Friday, May 16, 2014

Stockton Creditor Challenges Sanctity of Public Pensions, Pulls CalPERS Into Court

The Sacramento Bee reports:
When the bankrupt city of Stockton unveiled its plan to reorganize its debts last fall, it spread the financial pain among a host of bondholders. CalPERS was spared, and a potentially bloody fight over the sanctity of pension benefits was avoided.

This week, however, the California Public Employees’ Retirement System was involuntarily dragged back into the Stockton bankruptcy case. One bondholder that didn’t agree to Stockton’s plan is challenging the city in court, and demanding to know why CalPERS was able to avoid getting cut.

As a result, a top CalPERS official was summoned Wednesday to testify in the city’s bankruptcy trial in U.S. Bankruptcy Court in Sacramento.

The official, David Lamoureux, said Stockton couldn’t reduce its pension contributions without facing dire consequences: Its pension plan would be terminated, and unless it paid an exit fee of several hundred million dollars, its employees and retirees would likely suffer scaled-back benefits. The rest of the CalPERS system could be affected as well, with state and local agencies conceivably having to contribute funds to pay for the city’s benefit plan.


Real history in the making.