BANKRUPTCY JUDGE HAMMERS UNIONS BY ALLOWING STOCKTON PENSION CUT
by CHRISS W. STREET 4 Oct 2014
In what will be a devastating blow to California public employee unions, U.S. Bankruptcy Judge Christopher Klein ruled in the Chapter 9 municipal bankruptcy of the
City of Stockton that pensions managed by the California Public Employee Retirement System, known as CalPERS, can be cut in bankruptcy “like any other garden variety” unsecured debt. He rejected the unions’ argument that the
world’s largest pension fund is an “arm of the state” and that public employee pensions are protected by federal and state laws.
Stockton city employees and city council members, who are all CalPERS pension beneficiaries, received retirement benefit enhancements shortly before filing for bankruptcy that many observers are calling pension spikes. The city’s position against cutting any CalPERS pension enhanced benefits is that the city will not be a competitive employer in retaining or hiring quality police and fire employees.
The city had reached what some are calling a crony deal with three bond insurers owed $265 million and all the labor unions, retirees, and other major creditors that would have retained the city pension enhancements. But the key to the deal was paying two Franklin municipal bond funds owed $36 million only about $350,000.
