(H. B. 2874) (No. 114-2011) (Approved July 5, 2011) AN ACT To amend Sections 7, 8, 12, 14, 16, 20, 27, 40, 43, 47, and 51 of Act No. 91 of March 29, 2004, as amended, known as the Commonwealth of Puerto Rico Teacher s Retirement System Organic Act, for the purpose of increasing the employer contribution to the Retirement Fund as of July 1, 2011; to prohibit the use of individual and employer contributions to secure the System s debt; to prohibit the direct placement of debts secured by the assets of the System and prohibit bond issues without the consent of two-thirds (2/3) of the members of the Board and the approval of the Legislative Assembly; provide conditions for early retirements and the terms of effectiveness; and for other related purposes. STATEMENT OF MOTIVES One of the most important commitments made by our society to those who contribute to build its future is to ensure that, upon retirement, they will be able to provide for their future needs. As a representative of the people, the Legislative Assembly introduces this measure to protect our teachers in their retirement. The Teacher s Retirement System was originally created by Act No. 62 of December 5, 1917, which establishes the annuities and pensions system of teachers. This Act was repealed by Act No. 68 of March 8, 1928, which, in turn, was repealed by Act No. 161 of May 10, 1945. Act No. 218 of May 6, 1951, which repeals Act No. 161, supra, was the legal instrument of the Teacher s Retirement System Fund until March 29, 2004.
Act No. 91 of March 29 2004, as amended, known as the Commonwealth of Puerto Rico Teacher s Retirement System Organic Act, created a retirement and benefit system called the Teacher s Retirement System. The funds in this System shall be used and apply to the members of the System, their dependents and beneficiaries, for the payment of retirement and disability annuities, death benefits and annuities, and other benefits. Since its creation, the raison d être of the Retirement System has been to preserve its Savings Funds for the Puerto Rican teachers financial security. In addition to offering personal, mortgage, and cultural trips loans for teachers, the System ensures a proper pension for our teachers upon retirement. Its goal is to prevent retired teachers from becoming a social burden for our government. The following table shows the structure of pensioners and beneficiaries of the System versus active participants: Teacher s Retirement System* Years Pensioners and Beneficiaries Active Participants 2008-9 31,098 46,178 2007-8 30,172 47,250 2006-7 26,916 48,580 2005-6 26,053 47,170 2004-5 27,000 50,000 2003-4 25,219 50,817 *Data provided by Teacher s Retirement System. With the approval of this Act, our retired teachers need that the System be provided with the necessary mechanisms to direct its efforts to solidify its fiscal base thus enabling it to honor the pensions it grants and increase the benefits for which it was created. The provisions of this Act seek to provide the System with the strength and capacity to achieve actuarial balance and enable it to meet its obligations.
At this stage of their lives, our pensioners deserve and are entitled to reap the fruit of their efforts. Although its funds are not totally depleted, the System needs to increase its actuarial balance. The following Table shows how the Teacher s Retirement System compares with the other Systems: Retirement Systems as of 2009* Employees Act No. 447 of May 15, 1951 Teachers Act No. 91 of March 29, 2004 The Judiciary Act No. 12 of October 19, 1954 Net Assets $1,851,000 $2,157,593 $50,566 Actuarial Obligation ($18,944,000) ($8,721,000) ($323,928) Actuarial Deficit ($17,093,000) ($6,563,921) ($273,362) Funding Ratio 9.8% 24.7% 15.6% *Data provided by the Employees Retirement System of the Government of the Commonwealth of Puerto Rico. This System must watch over its finances and cannot afford to stimulate Early Retirement programs, which have duplicated the number of pensioners, thus accelerating its actuarial deficit. The following table shows how the structure of pensioners of the System changed with Executive Order EO-2006-14, signed by Hon. Aníbal Acevedo Vilá, in which said governor promoted an Early Retirement Program: Pensioners 2005-2008- Teacher s Retirement System* 2005 2006 2007 2008 891 1,615 1,823 1,495 *Data provided by Teacher s Retirement System The System should not do business with members of the Board, since it could create a serious conflict of interest.
The Teacher s Retirement System and other Retirement Systems have been facing a great actuarial deficit for several reasons, to wit: granting benefits for which the pensioner did not contribute, nor were considered within their benefit structure. Thus, the System s finances would be in jeopardy if its obligations are increased without seeking financing therefor. It is time to begin with an actuarial balance to fund the obligations of the Systems, because the failure to do so would mean that it is coming to its end. This measure is geared to achieving an actuarial balance between the contributions, expenses and payment of obligations of the System. Part of the deficit is also due to the fact that the employer contributions have never covered the contribution that the employer is required to make, as shown in the following table: Years Required Contribution Teacher s Retirement System* Contribution Made % Contribution Made % Contribution Not Made 2009 $393,871 $172,841 43.88 56.22 2008 $341,495 $159,101 46.59 53.41 2007 $341,160 $147,597 43.26 56.74 2006 $220,821 $150,215 68.03 31.97 2005 $229,821 $151,690 68.69 31.31 2004 $217,002 $132,403 61.01 38.99 * Data from Basic Financial Statement, 2009, Deloitte & Touche, LLP. We must take into consideration that employer contributions have not been increased in quite a long time, since when individual contributions were increased under Act No. 43 of January 27, 2000, such an increase was for individual contributions. We must bear in mind that employers do not make social security contributions for their employees, so an increase in employer contributions should
not be deemed to be a burden. In the last actuarial valuation, actuaries recommended that both contributions should total 33.65%. At present, individual and employer contributions amount to 17.5%. With the approval of this measure, this Legislative Assembly seeks that all contribute to the strengthening of the Teacher s Retirement System, so that our retired teachers may enjoy their pension that shall provide them with confidence and financial security. BE IT ENACTED BY THE LEGISLATIVE ASSEMBLY OF PUERTO RICO: Section 1.- Section 7 of Act No. 91 of March 29, 2004, as amended, known as the Commonwealth of Puerto Rico Teacher s Retirement System Organic Act, is hereby amended to read as follows: Section 7.- Constitution. The powers and faculties of the Retirement System and the responsibility for its general administration and proper operation shall fall on the Board of Trustees hereby created, known as the Board of Trustees of the Puerto Rico Teacher s Retirement System, which shall be constituted by nine (9) members of which the following three (3) shall be ex-officio members, and their attendance shall not be delegated when the Chairperson requires it: (a) The Secretary of the Treasury of Puerto Rico or his/her representative, who shall be its Chairperson. (b) The Secretary of Education of Puerto Rico or his/her representative. (c) The President of the Government Development Bank or his/her representative. Of the six (6) remaining members, one (1) or his/her representative, shall be the Chairperson of a teacher s organization, or his/her representative designated by the Governor of the Commonwealth of Puerto Rico, with the advice and consent of the Senate, for a term of four (4) years; three (3) teachers of the System, one (1) of
which shall represent duly certified teachers in active service, and two (2) that shall represent retired teachers who upon retirement were duly certified. These three members shall be appointed by the Governor of the Commonwealth of Puerto Rico, with the advice and consent of the Senate, for a term of four (4) years and shall hold office until the successors are appointed and take office. One (1) of the members, or his/her representative, shall be the Chairperson of the entity that represents the proper unit under Act No. 45 of February 25, 1998, as amended. The Chairperson of the teacher s organization and the representatives of the active and retired teachers, who at the time this Act is approved hold said positions in the Teacher s Retirement Board, shall continue to hold said positions until their terms expire. There shall also be one (1) additional member, as representative of the public interest, with knowledge of and experience in the administration and operation of financial systems, appointed by the Governor of Puerto Rico with the advice and consent of the Senate, for an original term of four (4) years. As said initial terms expire, the Governor of the Commonwealth of Puerto Rico shall appoint their successors for a term of four (4) years. Should a vacancy arise, in case of resignation, death, or dismissal, the person selected to substitute the resigning, deceased, or dismissed member shall hold the position for the period of time remaining to the original member. Once sworn in, those trustees (or their representatives) upon which the responsibility of being Chairperson of any teacher s organization falls, shall not have the authority to represent their respective organizations, but shall act with full powers and responsibilities as trustees of the Teacher s Retirement System. However, they may inform their respective organizations of the agreements and works carried out therein.
No member of the Board shall do business with the System or have relatives up to the fourth degree of consanguinity or second of affinity working within the System. Section 2.- Section 8 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 8.- Organization; Sessions; Offices. Once the Board of Trustees has been appointed and constituted, all members of said Board shall be immediately summoned in writing in order to hold an inaugural session. The Secretary of the Treasury shall act as Chairperson of the Board of Trustees. The Chairperson, Vice-Chairperson, and Treasurer of the Board of Trustees shall be elected by secret vote cast by a majority of its members. The Board of Trustees may appoint one Secretary in charge of the minutes as administrative officer under the supervision of the Executive Director, with the duties and obligations adopted in the regulations of the Board of Trustees that are consistent with this Act for the proper operation of the Board and as support for the Executive Director. All matters the Board of Trustees may deem pertinent for its best administration and operation may be considered during this session. The Board of Trustees shall hold at least one (1) monthly regular session and special sessions when the needs of the service so warrant, through a summons to be delivered by the Chairperson of the Board of Trustees to all other of its members or at the request of a majority of the members of said Board within two (2) days before the holding thereof and which summons shall include the agenda to be discussed.
Section 3.- Section 14 of Act No. 91 of March 29, 2004, as amended, is amended to read as follows: Section 14.- Annuities and Pension Fund Transference. The Puerto Rico Teacher s Annuities and Pension Fund, created by virtue of Act No. 218 of May 6, 1951, as amended, is hereby transferred as follows: (a) With the funds and assets of the Puerto Rico Teacher s Annuities and Pension Fund by the date of effectiveness of this Act. (b) With the individual contributions fixed, as provided in Section 16(A) of this Act, to be deducted from the salaries of the teachers members of the System. (c) With the employer contributions fixed, as provided in Section 16(B) of this Act, from the total monthly payroll paid by the Government of Puerto Rico to all teachers who avail themselves of the benefits of this Act. This amount shall be payable to the Fund by the Government of Puerto Rico at the same time the salaries of the teachers of the System are paid, chargeable to the appropriations made by the Legislature of Puerto Rico to cover this item. (d) Section 4.- Section 16 of Act No. 91 of March 29, 2004, as amended, is herby amended to read as follows: Section 16.- Contributions to the Teacher s Annuities and Pension Fund. (A) Individual Contribution: As of the approval of this Act, all teachers and employees of the System shall make a contribution to the Fund consisting of nine percent (9%) of their total monthly salary.
(B) Employer Contribution: Starting on July 1, 2011, all employers shall make a monthly contribution equal to nine point five percent (9.5%) of the monthly salary of the participant of the System. As of July 1, 2012 through June 30, 2016, the employer contribution shall be increased annually by one percent (1%) of the monthly salary of the participant of the System. As of July 1, 2016 through June 30, 2021, the employer contribution shall be increased annually by one point twenty-five percent (1.25%) of the participant s monthly salary. (C) The participants contribution to the Fund, as well as the employer s contribution, shall be evaluated by means of the corresponding actuarial study as deemed necessary by the System. Said evaluation shall never exceed five (5) years. Individual and employer contributions shall not be used to secure debts of the System or be pledged nor given as collateral by the System to take loans without the consent of two-thirds of the members of the Board of Trustees of the System by secret vote, and legislation approved by the Legislative Assembly specifically authorizing such use. In the event that an amendment is introduced in the Legislative Assembly to eliminate the provisions of this Act regarding the consent required to take loans pledging employer contributions as security, the approval of the Legislative Assembly through the vote of two-thirds of the members of both the Senate and the House of Representatives shall be necessary to approve such amendment. Section 5.- Section 20 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 20.- Applications by Teachers who hold office in the Government; Reciprocity. (a) Teachers of any category who hold office or occupy administrative positions in the Department of Education, or in any Office of the School Director attached to a municipality or in any charitable learning institution for boys or girls,
have all the rights and duties that by the provisions of this Act are granted to the teachers, this condition being indispensable for enjoying those rights and that, in such cases, the Secretary of the Treasury, at the request of said teachers, shall order the monthly withholding of the individual contribution from their salaries as provided under Section 16(A) of this Act for the Retirement Fund. Any of the aforementioned teachers who chooses to belong to the Teacher s Retirement System and who has accrued funds in the Retirement System of the Employees of the Government of the Commonwealth of Puerto Rico and its Instrumentalities may request the transfer of said funds to the Teacher s Retirement System and the years corresponding to said transferred funds shall be taken into account when computing the lifetime annual income. (b) Teachers of any category who work as teachers in any state or territory of the United States that has a reciprocity clause with Puerto Rico may request that the Teacher s Retirement System transfer their fees in the Fund to the pension fund of the corresponding state or territory, accompanied by a certification accrediting the number of years of services rendered. Section 6.- Section 27 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 27.- Computation of Years of Service. The basis for computing the years of service to which a teacher is entitled shall be the date of the first original appointment for rendering services. All periods involving separation from service and leave without pay shall be excluded from said computation and shall not be taken into account for the purposes of retirement, except for those periods involving leave with or without pay and scholarship grants, provided said leaves and scholarship grants are used for professional improvement. In the case of leave with pay and scholarship grants, the individual contribution shall be deducted from the salary or scholarship grant, as
provided under Section 16(A) of this Act, in the retirement payroll and in the case of leave without pay, teachers shall be required to contribute to the Fund a sum equal to the sum they would contribute if in service and provide evidence that they have successfully taken at least twelve (12) university credit hours at a recognized university for each year of leave. Those teachers in the System who may have been granted leave with or without pay, or scholarship grants, for professional improvement, shall have the right to be credited the period of said leave, provided that they contribute to the Fund a sum equal to what they would have contributed if they had been in service and provided that they also demonstrate having passed during each year of leave twelve (12) university credits in a recognized university. In the case of teachers about whom the Department of Education has no documentation providing evidence of their having been granted leave, and as long as the Teacher s Retirement Fund has evidence indicating that said teachers were in service before and after enjoying said leave, it shall be sufficient for the teachers to submit official evidence from the university where they studied vouching for the fact that they improved professionally in the field of education. Section 7.- Section 40 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 40.- Lifetime Annual Income. Those teachers or employees who retire from service for years of services rendered shall be entitled to a lifetime annual income which shall consist of: (a)
(c) With regard to those cases mentioned in paragraphs (b)1, (b)2, and (b)3 of this Section, all members of the System must contribute to the Fund nine percent (9%) of the total monthly salary earned during a minimum period of five (5) years after availing themselves of such benefits. Section 8.- Section 43 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 43.- Investments - Types Authorized. The System shall invest all available resources that are not required for its regular operations and it is hereby authorized to invest said resources in the following securities: (1) (7) Authorization to Incur Debts. The Board of Trustees may only authorize the Executive Director to borrow from any financial institution of the Government of the Commonwealth of Puerto Rico or the federal government of the United States, or through direct debt placements whose interest shall be exempt from the payment of income taxes to the Government of Puerto Rico, strictly subject to the conditions provided hereinbelow. A Bond Issue is hereby prohibited as part of the direct placement of the debt, securing said debt with the assets of the System, without the consent of two-thirds of the members of the Board of Trustees of the System, by secret vote, and legislation approved by the Legislative Assembly specifically authorizing such placement. This voting of the Board shall be detailed in the minutes of the Board by recording therein the number of votes in favor and against the same. If the placement is made without such consent, or without the approval of legislation, it shall not be valid or binding on the System.
Any investments made under the provisions of this Act shall be executed with the foresight and care and under the criteria that prudent, reasonable, and experienced individuals exercise in conducting their own affairs for investment and not speculative purposes, also taking into consideration the balance that must exist between yield and risk expectations. The Secretary of the Treasury, in the performance of his/her duties as collecting and paying agent of the System, shall remit to the latter any surplus under its custody generated as a result of said operations. Furthermore, all investments that are not excluded by the Investment Regulations of the System or the investment guidelines promulgated by the Government Development Bank for Puerto Rico are hereby included. Section 9.- Section 47 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 47.- Regular and Special Appropriations. In order to maintain the economic solvency of the System created by the provisions of this Act and so as to provide adequate retirement benefits for the teachers and employees of the System, the Government of the Commonwealth of Puerto Rico shall contribute the following amounts that shall be consigned by the Legislature of Puerto Rico in the General Budget of Expenses of the Government: (a) A regular appropriation equal to employer contribution as provided under Section 16(B) of the total amount of the annual salaries of all System teachers employed by the Government of Puerto Rico. The Teacher s Retirement System shall be responsible for the regular appropriation of the employer contribution as provided under Section 16(B) from the salaries of the employees who avail themselves of the System. Employer contributions shall never be used to secure the debts of the System.
Section 10.- Section 51 of Act No. 91 of March 29, 2004, as amended, is hereby amended to read as follows: Section 51.- Transfer to the Office of the School Principal. Teachers working in the school principal s office and performing teaching functions who wish to continue as members of the Teacher s Retirement System must apply to do so in a letter addressed to the Teacher s Retirement Board. Should their application be approved, they shall contribute to the Fund the individual contribution fixed in Section 16(A) from their monthly salary and the municipal entity to which they belong shall contribute the employer contribution fixed in Section 16(B) from said salaries; it being understood that this deduction shall never be less than what a teacher working in the public schools would have to pay according to the basic salary they receive. Both the fees contributed by the teacher and the municipal entity shall appear in the monthly payroll. From the fees to be transferred to other systems, any balance indebted to the System at the time of the transfer shall be retained or pledged, at the discretion of the System. Section 11.- Insofar as the System is not at least 75% funded, no Incentivized Retirement may be granted. Section 12.- Severability Clause. If any provision of this Act were held to be null and void or unconstitutional by any competent court, such holding shall not affect the remaining provisions thereof, which shall remain in full force and effect. Section 13.- Effectiveness. This Act shall take effect on July 1, 2011.
CERTIFICATION I hereby certify to the Secretary of State that the following Act No. 114-2011 (H. B. 2874) of the 5 th Regular Session of the 16 th Legislative Assembly of Puerto Rico: AN ACT to amend Sections 7, 8, 12, 14, 16, 20, 27, 40, 43, 47, and 51 of Act No. 91 of March 29, 2004, as amended, known as the Commonwealth of Puerto Rico Teacher s Retirement System Organic Act, for the purpose of increasing the employer contribution to the Retirement Fund as of July 1, 2011; to prohibit the use of individual and employer contributions to secure the System s debt; to prohibit the direct placement of debts secured by the assets of the System and prohibit bond issues without the consent of two-thirds (2/3) of the members of the Board and the approval of the Legislative Assembly; provide conditions for early retirements and the terms of effectiveness; and for other related purposes. has been translated from Spanish to English and that the English version is correct. In San Juan, Puerto Rico, on this 13 th day of May, 2015. Juan Luis Martínez Martínez Acting Director