SCHEDULE C

TERMS FOR MODIFICATION OF PREPA ERS OBLIGATIONS 

Case:17-03283-LTS Doc#:23506-3 Filed:02/09/23 Entered:02/09/23 17:04:31 Desc:

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To avoid creating future pension liabilities and to stabilize the system for the benefit of 

future retirees and ratepayers, the PREPA ERS plan benefit accrual shall be frozen upon the 

Effective Date of the Plan of Adjustment (the “POA Effective Date”). 

Following is a summary of the terms of the Plan’s freeze of further defined benefits of under the 

PREPA ERS. 

The modifications listed herein modify the obligations of PREPA and any other 

government employer whose employees continue to participate in the PREPA ERS defined 

benefit plan to fund the benefits provided by PREPA ERS as established in regulations by the 

Governing Board of the Puerto Rico Electric Power Authority on July 1, 1945 and all subsequent 

amendments through the POA Effective Date, and are to be adhered to in the administration of 

PREPA ERS benefits by PREPA ERS. Administrative procedures not addressed below (such 

as rounding procedures in determining ages and service of participants) should be consistent 

with past practices. 

PREPA employees participate under a defined benefit (DB) formula that is either supplemental to, 

or coordinated with, Social Security. This applies to all active participants of PREPA ERS 

(“Member” or “Members”), regardless of title or job classification or employer. Members will 

retain the benefits they have accrued up to and including the POA Effective Date; provided, 

however, that any future cost of living adjustments shall be eliminated pursuant to the POA, as 

any right to such future adjustments is not an accrued benefit and will not be an accrued benefit as 

of the POA Effective Date. Benefits accrued from and after the POA Effective Date shall be based 

on contributions and earnings in new segregated defined contribution retirement accounts under 

Act 106-2017 funded by employee contributions. As a result, employees will have the certainty 

that their contributions and investments will be safeguarded for the future, ensuring retirement 

security. 

Definitions 

Covered 

Participants

These terms pertain to the freeze of DB accruals of all active participants in PREPA ERS 

(including Mobilized Employees as described below) 

Retirement 

eligibility age

Retirement Eligibility Age is the age at which a member may commence receipt of a monthly 

pension benefit.

Retirement benefit The Retirement Benefit is the amount of benefit payable to a member each month.

Creditable service Total of member and previous services that is credited for a pension.

Mobilized 

Employees

Former PREPA employees who have transferred or current PREPA employees who will transfer 

to Commonwealth instrumentalities in connection with a Public Private Partnership (“P3”) 

transaction. Mobilized Employees shall only receive Creditable Service for periods of 

employment with the Commonwealth to the extent that such service is provided under applicable 

law, and then only through the POA Effective Date.

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Average 

compensation

The average of the 3 highest annual base salaries, limited to $50,000 for members hired after 

1/1/1993.

Timing

Freeze Date PREPA ERS pension benefit accrual freeze becomes effective upon the POA Effective Date

Provisions of the proposal

Treatment of 

accumulated 

employee 

contributions

Participants retain a vested right to receive the accumulated employee contributions in accordance 

with the PREPA ERS plan document in lieu of the retirement, death, disability or termination 

benefits applicable under PREPA ERS. 

Retirement 

Eligibility prior to 

the Freeze Date

Prior to the Freeze Date, participants will retain the following eligibility for retirement under 

PREPA ERS:

• Participants hired before January 1, 1993: Age 60 or attainment of 20 years of service

• Participants hired on or after January 1, 1993: Age 60 with 5 years of service, age 65, 20 

years of service, or attainment of age 50 with 30 years of service

Retirement 

Eligibility after the 

Freeze Date 

Beginning on the Freeze Date, participants will become eligible for retirement under PREPA ERS 

upon reaching the following age / service combinations:

• Participants hired before January 1, 1993:

o Participants who have attained either Age 60 or 20 years of Creditable service as 

of the Freeze Date will be eligible to retire at any time.

o Participants not having attained either age 60 or 20 years of Creditable service at 

the Freeze Date will be eligible to retire based on age at the Freeze Date based 

on the following table:

 Attained Age at 

Freeze Date

 Retirement Eligibility Age after 

Freeze Date

 57 and up  61

 56  62

 55 and under  63

• Participants hired on or after January 1, 1993:

o Participants who have attained age 60 with 5 years of Creditable service, age 65, 

or 20 years of Creditable service at the Freeze Date will be eligible to retire at 

any time

o All other participants will be eligible to retire once having either a) attained age 

65 or b) the date the participant would have attained both i) 5 years of service 

assuming the freeze had not happened, and ii) the age based on the following 

table:

 Attained Age at 

Freeze Date

 Retirement Eligibility Age after 

Freeze Date

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 57 and up  61

 56  62

 55 and under  63

Elimination of 

minimum benefit

The $180 monthly minimum benefit for participants will be eliminated for participants retiring 

on or after the Freeze Date.

Elimination of use of 

sick leave to 

purchase credit 

towards a merit 

pension

For separations of service or retirements occurring on or after the Freeze Date, Creditable service 

will be determined as of the Freeze Date and will not increase in the future. Prior to the Freeze 

Date, sick leave could be converted at retirement to service towards a merit annuity at a rate of 1 

month for 15 days of accumulated sick leave time. After the Freeze Date, accumulated sick leave 

time will not be credited towards the pension benefit nor will any ability to purchase service be 

implemented. Applications to retire submitted prior to the plan confirmation date requesting 

application of sick time to purchase service will be honored.

Bonus payments Summer and Christmas bonuses will be eliminated for retirements after the Freeze Date. Onetime funeral bonus will be retained.

Bonus payments will not be impacted for retirements occurring prior to the Freeze Date.

Employee 

Contributions

Employee contributions to PREPA ERS plan will cease as of the Freeze Date.

Implementation of 

Defined 

Contribution 

Accounts

Mobilized employees will participate in the Commonwealth Defined Contribution (DC) accounts 

described under Act 106-2017 (Act 106). New DC accounts under a DC plan with the same 

provisions as Act 106 will be established for current PREPA employees.

Elimination of Cost 

of Living 

Adjustments 

(COLAs)

The COLAs that have been historically granted every three years will not be continued past the 

Freeze Date. Future COLAs will be eliminated. Previously granted COLAs will continue to be 

honored.

Benefits that have been previously increased by historic COLAs will not be reduced and COLAs 

prior to the Freeze Date will be honored.

Death benefits Terminations due to death will receive a refund of accumulated employee contributions.

Post Retirement 

Death Benefits

For retirements occurring on or after the Freeze Date, the benefit will be payable as a lifetime 

annuity. If the participant elects at retirement to receive an annuity with a 30% survivorship 

benefit at the annuitant’s death, the amount paid during the employee’s lifetime will be the 

actuarial equivalent of the life annuity. The plan actuarial equivalence (i.e. mortality and interest 

rate) will be determined consistent with the determination of other optional forms of payment 

under the plan.

Disability benefits Effective on the Freeze Date, participants who become disabled will be eligible to either:

a. Receive a retirement benefit if the retirement eligibility criterion are otherwise met,

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b. Receive a deferred pension if over 10 years of service has been accrued (payable 

identically to the benefits owed a vested terminated member), or 

c. Receive a refund of accumulated employee contributions

Specific implications 

on Retirement 

Benefit 

Retirement benefits will continue unchanged from those currently provided by PREPA ERS 

until the Freeze Date. Provisions for retirements occurring after the Freeze Date are as follows:

a. Minimum benefits will no longer apply to future retirees.

b. The freeze eliminates the ability to purchase additional service using unused sick or 

vacation time or by other means. Applications to retire submitted prior to the POA 

Effective Date requesting application of sick or vacation time to purchase service will be 

honored.

c. Participants who were hired prior to January 1, 1993 who attained 25 years of Creditable 

Service as of the Freeze Date receive a life annuity equal to 2.5% of Average 

Compensation determined as of the Freeze Date times years of service at the Freeze Date 

(up to 30 years). If benefits are coordinated with Social Security, the benefit will be 

adjusted from ages 65 to 80 by reducing the benefit by $40 per each year of Creditable 

Service at the Freeze Date (up to 30 years). 

d. Participants hired prior to January 1, 1993 who had not attained 25 years of Creditable 

Service as of the Freeze Date will receive a benefit of 1.5% of Average Compensation 

determined as of the Freeze Date per year of Creditable Service as of the Freeze Date plus 

an additional 0.5% of Average Compensation determined as of the Freeze Date per year 

of Creditable Service as of the Freeze Date beyond 20 years. If the commencement date 

of the member’s benefit is prior to age 60, the benefit shall be the actuarial equivalent to 

the age 60 benefit.

e. Participants hired on or after January 1, 1993 who attained 30 years of service as of the 

Freeze Date will receive a benefit equal to 75% of the Average Compensation determined 

as of the Freeze Date. The 75% factor will be further reduced for retirements prior to age 

55 are as follows:

Age at retirement Benefit Multiplier

50 62.5%

51 65.0%

52 67.5%

53 70.0%

54 72.5%

f. Participants hired on or after January 1, 1993 who had not attained 30 years of Creditable 

Service as of the Freeze Date will receive a benefit of 1.5% of Average Compensation 

determined as of the Freeze Date per year of Creditable Service as of the Freeze Date plus 

an additional 0.5% of Average Compensation determined as of the Freeze Date per year 

of Creditable Service as of the Freeze Date beyond 20 years. If the commencement date 

of the member’s benefit is prior to age 60, the benefit shall be the actuarial equivalent to 

the age 60 benefit.

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Funding Structure Pensions will continue to be paid from the current pension trust (i.e. PREPA ERS). The funding 

structure of PREPA ERS will shift from a funded model to pay-as-you-go (PayGo). PREPA ERS 

will be reimbursed for PayGo payments to the extent provided in the Plan with funds sufficient 

to do so that PREPA will contribute to a new trust to be established pursuant to the PREPA plan 

of adjustment (the “PREPA PayGo Trust”). The assets of the PREPA PayGo Trust will be held 

in trust for the sole benefit of PREPA ERS. 

Assets in the PREPA Paygo Trust, including investment returns, will be used to reimburse the 

PREPA ERS for the annual PayGo and appropriate administrative expenses, to the extent PREPA 

ERS is entitled to such reimbursement under the POA. Any withdrawals from the PREPA Paygo 

Trust will require approval of the PREPA PayGo Trust Board of Trustees and shall only be used 

by PREPA ERS to fund the payment of PayGo made consistently with the DB plan as modified 

by the POA.

Negotiated benefits in addition to PREPA-ERS benefits

Negotiated Benefit 

Description

Benefits will be paid to participants if their termination from active service at PREPA results 

from any of the following:

• Physical or mental disability

• Retirement or termination upon meeting age or service requirements of PREPA ERS

• Death of an active member

Benefits are only payable in a single instance and a participant who returns to work is not 

eligible to receive any additional benefit from these provisions

Negotiated Benefit 

Amount

• Retirement, disability or general passing: $7,000

• Death related to employment duties: $20,000

• Death related to employment duties specific to a Power Line Technician or in job 

positions specifically identified as eligible for special annual risk compensation: 

$50,000

• Physical disability resulting from employment duties: $8,000

Impact of Freeze on 

Negotiated Benefit 

Amounts

One-time benefits described under this formula are not impacted by the pension freeze

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