Federal bankruptcy ruling, CA cities have right to walk from CalPERS pension funds, Stockton

Planned retirement, unplanned loss of pension

"A bankruptcy judge handed CalPERS and organized labor a decision they’ve long feared Wednesday, declaring the city of Stockton has the right to reduce pension payments and even sever ties with the powerful pension fund.  The verbal ruling from U.S. Bankruptcy Judge Christopher Klein was groundbreaking. It pierced CalPERS’ aura of invincibility and made clear, for the first time, that public employee pensions in California aren’t sacred. Two years after Stockton filed for bankruptcy protection, buried under more than $200 million in bond debt, a judge has declared that a municipality can walk away from its obligations to the California Public Employees’ Retirement System.

---- Franklin Templeton wants Stockton to reduce its CalPERS payments to free up more cash to repay the loan. It said the proposed repayment amounts to just 12 cents on the dollar, while other creditors are due to receive 50 cents to 100 cents on the dollar. "  "The Sacramento Bee/Dale Kasler, 10/1/14.  "Judge rules Stockton can sever CalPERS pensions; Wall Street approves."  Read article.

 "Public-employee pensions are not protected when a city goes belly-up, according to a ruling Wednesday by the judge overseeing Stockton’s much-watched federal bankruptcy case. Judge Christopher Klein’s few words have re-energized the state’s disheartened pension-reform movement – and left the nation’s most-powerful pension fund reeling.  ....  Until now, there has been no way for California cities to get out from underneath the overly generous pension promises they have made to public employees over the past 15 years, the result in part of a pension-increasing bonanza spurred by 1999 legislation championed by the California Public Employees’ Retirement System.

....  In the Detroit bankruptcy case, a federal judge also ruled that pensions are not sacrosanct. But CalPERS has argued that California law is much different. As an arm of the state government sanctioned by the state Constitution, CalPERS says it is not subject to the “supremacy clause” that allows federal law to trump state law."  U-T San Diego/Steven Greenhut, 10/1/14.  "Federal judge gives hope to busted cities. Stockton ruling says pensions can be cut in California bankruptcy."  Read article.

Note:  photograph from  Allmand law.

Submitted by Robert Hutchinson

Posted by Kathy Meeh