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Puerto Rico bankruptcy Judge Laura Taylor Swain approved a settlement between the Oversight Board and the governor on contested pension laws, removing a large roadblock to the island’s bankruptcy deal.

Under the deal, Swain declared the laws illegal with the stipulation the board and Gov. Pedro Pierluisi would craft a deal for better employee pensions and compensation. Swain signed the proposed stipulation and order Tuesday.

In contention were Acts 80, 81 and 82, which promised improved pensions for government employees. The governor signed the laws in August 2020 but subsequently agreed not to implement them before reaching a deal with the board. On Dec. 16, Pierluisi signed a Puerto Rico Senate resolution that required partially implementing Act 80 within 30 business days, which the board said would have cost about $8 billion, which the island could not afford.

Puerto Rico attorney John Mudd said, “I don’t think laws 80-82 were really an obstacle to the confirmation of the Plan, but the settlement does help it.”

The board said implementing the laws, therefore, would effectively scuttle approval of the board-proposed Plan of Adjustment, and filed an adversary proceeding against the governor and local government to stop implementation.

Late on Monday, the board and Puerto Rico’s Fiscal Agency and Financial Advisory Authority submitted the proposed stipulation to Swain in response to the suit, settling the disagreements between the parties.

“We have presented the agreement before Judge Laura Taylor Swain, aware that the laws approved in 2020, despite their laudable purpose, are not entirely consistent with the fiscal plan,” Pierluisi said. “Provided that the agreements benefit the sustainability of debt in the economic development of Puerto Rico, our government will maintain collaborative dialogues with the board. The goal and final purpose of these agreements will always be a better quality of life for all Puerto Ricans and, in this particular case, for public servants, police officers, and teachers.”

In a written statement the board said it “is pleased to have reached an agreement with the administration of Gov. Pedro R. Pierluisi that creates an opportunity to provide additional retirement benefits for certain government employees in a fiscally responsible way.”

“The agreement reached today will avoid costly and time-consuming litigation and a potential delay in confirmation of the Plan of Adjustment to reduce Puerto Rico’s debt and end bankruptcy,” the board said. “The Oversight Board remains committed to continue to work together to find affordable solutions that will move Puerto Rico forward without the risk of falling into old practices of overspending.”

The board hopes the judge will approve the Plan of Adjustment in February or March.

According to the terms of the settlement, the board will attempt to reach an agreement with the governor within 60 days to provide improved retirement benefits to police officers consistent with the fiscal plan and the Plan of Adjustment.

The settlement also says the board and the governor will seek to reach an agreement within 120 days on enhanced compensation for teachers, consistent with the fiscal plan and Plan of Adjustment, with the goal of improving public education.

Finally, the agreement says the parties will attempt to implement incentives for early retirement when doing so would lead to government savings.

According to the agreement, any positions eliminated will not be restored within the affected agencies, authorities, or corporations.