As I wrote in 2006, underfunded public pension plans create headaches for lots of different people. There are participants and retirees who worry about their benefits. Taxpayers could feel the pinch if rates rise. More recently, in the matter of Puerto Rico, bondholders are being asked to step aside, at least temporarily, in favor of plan participants.

According to remarks made by U.S. Senator Bob Menendez on March 14, 2016 about S.2675, the Puerto Rico Recovery Act of 2016: “Once the Governor submits a restructuring proposal, a judge selected by the First Circuit Court of Appeals would have to confirm that it complies with the fiscal plan, protects the rights of pensioners, and, if feasible, does not unduly impair general obligation bonds.” (I added the bold.)

Most people would acknowledge that the situation in this U.S. territory is dire. Pensions & Investments reported a nearly zero percent funding ratio for the Puerto Rico Employees Retirement System as of June 2014 with “just 0.7% of the assets needed to pay all the benefits that had been promised, a level unheard of among U.S. states.”

The problem in taking from Paul to pay Peter (and I will defer to the jurists to decide which legal claim comes first) is that a large number of bondholders of Puerto Rico’s $72 billion debt are themselves retirees or saving for retirement. CNN reporter Heather Long explains that “A lot of regular Americans hold these bonds.” (See “Who owns Puerto Rico’s debt?” August 6, 2015.) On February 22, 2016, she wrote that “30% of the debt is held by middle class Puerto Ricans…Another 15% is held by other ‘average Joe’ Americans who invested in bond funds.” The Main Street Bondholders, “a coalition of small bondholders from across America,” just took out at least one full page newspaper ad to remind readers that they have “worked hard, saved and played by the rules.”

Contagion is another potential problem. In “How Puerto Rico Fatigue Could Spell Real Trouble for Munis” (Bond Buyer, March 16, 2016), consultant Matt Posner writes that “Any government finance officer in the country should be concerned that investors will view their debt offerings as subordinate to pension liabilities if a new federal standard is adopted and only more so for issuers with underfunded pensions.” I agree that uncertainty about repayment could eventually push the cost of capital upward for other government borrowers, if they can find lenders at all. Should this occur, everyone will eventually pay in some fashion.

Regrettably, this tug of war among competing interests is likely to continue. A new study from Citigroup, entitled The Coming Pensions Crisis, estimates that “the total value of unfunded or underfunded government pension liabilities for twenty OECD countries is a staggering $78 trillion, or almost double the $44 trillion published national debt number.”

Take your vitamins. The next few years are likely to require stamina and an ability to live with great uncertainty when it comes to underfunded public pension fund economics and who gets what and when.