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Those huge government pensions? There’s a law against that, but no one noticed

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July 3rd, 2014 (InsideCostaRica.com) A study by the Ministry of Finance revealed last month significant discrepancies in the pensions awarded to former public employees, most importantly the extremely high pensions received by some former public officials, ministers, and lawmakers in comparison to other public employees.

 

Some 15% of all government pensions exceed ¢2,600,000 per month.   Many others exceed ¢6 million per month, such as the ¢6.1 million per month paid to the current education minister, Sonia Marta Mora, for her previous posts.  In one case, a former ambassador is receiving a monthly pension of ¢16 million, or about $30,000 per month.

 

But what officials appear to have failed to notice is these lofty pensions are apparently illegal.

 

Law 7,858, which was adopted on December 21st, 1998, sets the maximum amount of state-funded pensions to 10 times the minimum wage for the job of a secretary working in the public sector.

 

This year, that limit would be ¢2.3 million per month.  Regardless, 952 former public officials are receiving more than the limit, apparently because those in charge of the country’s pension scheme failed to ever apply the law, or appear to be ignorant of the fact the law is even on the books.

 

“We will analyze this mechanism (the limit on pensions) as a way to confront the issue of pensions,” said Finance Minister, Helio Fallas.

 

The Superintendent of Pensions, Edgar Robles, said that retroactively applying the law would be almost impossible.  “We could apply it moving forward, but we should consider it carefully, because it will likely go to the courts as those concerned will try to defend themselves,” Robles said.

 

Comptroller General Martha Acosta called the new government’s attention to the matter of exorbitant government pensions last month, saying the government is currently spending more than ¢655 billion (about $1.2 billion USD) annually on pension payments, representing an average of 2.6% of the country’s GDP and more than 10% of the government’s entire annual budget.

 

Worst still, most of that spending is financed through debt.

 

Acosta said the situation is “unsustainable over time.”

 

Editor’s note: Here is a lengthy list of all those receiving government pensions in excess of 5,000,000 colones per month, or more than double the legal limit.  (PDF)

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  • disgusted

    Unsustainable pension funds. Limited to 10 times base, is that crazy or what!. so instead of 2.6 million colons it should be 2.3 million colons.. Still way out of whack . No retro and those who receive this will scream bloody murder over a small cut in pensions that are still unsustainable. Go figure. What is your bet nothing happens to their pensions??

  • roberto

    10 times the minimum wage for the job of “public administration” is 2,6 million colones, or 2,3 million, depending on who you ask. So the problem, clearly stated in the article, is that 15% of all government pensions greatly exceed ¢2,600,000 per month. Nothing will happen to their pensions because the “Chapulines con corbatas” are in charge of this pulperia and they are laughing all the way to the bank, or this week …all the way to Brazil.

  • Ken Morris

    Yeah, a public pension cap set at ten times the minimum wage for “public administration” (which presumably is higher than the minimum wage for laborers working for the government) is still pretty darn generous. This would seem roughly comparable to a public pension cap of around $200,000 annually in the US.

    However, IT IS A START. With over 15% of the pensioners receiving more than this cap, and some receiving way more, simply enforcing this ignored law will help a lot.

    Also, I’m not sure how egalitarian public policy should be on public pension caps. One issue is that to some extent CR competes for talent in the global market, and if pay and pensions are too low the country may well experience “brain drain.” Another is the tax policy regarding pensions. My understanding is that pensions are still taxed by the Caja (although maybe those receiving the high pensions can opt out) and I would guess that they’re subject to income tax. Since a government pension is kind of hard to hide from the taxman, these folks may be kicking some money back into the system.

    I’m more egalitarian than the average and would favor a cap with a multiple lower than ten, but at some point it does become a matter of throwing darts till you hit a number and I think it’s great news that someone has dusted off this long-ignored law.

    • roberto

      Oxymoron…”brain drain.” Is Chinchilla still going to teach in Canada? Anabel Gonzalez is the President of the Board of Trade of global affairs global economic forum. In 2010, Jose Maria Figueres joined IJ Partners in Geneva, Switzerland, as a Managing Partner. PS: any news about Kurt Heigis? Haven’t seen any follow-up.

  • Scott MacDougall

    I always find it interesting that historically unobserved laws, let say like building in the Maritime Zone or close to it, which was done up and down the coasts, all of sudden the existing law is to be enforced, and yes retroactively. “Funny” the feeling is it should not be considered in this circumstance.

  • Michael Connolly

    Seems to me that the new administration should roll back to the legal limit, every single pension on the books! To do otherwise is to say that theft of public funds is legal and acceptable! Let the recipients come forward whining or with a lawsuit; they are in violation of the law, and it is payback time! And what a nice budget saving move that would be!

  • Yeims

    It’s stupid things like this that make ordinarily honest persons want to not pay their taxes. Indeed, why should they pay their money to a government that squanders everything they get, instead of spending it on maintenance and infrastructure.

  • expatin paradise

    I agree with others who have opined that this cap should be imposed immediately. I would take it a step farther and require that overpayments be reimbursed to the government. Ignorance of the law is no defense to collecting benefits in excess of the limit imposed by law. Of course, it would be unfair to demand immediate reimbursement in full, but overpayments should calculated back to 1998 and collected as a percentage of the ongoing correct pension amount until full reimbursement has been made (most will never be paid in full, as pensioners will die long before that time). The Social Security Administration in the US has used this method to collect overpayments for a very long time.

    I would add that the administrators of the pension program who failed to apply a law of which they should have been aware should be dismissed. It is their responsibility to apply the laws pertinent to their program, and there cannot be so many pension-related laws that this one would have slipped through the cracks for so long. This is a crime against the people of Costa Rica, although it would be unlikely that criminal charges would ever be made (or a conviction obtained if they were).

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