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The government of Puerto Rico and its federal oversight board were asked to explain what happened to the money of tens of thousands of public workers who’ve been contributing to the government’s 401(k)-style plan for at least six months.
Four national unions want a federal judge to authorize discovery to “understand” whether and, if so, how the Commonwealth of Puerto Rico took money--via employee contributions deducted from their pay--without depositing it into individual employee accounts.
The unions are asking whether this occurred with the “implicit blessing” of the Financial Oversight and Management Board for Puerto Rico, and in violation of commonwealth law.
The oversight board declined to comment, saying the matter pertains to ongoing legal procedures.
The government recently said that approximately $133 million in employee contributions are commingled with other “pension related” assets in a “single government account,” rather than individual accounts as required by law, according to a joint motion filed Feb. 27 in the U.S. District Court for the District of Puerto Rico.
The workers haven’t received investment control, or even specific information, about the individual retirement accounts required by the law, the motion said. The unions point to investment losses the workers may have suffered from July 2017 to February 2018, when the market increased 11.4 percent. As far as the workers know, their “mandatory contributions have essentially been hidden under a mattress” by the government during this time.
The government 401(k)-style plan stems from a 2017 pension overhaul that aimed to implement “a new method for safeguarding pensions for government retirees,” according to court documents. Law 106, which was passed in 2017, requires public workers to contribute at least 8.5 percent of their monthly wages to their retirement accounts and provided for the creation of a government retirement board.
The government hasn’t set up the individual accounts or segregated the individual contributions to the unions’ knowledge, according to the motion. The government has also failed to create the retirement board, which was set to serve as the plan fiduciary, the motion said.
“If employee money has essentially been placed under a mattress during the recent stock market rally, they must be compensated for the illegal misuse and breach of fiduciary duty over their property by the government,” the unions said.
The motion was filed by the American Federation of State, County and Municipal Employees International Union; the American Federation of Teachers; the International Union; United Automobile, Aerospace and Agricultural Implement Workers of America; and the Service Employees International Union. The motion was filed in the ongoing Puerto Rico bankruptcy case.
The government didn’t immediately respond to Bloomberg Law’s request for comment.
Saul Ewing Arnstein & Lehr LLP, AFSCME, Strook & Strook & Lavan LLP, and Cohen Weiss & Simon LLP represent the unions.
The case is In Re Fin. Oversight & Mgmt. Bd. for Puerto Rico, D.P.R., No. 17-03283-LTS, joint motion for an order authorizing discovery under bankruptcy Rule 2004 2/27/18.
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