The budget for next fiscal year includes a $2.551-billion allocation to cover the total of the retired public employee pensions. This way, the government is gearing up to transform the retirement system into a pay-as-you-go plan in July, according to information provided by Governor Ricardo Rosselló.

‘We are changing the pensions to a pay-as-you-go system, which means we have to take on the entirety of pensioner expenses. In the past, they used to work with the fund of assets, and now we’ll be drawing from the general budget,’ the governor explained.

The pay-as-you-go pension system consists of having a retirement plan where the beneficiaries determine the amount they wish to contribute. They may choose to have the amount automatically deducted from their paychecks, to pay a specific amount on a regular basis, or to contribute a lump sum for the amount they want.

Rosselló explained that he made this decision to guarantee the pension payments, since the Puerto Rico Government Employees Retirement System would run out of funds this year.

‘If we hadn’t made that call, the retirement system would have run out of money,’ the governor noted during a round table with the press.

The pay-as-you-go pension plan is very similar to a 401K. Employees may choose from various investment options, and they can decide whether they want a greater yield through higher-risk funds, or greater security through funds that yield more consistent returns on investment. Upon retirement, employees may choose to get paid in a lump sum, an annuity, or monthly payments.

The governor submitted his first draft budget, which contemplates a $2.038-billion allocation to take on the pension payments for the central government retirees. With the public corporation and municipal employees, the amount adds up to $2.551 billion.

According to José Marrero, director of the Office of Management and Budget (OMB), individual contributions are not considered part of the budget. He upheld that the greatest challenge was to identify the funds to cover the pensioners.

‘The essential purpose for all the sacrifices made and measures implemented through executive orders was to cover and guarantee the pension payments. Because the impact is significant. There are $2 billion coming from the general fund, and contributions represent approximately $600 million. The impact would have been $1.4 billion, so we had to implement measures to get the budgetary funds,’ Marrero pointed out.