Fideicomiso de Retiro

Junta de Retiro
2 de abril de 2020
Comunicado Prensa

Cambios al Plan de Retiro de los empleados de UPR

atentan contra la estabilidad financiera de la UPR

El presidente de la Junta de Retiro de la Universidad de Puerto Rico, doctor Eduardo Berríos Torres,
señaló que, de aprobarse los planes de la Junta de Gobierno de congelar el Plan de Beneficios Definidos
vigente y sustituirlo por un Plan de Retiro de Contribución Definida, traerá la insolvencia y extinción del
Fideicomiso de Retiro-UPR, sacrificando la estabilidad fiscal de la Universidad de Puerto Rico y su
viabilidad futura como primer centro docente del país. La presentación para votación ante el pleno de
dicho cuerpo se pospuso; sin embargo, se incluyó en el Plan Fiscal de la UPR aprobado el 30 de marzo de
2020.

Según Berríos Torres, la firma Cavanaugh Macdonald, LLC, actuarios del Fideicomiso de Retiro-UPR,
por los pasados tres años ha validado con datos fidedignos, presentado y advertido en sus reportes, que las
iniciativas de la Junta de Gobierno de la Universidad de Puerto Rico, bajo cualquiera de los seis modelos
de congelación propuestos, traerán la insolvencia del Fideicomiso de Retiro y no reflejan resultados
salvadores como los licenciados Walter Alomar y Zoraida Buxó afirman.

De aprobarse la congelación del Plan de Retiro de Beneficios Definidos vigente, como proponen, la
estabilidad financiera de la UPR se debilitará aún más, lo cual, entre otros efectos, arriesgará la
acreditación. Además, obligará a la UPR a identificar fondos adicionales, alrededor de $500 millones
anuales, para subvencionar las pensiones.

Insistió Berríos Torres que “en ninguno de los estudios actuariales solicitados a la firma Cavanaugh
Macdonald se han presentado resultados favorables de la congelación del Plan de Beneficios Definidos
vigente. Al contrario, consistentemente, todos los modelos han reflejado que congelar el Plan vigente
provocará la insolvencia del Fideicomiso de Retiro-UPR”.

Además, el cuadro que los licenciados Alomar y Buxó han realzado para disimular su craso
incumplimiento fiduciario como cuerpo rector universitario, al cerrar el ingreso de nuevos fondos
provenientes de las aportaciones y las ganancias de los activos del Fideicomiso de Retiro UPR, tan solo
conducirá a la venta acelerada de los valores en cartera, provocando anualmente la pérdida millonaria en
réditos por ganancias provenientes de las inversiones, hasta su insolvencia.

“Las propuestas de los licenciados Alomar y Buxó harán desaparecer el Fideicomiso del Retiro UPR que
durante siete décadas se ha responsabilizado de la sustentabilidad del Plan de Beneficios Definidos y de
cubrir la millonaria nómina de sus pensionados”, sostuvo.

Esto, además, conllevará la ruina económica de la UPR y no acarreará los resultados salvadores que los
licenciados Alomar y Buxó insisten en divulgar. Ninguno ha respondido tampoco a la interrogante de
Fideicomiso de Retiro; Junta de Retiro
2 de abril de 2020
Comunicado Prensa
Pag. 2

cómo se resolverá la deuda actuarial que tiene la UPR con el Fideicomiso de Retiro, que sobrepasa los
$1,800 millones, ni cómo garantizarán su obligación fiduciaria de velar por la perpetuidad del
Fideicomiso de Retiro-UPR y cuál será el efecto para la UPR de la jubilación temprana de más de 2,625
participantes, si su propuesta es aprobada.

El presidente de la Junta de Retiro enfatizó que, contrario a lo que divulgan los licenciados Alomar y
Buxó, el Fideicomiso de Retiro UPR está solvente, es la fuente exclusiva de repago de las pensiones
vigentes y genera sobre $100 millones de ganancias anuales. Ello a pesar del incumplimiento de los
deberes fiduciarios de la JG-UPR, al no requerir a la Universidad el pago de las aportaciones patronales
anuales adeudadas e indultarle su inobservancia del pagaré para la amortización de la deuda actuarial de la
UPR que reglamentó la propia JG-UPR bajo la Certificación 146 (2015-2016).

La historia así lo comprueba: el congelar el Plan de Retiro vigente e implantar un Plan de Retiro tipo
cuenta de ahorro (401k) hará desaparecer el Fideicomiso de Retiro UPR y eliminará toda posibilidad de
garantizar las pensiones presentes y futuras. Es de todos conocido que los planes de contribución definida
(tipo cuenta de ahorro 401k), en estos momentos de crisis mundial por la pandemia provocada por el
Covid-19, son los más afectados, arrastrando grandes pérdidas a los empleados acogidos a esta opción de
ahorro para su retiro. “Hacia ese panorama incierto y una vejez empobrecida es que los licenciados
Alomar y Buxó quieren dirigir a los empleados y pensionados de la UPR efectivo al 1ro de julio de 2020,
cuando entre en vigor su propuesta de congelar el plan de retiro vigente”, concluyó Berríos Torres.
###
 Cavanaugh Macdonald
C O N S U L T I N G, L L C
The experience and dedication you deserve
December 20, 2019

Mr. Samuel Nales Pérez

Executive Director
University of Puerto Rico Retirement System
1019 Ponce de León Avenue
Rio Piedras, PR 00925

Subject: Projection Results Recommended by the Financial Oversight and Management

Board

Dear Mr. Nales Pérez:

This letter will serve to document the results of the requested projections from the Financial
Oversight and Management Board.

The results of the projections of the University of Puerto Rico Retirement System are shown in the
attached exhibits.

Regular actuarial valuations measure the System’s present financial position and contribution
adequacy by calculating and financing the liabilities created by the present benefit program. This
process involves discounting the present values of future benefit payments on behalf of present
active and retired members and their survivors.

Annual valuations do not produce information regarding future changes in the makeup of the
covered group or the amounts of benefits to be paid or investment income to be received.
Projections of the Retirement System do provide this information.

The projection of System finances over 30 years requires an assumption regarding future new
entrants to the System as well as the regular valuation assumptions used to estimate the timing of
future events for current members. As members are assumed to terminate service for any reason,
they are replaced with new entrants. Valuations are then performed on the projected active and
retired membership for each of the thirty years of the study.

The projections were performed using the June 30, 2018 valuation as a base, projecting active and
retired memberships over a thirty-year period. The active population was projected to be static
from June 30, 2018 to June 30, 2019 without replacement for members terminating during the
year. From June 30, 2019 to June 30, 2023, the active population was assumed to be reduced by
2% per year. From June 30, 2023 and beyond, the population is assumed to remain level.

3550 Busbee Pkwy, Suite 250, Kennesaw, GA 30144

Phone (678) 388-1700 • Fax (678) 388-1730
www.CavMacConsulting.com
Off GA • Bellevue, NE
Offices in Kennesaw,
The promised benefits of the System are included in the actuarial calculated contribution rates,
which are developed using the individual entry age normal cost method. Five year smoothing of
the market value of assets is used for actuarial valuation purposes. The Unfunded Actuarial
Accrued Liability is amortized by regular annual contributions as a level percentage of payroll
over a closed 30-year period beginning on June 30, 2014. We have included two alternative
amortization methods for determining the amount necessary to amortize the unfunded actuarial
accrued liability. The first method is level percentage of payroll assuming payroll will grow
annually by 1.00% per year. The second method is level dollar which assumes a payroll growth
assumption of 0.00%.

The discount rate and the assumed rate of return on the market value of assets is 6.75%. This
assumption is static and does not change over the projection period. As of June 30, 2018, the
market value of assets is $7,188,744 higher than the actuarial value of assets. This unrecognized
investment gain will be fully recognized by June 30, 2022. Once the investment gain is fully
recognized the actuarial value of assets will equal the market value of assets.

As requested, we have also provided a scenario in which the total University defined benefit plan
contribution is $100 million per year regardless of the amount of the actuarial determined
contribution. Under the scenarios which include the introduction of a defined contribution plan,
the total contribution of $100 million is reduced by employer defined contribution matching
contribution. In addition, for scenarios 6) through 10) that included a defined contributions plan
alternative, we have assumed all non-vested active members of the defined benefit plan will
transfer their accumulated contributions to the defined contribution plan, forfeiting all rights to a
benefit payable from the defined benefit plan.

Under the scenarios in which the System is frozen for vested members, these members are no
longer accruing benefits and are assumed to leave their member contributions in the System and
will be due a benefit upon obtaining retirement eligibility. They are also no longer required to
make the mandatory employee contributions to the defined benefit plan. The frozen accrued
benefits for vested members are still subject to the various early retirement factors based on their
actual retirement date.

The benefit scenarios requested by the Financial Oversight and Management Board used in the
projection are shown below.

(1) Baseline projection with no changes to System benefits.

(2) As of July 1, 2020 increase retirement eligibility to reaching age 62 and completion
of 32 years of service for all current vested active members. Vesting requirement
increased from 10 to 16 years of service. Six-year average compensation. For all
members, annual pay cap of $69,557 for benefit and employee contribution purposes.
For current non-vested members and for new hires, retirement eligibility of age 65
and 35 years of service and maximum benefit of $2,500 per month. Vesting 18 years
of service. Six-year average compensation with annual pay cap of $69,557 for benefit
and employee contribution purposes. 12% employee contributions up to $69,557
annual pay.

Page 2
(3) As of July 1, 2020 increase retirement eligibility to reaching age 62 and completion
of 35 years of service for all current vested members. Vesting requirement increased
from 10 to 18 years of service. Six-year average compensation. For all members,
annual pay cap of $69,557 for benefit and employee contribution purposes. For
current non-vested members and for new hires, retirement eligibility of age 65 and
35 years of service and maximum benefit of $2,500 per month. Vesting 18 years of
service. Six-year average compensation with annual pay cap of $69,557 for benefit
and employee contribution purposes. 12% employee contributions up to $69,557
annual pay.

(4) As of July 1, 2020 increase retirement eligibility to reaching age 65 and completion
of 32 years of service for all current vested members. Vesting requirement increased
from 10 to 16 years of service. Six-year average compensation. For all members,
annual pay cap of $69,557 for benefit and employee contribution purposes. For
current non-vested members and for new hires, retirement eligibility of age 65 and
35 years of service and maximum benefit of $2,500 per month. Vesting 18 years of
service. Six-year average compensation with annual pay cap of $69,557 for benefit
and employee contribution purposes. 12% employee contributions up to $69,557
annual pay.

(5) As of July 1, 2020 increase retirement eligibility to reaching age 65 and completion
of 35 years of service for all current vested members. Vesting requirement increased
from 10 to 18 years of service. Six-year average compensation. For all members,
annual pay cap of $69,557 for benefit and employee contribution purposes. For
current non-vested members and for new hires, retirement eligibility of age 65 and
35 years of service and maximum benefit of $2,500 per month. Vesting 18 years of
service. Six-year average compensation with annual pay cap of $69,557 for benefit
and employee contribution purposes. 12% employee contributions up to $69,557
annual pay.

(6) Freeze current Retirement System benefits as of July 1, 2020 for non-vested
members. Non-vested members will participate in a new defined contribution plan
and will have the option of keeping their contributions in the System or transfer their
contributions to a new defined contribution plan. The new defined contribution plan
with employer 50% match on member contributions of up to 2% (i.e., 1% of pay
match).

(7) Freeze current Retirement System benefits as of July 1, 2020 for all members. Non-
vested members will participate in a new defined contribution plan and will have the
option of keeping their contributions in the System or transfer their contributions to
a new defined contribution plan. Vested members will keep their contributions in the
System and be entitled to future benefits based on their frozen benefit. The new
defined contribution plan with employer 50% match on member contributions of up
to 2% (i.e., 1% of pay match).

Page 3
 (8) Freeze current Retirement System benefits as of July 1, 2020 for all members and
changes to retirement eligibility and benefit percentage. Increase retirement
eligibility from age 58 to age 65, and reduce benefit percentage from 75% to 55%.
Non-vested members will participate in a new defined contribution plan and will have
the option of keeping their contributions in the System or transfer their contributions
to a new defined contribution plan. Vested members will keep their contributions in
the System and be entitled to future benefits based on their frozen benefit. The new
defined contribution plan with employer 50% match on member contributions of up
to 2% (i.e., 1% of pay match).

(9) Freeze current Retirement System benefits as of July 1, 2020 for all members and
changes to retirement eligibility and benefit percentage and pension reduction
($1,200 per month minimum pension). Increase retirement eligibility from age 58
to age 65, and reduce benefit percentage from 75% to 55%. Non-vested members will
participate in a new defined contribution plan and will have the option of keeping
their contributions in the System or transfer of their contributions to a new defined
contribution plan. Vested members will keep their contributions in the System and be
entitled to future benefits based on their frozen benefit. Reduce current and future
benefits effective July 1, 2020 by 8.5%, but not below a monthly pension of $1,200.
The minimum pension of $1,200 would increase based on the assumed rate of
inflation. Under the defined benefit plan a reduction The new defined contribution
plan with employer 50% match on member contributions of up to 2% (i.e., 1% of pay
match).

(10) Freeze current Retirement System benefits as of July 1, 2020 for all members and
changes to retirement eligibility and benefit percentage and pension reduction
($2,000 per month minimum pension). Increase retirement eligibility from age 58
to age 65, and reduce benefit percentage from 75% to 55%. Non-vested members will
participate in a new defined contribution plan and will have the option of keeping
their contributions in the System or transfer of their contributions to a new defined
contribution plan. Vested members will keep their contributions in the System and be
entitled to future benefits based on their frozen benefit. Reduce current and future
benefits effective July 1, 2020 by 8.5%, but not below a monthly pension of $2,000.
The minimum pension of $2,000 would increase based on the assumed rate of
inflation. Under the defined benefit plan a reduction The new defined contribution
plan with employer 50% match on member contributions of up to 2% (i.e., 1% of pay
match).

The retirement rates used in the analysis are the same as those used in the June 30, 2018 valuation
except for the scenarios in which retirement eligibility has been increased. For these scenarios, the
same rates are used but are adjusted to take into account the increased age and service combinations
required for retirement.

For scenarios 8) through 10), active member frozen accrued benefits have been reduced by
26.67%.

Page 4
The contribution rates determined as a percentage of payroll in Exhibit III, where applicable,
includes members participating in both the defined benefit plan and the proposed defined
contribution plan.

The results of the projections are shown in Exhibits I through XIII. A description of the Exhibits
is shown below.

Exhibit I Projected Payroll

Exhibit II Projected Head Counts
Exhibit III Projected University Contributions
Exhibit IV Projected Member Contributions
Exhibit V Projected Unfunded Actuarial Accrued Liability
Exhibit VI Projected Funded Ratio
Exhibit VII Projected Active Present Value of Benefits
Exhibit VIII Projected Actuarial Accrued Liability
Exhibit IX Projected Normal Cost Rate
Exhibit X Projected Benefit Payments & Administrative Expenses
Exhibit XI Projected Actuarial Value of Assets
Exhibit XII Projected Market Value of Assets
Exhibit XIII Projected Negative Cash Flow

It is important to note that the System is projected to become insolvent under some of the proposed
scenarios. Under this circumstance, we have assumed that the required employer contribution will
equal the pay-as-you-go cost. In addition, we have not made adjustments to any of the actuarial
assumptions, specifically the assumed rate of return of 6.75%. The assumed rate of return is based
on the System’s current target asset allocation. If the System is headed toward insolvency, liquidity
requirements become a major concern which could alter the asset allocation of the System which
would make the current assumed rate of return inappropriate.

Actuarial Standard of Practice Number 51 (ASOP 51)

Actuarial Standards of Practice (ASOPs) are issued by the Actuarial Standards Board and are
binding for credentialed actuaries practicing in the United States. These standards generally
identify what the actuary should consider, document and disclose when performing an actuarial
assignment. In September, 2017, ASOP 51, Assessment and Disclosure of Risk Associated with
Measuring Pension Obligations and Determining Pension Plan Contributions, was issued as final
with application to measurement dates on or after November 1, 2018. This ASOP applies to
funding valuations, actuarial projections, and actuarial cost studies of proposed plan changes.

A typical retirement system faces many different risks. The greatest risk for a retirement system
is the inability to make benefit payments when due. If system assets are depleted, benefits may
not be paid which could create legal and litigation risk. The term “risk” is most commonly
associated with an outcome with undesirable results. However, in the actuarial world risk is
defined as uncertainty. The actuarial valuation process uses many actuarial assumptions to project
how future contributions and investment returns will meet the cash flow needs for future benefit
payments. Of course, we know that actual experience will not unfold exactly as anticipated by the

Page 5
assumptions and that uncertainty, whether favorable or unfavorable, creates risk. ASOP 51 defines
risk as the potential of actual future measurements deviating from expected future measurements
due to actual experience that is different than the actuarial assumptions.

The analysis provided in this letter involves significant changes to the current benefit structure of
the Retirement System. If the current members of the System become aware of this, members who
are currently eligible to retire may adopt a herd mentality and retire en masse regardless of their
own individual personal situations. The chart below demonstrates the impact on the employer
required contribution under both payroll growth assumption and the $100 million cap if all
members who are eligible to retire, retire immediately. As you can see, the required employer
contribution increases significantly. Under the $100 million cap the System becomes insolvent and
the plan becomes pay as you go. This assumes no changes are made to the current benefit structure
of the Systems which could produce future cost savings.

$250
Projected University Contributions 60%
(Millions of $'s & Percentage of Payroll)
50%
$200

40%
$150

30%

$100
20%

$50
10%

$0 0%
2018 2023 2028 2033 2038 2043 2048 2053 2058
0% PG ($ Amount) $153 $163 $160 $155 $146 $118 $1 $0 $0
1% PG ($ Amount) $139 $155 $161 $165 $165 $146 $1 $0 $0
$100 Million Cap $73 $100 $100 $100 $208 $176 $150 $136 $131
0% PG (% of Pay) 33.76% 52.56% 48.01% 42.39% 35.79% 25.70% 0.12% 0.00% 0.00%
1% PG (% of Pay) 30.57% 50.00% 48.25% 45.11% 40.50% 31.77% 0.11% 0.00% 0.00%

Page 6
Disclaimers, Caveats, and Limitations

The results shown in the numerical charts enclosed are based primarily on the June 30, 2018
valuation results, the actuarial assumptions used in the valuation, and the projections prepared by
us. Significant items are noted below:

 All demographic assumptions regarding mortality, disability, retirement, salary increases,

and termination of employment are assumed to hold true in the future.
 The number of active members covered in the future is assumed to decrease from 2019 to
2023. As active members leave covered employment, they are assumed to be replaced by
new employees who have a similar demographic profile as recent new hires.
 The funding methods, including the entry age normal cost method, the asset smoothing
method, and the amortization method and period, remain unchanged over the projection
period.

Projections are designed to identify anticipated trends rather than predicting some future state of
events. The projections are based on the System’s estimated financial status on June 30, 2018 and
project future events using one set of assumptions out of a range of many possibilities. A different
set of assumptions would lead to different results. The projections do not predict the System’s
financial condition or its ability to pay benefits in the future and do not provide any guarantee of
future financial soundness of the System. Over time, a defined benefit plan’s total cost will depend
on a number of factors, including the amount of benefits paid, the number of people paid benefits,
the duration of the benefit payments, plan expenses, and the amount of earnings on assets invested
to pay benefits. These amounts and other variables are uncertain and unknowable at the time the
projections were prepared. Because not all of the assumptions will unfold exactly as expected,
actual results will differ from the projections. To the extent that actual experience deviates
significantly from the assumptions, results could be significantly better or significantly worse than
indicated in the enclosed tables.

We certify that we are members of the American Academy of Actuaries and that we meet the
Qualification Standards of the American Academy of Actuaries to render the actuarial opinion
contained herein.

If you have any questions, please give us a call.

Sincerely,

Todd B. Green ASA, FCA, MAAA

Principal and Consulting Actuary

Enc.
S:\2018\University of Puerto Rico\Projections\Governing Board Projections.docx

Page 7
ÀÀ

UNIVERSITY OF PUERTO RICO

Revised Fiscal Plan for 2020

Beyond the Fiscal

MARCH 30, 2020

A)
The Certified Fiscal Plan contains a broad picture of UPR finances, including finances related to the
Retirement System. It notes that UPR “plays an essential role as the Island’s engine for economic and
workforce development” and “[i]n many ways, the future of Puerto Rico depends on a vibrant and
sustainable UPR.” 1 Regarding pension reform, the Certified Fiscal Plan states that the “[Certified] Fiscal
Plan outlines reform measures that UPR and the Retirement System could take to ensure pension obligations
can be paid without requiring significantly higher revenues or lower expenses, while still allowing the UPR
to achieve operating surplus (pre-debt service) within the fiscal plan period.” 2 Finally, the Certified Fiscal
Plan emphasizes the advantages of UPR’s cooperation with the FOMB:
The [FOMB] looks forward to partnering with the Government of Puerto Rico, the UPR
Governing Board, and the UPR Administration in making the transition to a “new status
quo” operating model—one that is both more efficient and effective—as seamless as
possible for the students, faculty, staff, and communities who benefit from this vital
institution. 3
In the Certified Fiscal Plan, the FOMB proposed three options for reforming the Retirement System.
● Option No. 1 would require no changes to Retirement System benefits but would involve
substantially higher employer contributions.
● Option No. 2 would require a hard freeze of the Retirement System (i.e., no further accruals of
benefits) and a move to a defined contribution plan, but no cuts to accrued benefits. Option No. 2
would also involve substantial increases in employer contributions, but relatively smaller than
under Option No. 1.
● Option No. 3 would require a hard freeze to the UPR’s current defined benefit plan and move to a
defined contribution (“DC”) plan, while progressively reduce accrued benefits in a manner similar
to ERS and TRS, while accounting for the higher funding ratio of the UPR plan. Option No. 3
would require increased employer contributions, but not nearly as much as No. 1 and No. 2.4
FOMB indicated its preferred outcome by stating that; “The [FOMB] strongly believes that Option 3 is the
most responsible course of action for UPR.” 5 Such recommendation is confirmed in correspondence from
its leading pension consultants, the United States actuarial firm of Foster & Foster Consulting Actuaries,
Inc. (“Foster & Foster”):
After considering several alternatives, the [FOMB] ultimately decided the best course of
action to achieve these goals, outlined below in Option 3, includes: (i) freezing the pension
plan and replacing it with a defined contribution plan; and (ii) a reduction in benefits which
will affect current retirees as well as those members who are still working. 6
The Ernst & Young Audited Financial Statements and Report dated June 30, 2018 (the “EY Report”), shows
a concerning picture that may drive ultimate decisions regarding the Retirement System’s design, operation,

1
Certified Fiscal Plan, Executive Summary at page 3.
2
Id.
3
Certified Fiscal Plan, Executive Summary at page 4.
4
Certified Fiscal Plan, Section 3.1: Reforms to UPR Retirement System at pages 25-27.
5
Certified Fiscal Plan, Section 3.1: Reforms to UPR Retirement System at page 27.
6
Foster & Foster Memorandum to FOMB’s Executive Director, Natalie Jaresko, dated Nov. 8, 2019 at page 1.

54
and funding. According to the EY Report, UPR is highly dependent on appropriations by the Government
of Puerto Rico to finance its operations and lacks available funding alternatives at reasonable interest rates.
Thus, the financial difficulties experienced by the Government of Puerto Rico have had and will continue
to have a significant adverse impact on UPR’s financial condition.
As per the EY Report, UPR has a limited ability to raise operating revenues due to the economic,
demographic and political related challenges of maintaining enrollment and increasing tuition.7 The plain
truth is that UPR’s financial condition is progressively deteriorating. As of June 30, 2017, UPR had total
assets of $1.5 billion, total deferred outflows of resources of $222.1 million, total liabilities of $2.92 billion,
total deferred inflows of resources of $172.9 million, and a net deficit of $1.37 billion. A year later, as of
June 30, 2018, UPR total assets decreased to $1.44 billion, total deferred outflows of resources increased
to $919.8 million, total liabilities increased to $4.11 billion, total deferred inflows of resources were down
to $126.3 million, and its net deficit increased to $1.87 billion. 8 Those are the facts.
The most significant fluctuations in UPR’s statements of net position came precisely from changes in its
net pension liability, total other post-employment benefit (“OPEB”) liability, and their related deferred
outflows and inflows of resources. Net pension liability, which amounted to approximately $2.97 billion
and $2.01 billion as of June 30, 2018 and 2017, respectively, increased by approximately $961.5 million or
48% in FY’18. This increase mainly resulted from the decrease in the discount rates used to calculate the
total pension liability, which changed from 5.89% in FY’17 to 3.92% in FY’18. 9
UPR’s net operating loss in FY’18 was primarily caused by an increase in its pension cost. Following
Governmental Accounting Standards Board (“GASB”) Statement No. 68, Accounting and Financial
Reporting for Pensions—an Amendment of GASB Statement No. 27 (GASB Statement No. 68), for FY’18
and FY’17, UPR recognized a pension cost of approximately $304.7 million and $42.7 million
respectively. 10 As a result of this, the finances of the University were in red.
According to the EY Report, UPR faces significant risks and uncertainties, including liquidity risk (i.e., not
having sufficient liquid financial resources to meet obligations when they come due). The risks and
uncertainties facing UPR together with other factors described in the EY Report, “have led EY to state that
management concludes there is substantial doubt as to the ability of UPR to continue as a going concern
in accordance with GASB Statement No. 56.” 11
The dire circumstances of the Retirement System are well documented by, among others, the Certified
Fiscal Plan, the Foster & Foster letter to the FOMB dated November 8, 2019, 12 the Ernst & Young UPR
Audited Financial Statements and Report dated June 30, 2018, 13 and the Cavanaugh Macdonald Actuarial
Projection Results dated December 20, 2019 and January 29, 2020. 14 In a nutshell, these authorities indicate
that the Retirement System is severely underfunded and, without substantial increases in funding and/or

7
EY Report at page 50.
8
EY Report at page 6.
9
Id.
10
EY Report at page 7.
11
EY Report at page 11.
12
Attached as Exhibit No. 2 is a copy of the F&F letter.
13
Attached as Exhibit No. 3 is a copy of the E&Y 2018 Audit Report.
14
Attached as Exhibit No. 4 and Exhibit No. 5 are copies of the Cavanaugh Projection Results of December 20,
2019 and January 29, 2020, respectively.

55
wide-ranging benefit reductions, it is bound to become insolvent sometime within the next twenty years. 15
For a host of reasons, such as Puerto Rico’s overall financial situation, the UPR’s historical dependence on
appropriations by the local government, the UPR’s limited ability to raise additional operating revenues,
the lack of funding alternatives at reasonable interest rates, and the Island’s demographics, it is highly
unlikely, if not impossible, for UPR to substantially increase its contributions to the Retirement System. 16
The need to transform it is imperative for the subsistence of both, the Retirement System and the UPR.

As per the Cavanaugh report, for 2018 the Retirement System was only 44% funded on an actuarial basis,
whereas, as per the EY Report, on an accounting basis, the funding percentage was just 32%.17 Assuming
annual contribution of $120 million and no changes to the current benefits structure, the Retirement Plan
will become insolvent somewhere between 2038 and 2043. Absent significant increases in funding and/or
sweeping benefit reductions, a similar result applies under several of the scenarios considered by UPR and
projected by Cavanaugh.
The Governing Board analyzed scenarios considering any or a combination of the following corrective
cost-control measures to understand the impact on the unfunded actuarial liability and cash flow
requirements for the Retirement System
1. Extending Vesting Schedule
2. Postponing Current Retirement Age
3. Reducing Average Compensation
4. Increasing Employee Contributions
5. Capping Monthly Pensions
6. Implementing a Soft Freeze
7. Implementing a Hard Freeze
8. Modifying Current Benefits Formula
9. Adjusting Monthly Pensions

To facilitate their quantification and evaluation, UPR officials grouped the aforementioned corrective cost-
control measures into various scenarios, and commissioned Cavanaugh Macdonald Consulting, LLC
(“Cavanaugh”) to prepare an actuarial study on the impact that those scenarios would have on, among
others, the funded status, accrued liability, and cash flow needs of the Retirement System. The pension
reforms that have been decided for this fiscal plan include the resulting understanding of such analysis.
The Retirement System is a mature system. Most of the actuarial accrued liability is already embedded in
retirees and vested employees already qualifying for retirement (or $2.71 billion, of the total actuarial
liability of $3.24 billion, per 2019 actuarial data, equivalent to 84%). Consequently, limiting the needed
changes to active members would be inequitably detrimental because the adjustments required to this group
would be substantial compared to the individual contributions they would be making. In other words, active
members would be covering for cash flow deficiencies necessary to cover retiree payroll obligations and
would not get a competitive long-term benefit in exchange of their contributions.
Recognizing all financial, operational and legal risks, the Governing Board of the UPR proposes a path
forward towards improving the UPR’s risk profile in the long term, mitigating legal, financial and
operational risks.

15
See, e.g., Certified Fiscal Plan at page 26 and Cavanaugh 2019 Projection Results at pages 48 and 58.
16
See E&Y 2019 Audit Report at page 14.
17
Cavanaugh Report at page 58 and EY Report at page 145.

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 Pension Policy Reform measures effective June 30, 2020
● A hard freeze of the defined benefit plan is required to start the de-risking of the UPR Balance
Sheet
The net pension liability has increased due to changes to assumptions based on experience and GASB
accounting rules. As in other public defined benefit plans, the members and retirees are living longer and
the contributions that were calculated to finance long term benefits years ago were understated and have
become obsolete. For the UPR to be able to stabilize its financial condition it has to implement a de-risking
strategy to its Balance Sheet. By implementing a hard freeze on the defined benefit plan as a de-risking
measure, the UPR reduces the risk of market uncertainties and longevity factors. As a result of this measure
coupled with the proposed funding, the UPR seeks to improve its financial position in the long run. The
frozen liability then would need to be paid through the life of the current and future retirees. This would be
the first step toward improving the University’s risk profile and ensuring the long-term financial stability
and operational feasibility of the UPR. Any adjustments to accrued benefits in addition to the hard freeze
will be analyzed through current legal frameworks on how changes would have to be done for vested active
participants and retirees on a reasonable and equitable basis.
● Increase retirement age to 65 years for vested active participants not eligible to retire on the
effective date. The following vested participants would fall under a grandfather clause: (i) 30 years
of service; or (ii) 58 years of age and 10 years of service; or (iii) age 55 and 25 years of service, as
of the effective date of the freeze.
The age extension would align the Retirement System to life and work expectancy in the current
environment.
For instance, the full benefit age for federal Social Security (also called “normal retirement age”) had been
65 for many years. However, beginning with people born in 1938 or later, that age gradually increases until
it reaches 67 for people born after 1959. Early Social Security retirement benefits continue to be available
at age 62, but at a reduced percentage.
Currently average retirement age in the UPR is 62 years. However, those active members already meeting
with the required years of services and age to retire would be grandfathered and, thus, this increase would
not be applicable to them.
● A Defined Contribution Plan deployment for all employees so they can continue saving for
retirement. The UPR would do an annual competitive matching.
Employees will have a competitive retirement tool that will allow them to continue to save for their
retirement. The UPR would make a matching contribution to all individuals at a percentage yet to be
determined.
● The Revised Fiscal Plan for FY’20 will include a total UPR contribution of $160 million.
For the Revised Fiscal Plan, the University increased by $80 million its budgeted contribution to the pension
plan. By doing so, it included $160 million as part of the Certified Fiscal Plan for FY’20 and has committed
to transfer $120 million over the next 5 years.

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