The deal still goes against the island government's policy of no cuts to pensions.
Puerto Rico's Financial Oversight and Management Board, created by the United States federal government to address the commonwealth's debt problems, announced a deal with the Official Commitee of Government Employees (COR) Wednesday to scale back payments of more than US$50 billion in pensions which would include cuts to retired government workers.
The board's tentative agreement, which the Puerto Rican government opposes, reached with the federally appointed COR, represents the more than 167,000 government service retirees in Puerto Rico.
Under the deal, pension cuts would be avoided for 61 percent of retirees or more than 102,000 people, while cuts to monthly pensions totaling more than US$1,200 could go upwards of 8.5 percent, according to COR.
Since the beginning of its debt crisis, Puerto Rico has been funding its retirement systems on a pay-go basis, meaning that any increase in cost must be offset by tax increases.
The agreement calls for the creation of a potentially multibillion-dollar reserve fund to help pay pensions in later years when Puerto Rico is projected to have operating deficits.
“After almost two years of legal actions, mediation sessions and negotiations we reached an agreement with the (oversight board) that will significantly limit pension cuts and provide other substantial protections,” Miguel Fabre, a former judge who chairs COR, said in a statement.
Christian Sobrino Vega, executive director of Puerto Rico's Financial Advisory and Fiscal Agency Authority (Aafaf), said the deal goes against the government's public policy of no cuts to pensions.
"Our position is, and will continue to be, zero cuts to pensions and we have the legal and fiscal mechanisms to do so,” he said in a statement.
The board called the deal "an integral part" of the upcoming plan of adjustment, which a spokesman said could be finished by the end of this month.
Meanwhile, the board and other island creditors are contesting the validity of billions of dollars of Puerto Rican bonds they contend were sold in violation of a debt limit in the commonwealth's constitution.
The fiscal control board has become a powerful symbol of the island’s colonial relationship with Washington and the sacrifice of basic rights in the name of servicing the island’s unmanageable debt load.
Under the 2016 federal PROMESA law, then-President Barack Obama appointed six board members from lists of candidates recommended by Congress, as well as a seventh member in a process that did not require Senate confirmation.