18–1334, holding that the selection of the members of the Financial and Oversight Management Board for Puerto Rico did not violate the Appointments Clause of the U.S. Constitution. Consequently, the Board’s actions regarding the management and control of the budget and other financial matters of the government of Puerto Rico, including the restructuring of local public pension plans through bankruptcy, remain valid. While the restructuring process has not yet ended, barring unexpected developments within the next couple of years the plans are likely to be modified as follows:
- the accumulation of additional defined accruals will be permanently frozen;
- government employees in Puerto Rico will be covered solely under a defined contributions/savings plan; and
- previously accrued pension benefits will be reduced by up to 8.5 percent.
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