City Bankruptcies Loom Over Retiree Plans
By Matthew Heimer
A federal bankruptcy judges decision in California yesterday cleared the way for Stockton, Calif., to reorganize its finances through Chapter 9 bankruptcy. And employment experts will be watching the bankruptcy proceedings closely because of their potential impact on retirees since the ruling, by Judge Christopher Klein, leaves open the possibility that Stockton could stop or reduce its payments to Californias public-employee pension plan.
Of the half-dozen or so cash-strapped citbies and municipalities that have filed for bankruptcy protection over the past year, Stockton, which has about 300,000 residents, has been one of the hardest hit, whipsawed by Californias housing bubble and bust. As Diana Marcum reports this week in the Los Angeles Times, Stocktons single biggest debt is the $900 million it owes over the next decade to the California Public Employees Retirement System, or Calpers, which administers pension funds for most of the local governments in the state. Pension obligations are one of the biggest problems for most struggling municipal governments, and the issue in general puts federal bankruptcy lawwhich gives bankrupt institutions a lot of leeway in restructuring their financesin tension with state laws (including Californias) that require pension funding to take precedence.
Kleins ruling, which declares that Stockton is eligible for bankruptcy protection, looks on its surface like a win for the pension fund. (Calpers issued a statement yesterday praising the ruling.) Stocktons other creditors had urged Klein to dismiss the filing, arguing that the city could pay more to its bondholders if it reduced its payment to Calpers. But while Stockton can now proceed with designing a debt-restructuring plan, Klein said the citys pension obligations would remain open to consideration in future negotiations. And its hardly a given that bankruptcy judges will stand up for the states pension laws: In a related case, another bankruptcy judge ruled that Calpers couldnt sue another struggling city, San Bernardino to force it to keep up with monthly pension payments to the fund.
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http://blogs.marketwatch.com/encore/2013/04/02/city-bankruptcies-loom-over-retiree-plans/