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Puerto Rico government considers pension bonds

Reuters 

August 19, 2003

SAN JUAN, Puerto Rico (Reuters) - Puerto Rico's Government Development Bank said Tuesday it was considering a $500 million bond sale to help address an $8 billion unfunded liability in its public employee pension fund.

Hector Mendez, president of the bank that acts as fiscal agent for the Commonwealth, said pension bonds are part of a larger plan forwarded to the governor to shore up Puerto Rico's pension fund, which provides benefits to the island's large public service sector.

Other steps Mendez has proposed would require approval from the U.S. territory's Legislature. Those include capping benefits and increasing the amount of contributions made by both the government and employees.

Currently, employee contributions total 8.27 percent and government contributions amount to 9.27 percent. But the amount of funds generated leaves the pension fund with a $50 million shortfall every year, according to Mendez.

The bank president, in an interview, said the government and employee contributions should both be increased to 10 percent to generate $60 million annually.

"If we put this (plan) in place, it will solve the problem in the system," Mendez said.

Mendez said the plan, if approved, would be implemented in 2005, after Puerto Rico's next gubernatorial election.

Puerto Rico is not alone among U.S. debt issuers considering pension bonds as states address unfunded liabilities in their pension systems.  


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