Puerto Rico: Pay-As-You-Exit

Actuarial reports, especially for public plans where they are available online, wind up being similar not only as to funding gimmicks but also appearance. When an actuary comes up with an idea that reduces contributions or imbues the presentation of a hopeless situation with a sense of normalcy others pick up on it.

The June 30, 2015 actuarial report for the Puerto Rico Government Employees Retirement System (PRGERS) presented such a challenge for Milliman and here is how they stepped up:

Putting numbers to the fiasco:

That’s right.  The asset value (now called fiduciary net position) is negative, liabilities are valued at $32.7 billion, and annual payouts to 126,742 retirees total about $1.6 billion not including the $194 million cost of the bonds to make those payments. Yet when we get to the pages on the calculation of the contribution it comes down to:

A contribution of one-third of the benefits actually being paid out! Milliman did not put a name to the funding method they used to develop this amount, as even pay-as-you-go would not work, so may I suggest:

The question then is who pays after everyone exits.

6 responses to this post.

  1. Posted by steve on May 7, 2017 at 7:18 pm

    Hal Roach would be proud of you—–I will nominate our gang for office-can you put dead people on the ballot?–the dems have not tried that yet


  2. Posted by Mike on May 8, 2017 at 8:08 am

    Like Puerto Rico itself, the pubic pension plan of PR is in truly dire financial shape. I thought the Milliman report did a good job of showing just how bad things were.
    – Gross assets are $2.8 bn, while plan liabilities, mostly for people already retired, are $33 bn. Without a lot more money injected, gross assets will run dry in a couple of years.
    – The plan itself has borrowed money; as Milliman notes, this is very uncommon. The plan owes $3.4 bn, so that “net” plan assets are $-0.6 bn.

    Since the PR government financial situation is so completely terrible, there is little chance that employer contributions will come to the plan’s rescue. Once the gross assets run out, employee contributions will presumably go to paying bond interest & principal, leaving not very much for retirees.

    My one criticism of the Milliman report is that I wish it had spent a few more words discussing plan assets, particularly as the asset values are unaudited. Presumably the assets do not include PR government bonds or local corporate bonds and equities, I did wonder why the plan had to borrow funds rather than sell assets. On the other hand, plan assets will be gone soon, so perhaps an extended actuarial discussion would be of only theoretical interest.


  3. Posted by George on May 9, 2017 at 11:04 am

    Peurto => Puerto


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  5. […] June 30, 2015 actuarial report the Puerto Rico Government Employees Retirement System was already issuing debt to pay retirees but that avenue is apparently shut. Now it looks like Puerto Rico will be putting 126,742 former […]


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