Puerto Rico’s long history of failing to pay its pension obligations is expected to haunt the U.S. territory even after its bankruptcy ends.
A proposed bankruptcy restructuring under consideration by a federal judge would end defined-benefit retirement programs covering tens of thousands of active teachers and judges in Puerto Rico. The pension benefits public employees have already earned would be honored when they retire, although current workers can’t accrue anything more.
Those measures would help close a roughly $55 billion gap between the retirement benefits owed to public servants in Puerto Rico and the funding set aside to pay them. Active teachers and judges are being shifted under the bankruptcy plan into defined-contribution retirement products akin to 401(k)s, ending the defined-benefit formulas in place when many of their careers began. Retirement ages would be increased, delaying when pensions can be tapped.
Fixing the pensions system in Puerto Rico will continue to burden both its employees and its shrinking base of taxpayers. The bankruptcy plan pays in full the defined benefits accrued over the past few decades, when politicians routinely dispensed pension enhancements and other retirement perks without the proper funding.
“Teachers that were close to retirement, those teachers are now going to have to work more years to retire with less money.”
— Luis Colón Santos, teacher in San Juan, Puerto Rico
Luis Colón Santos
has been a teacher in Puerto Rico for nearly 16 years. When he started, the 40-year-old San Juan resident’s monthly salary was $1,650. Since then, he has earned four teaching licenses and is completing his doctorate in education. He now earns $2,010 a month.
He said he was previously scheduled to collect $1,400 in monthly pension benefits when he expected to retire at age 55. Now, if the bankruptcy plan is approved, he said must wait to retire at 63 and will receive no more than $600.
“Teachers that were close to retirement, those teachers are now going to have to work more years to retire with less money,” he said.
Municipal bankruptcies are rare, but U.S. cities, counties and other small public entities have at times used bankruptcy protection to reduce pension liabilities, bond debt and other financial obligations. About half of states authorize their cities to declare bankruptcy, which can put pensioners against bondholders in competition for overstretched resources. Elected officials can face pressure to honor pensions, especially the benefits already promised.
“There’s pretty widespread agreement that pension benefits can be reduced in bankruptcy as a legal matter. But in these big municipal bankruptcy cases, I think what we’ve really seen is political pressure not to do that,” said
a professor at the University of Minnesota law school who has studied legal issues around public retirement.
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Puerto Rico’s bondholders have accepted write-downs that cut $90.4 billion in scheduled debt payments to $34.1 billion under its bankruptcy plan, which analysts expect to be approved in the next several weeks. The oversight board steering the territory through its fiscal crisis insisted for years that annual pensions above $18,000 be reduced as well. A majority of public retirees in Puerto Rico collect monthly benefits of less than $12,000 a year, according to court papers filed by an official committee of pensioners.
“People have already performed the service, and this is part of the contract with them,” said
Jeannine Markoe Raymond
of the National Association of State Retirement Administrators. “The benefit is still owed, whether or not the government has set money aside to prefund it.”
Active teachers and judges will still have their pension accruals frozen under the bankruptcy plan, assuming it wins court approval. Teachers’ unions and judges’ associations in Puerto Rico voted to oppose the restructuring and argued against its approval in court, objecting to the midcareer change in retirement formulas.
the oversight board’s executive director, said retirees aren’t to blame for Puerto Rico’s fiscal crisis after previous governments underfunded pensions for decades. But without the benefit freeze, Puerto Rico faces billions of dollars in additional, unpredictable costs that would make the restructuring plan unfeasible, she said.
Since as early as the 1950s, elected officials added a range of benefits to retirement packages such as Christmas and summer bonuses, medical contributions, post-hoc cost-of-living increases, early retirement and personal loans for mortgages and cultural excursions. Employer contributions, which were set by statute, consistently fell short of what was required to keep the pension systems sound as politicians spent on other priorities.
“These are programs that affect people over an incredibly long period, and yet they’re being governed by people whose time frames run from now until the next election,” said
an oversight board member and senior fellow at the American Enterprise Institute, a conservative-leaning think tank.
Reforms that began in 1990 scaled back retirement packages for newly hired workers. But those changes didn’t tackle the unfunded liabilities stemming from older participants, many of whom could retire at age 55 with 30 years of service and lifetime payments of 75% of their highest annual salaries. Retirement benefits were curtailed again under a 2013 pension overhaul that was partially overturned in court.
With pension trust funds now depleted, retirement benefits are a line item on Puerto Rico’s budget expected to cost roughly $2.3 billion in the current fiscal year. After the bankruptcy ends, early-retirement and other compensation and benefit programs could be enhanced again for police officers, teachers and others under a deal between the oversight board and Mr. Pierluisi. To generate net savings, the government won’t replace employees who take early retirement, the governor said last month.
Spiraling retirement obligations aren’t unique to Puerto Rico. Pension burdens have ballooned for many other U.S. cities and states after two decades of disappointing market returns, lower-than-necessary government and worker contributions and losses during the 2007-09 financial crisis.
Some states such as Illinois and New Jersey are also heavily burdened by pension and bond debt, but federal law doesn’t give states a bankruptcy option. The most deeply indebted major U.S. city, Chicago, which lacks state authority to declare bankruptcy, has $11 billion in bond debt and net pension liabilities of $53 billion, according to Moody’s Investors Service.
“I’m very relieved that our pensions aren’t going to be cut, because that would affect my life tremendously.”
— Blanca Paniagua, retiree in Carolina, Puerto Rico
Investors in the broader muni market remain unfazed. Demand for municipal debt and its tax-free yields outstrips supply. The S&P Municipal Bond Index has risen 19% since Puerto Rico entered bankruptcy protection as of Dec. 22. Some Puerto Rico debt has even rallied as the bankruptcy settlement has coalesced, with prices on general-obligation bonds issued in 2014 rising to more than 86 cents on the dollar as of Dec. 10 from lows in 2017 of 21 cents.
started working in 1969 as an accountant in Puerto Rico’s Treasury Department before going on to work with the territory’s nutritional assistance program. Since retiring in 2000, she has received a pension of $1,200 a month, she said, a benefit that won’t be affected by the bankruptcy. The 80-year old Carolina resident said she is thankful, since her pension barely covers the costs of electricity, gas and telephone service. She relies on some assistance from her son to pay her rent.
“I’m very relieved that our pensions aren’t going to be cut, because that would affect my life tremendously,” she said.
shares tumbled 38% in Wednesday’s after-hours trading, after the remote healthcare provider reported deeper-than-expected losses for the first quarter and cut its financial projections for the year. The stock already had slid 70% over the past 12 months as the company struggled to shake off concerns that it’s just a pandemic play.
(ticker: TDOC) posted a loss of $6.67 billion, or $41.58 a share. Analysts polled by FactSet had been expecting a loss of just 60 cents a share, on average. In the same quarter last year, the telemedicine company lost $199.6 million, or $1.31 per share.
The loss in the first quarter was mainly driven by a noncash goodwill impairment charge of $6.6 billion, which is often recorded on the income statement after a company acknowledges that an asset has lost value or become completely worthless.
In Wednesday’s news release, Teladoc didn’t disclose many details about the goodwill impairment charge, but a large part of goodwill on its books came from its $18.5 billion acquisition of Livongo in 2020, according to the company’s filings with the Securities and Exchange Commission. Livongo is a digital health-management and coaching platform for people with chronic conditions like diabetes.
The goodwill impairment was triggered by the sustained decline in Teladoc’s share price, which is driven by the increased discount rate of the company’s future cash flows and decreasing valuations for peers in the high-growth digital healthcare space, said Chief Financial Officer Mala Murthy during a conference call Wednesday afternoon.
(ONEM), two of Teladoc’s major competitors in the telemedicine space, have seen their shares lose 80% and 83%, respectively, over the past 12 months.
Teladoc revenue increased 25% from the year-ago quarter to reach $565.4 million. The firm demonstrated “significant progress” in a number of strategic initiatives, said Teladoc CEO Jason Gorevic in a statement. Still, the number came in slightly lower than the $568.7 million estimates from Wall Street analysts.
For the fiscal year, Teladoc now expects to see revenue between $2.4 billion and $2.5 billion, and earnings before interest, taxes, depreciation and amortization, or Ebitda, ranging from negative $7 million to negative $52 million. The company has previously projected $2.55 billion to $2.65 billion in revenue and $18 million to $48 million in Ebitda.
“We are revising our 2022 outlook to reflect dynamics we are currently experiencing in the direct-to-consumer mental health and chronic condition markets,” says Gorevic, noting that higher advertising costs in some channels have dragged on the yield of its marketing spending. The firm is also seeing an “elongated sales cycle” in the chronic-condition market, he says, as employers and health plans evaluate their long-term strategies.
Following the disappointing earnings report, Teladoc shares, which had already fallen 3.1% during Wednesday’s trading to $55.99, slid further after hours to reach $34.50. If the losses are retained at Thursday’s market open, it will be the lowest level for the stock since March 2018 and cause significant losses for some of its largest shareholders.
TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.
Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.
Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.
The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.
A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.
A lawyer told Reuters her detained clients have been in Canada for years.
In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.
The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.
Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.
The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.
FEW NO-SHOWS AS DETENTIONS DROPPED
Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.
The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.
No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.
Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.
“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.
He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.
Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.
“Their position is that COVID is not a factor that should weigh in favor of release,” she said.
“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”
The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.
Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.
Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.
The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.
Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.
“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”
The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.
In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.
Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.