Public employees and retirees in Stockton won a victory when a judge approved a reorganization plan for that city that included a full repayment of its pension debts.
But a ruling from that case could potentially lead to a dramatic shift in pension law going forward, giving cities the right to cut pensions when they file for bankruptcy.
In the case, judge Christopher Klein rejected the pension fund’s argument that California cities could not reduce pension benefits even in bankruptcy.
In his formal ruling, the judge had some harsh words for CalPERS and what he called the fund’s bullying tactics when it comes to getting paid in municipal bankruptcies.
“Although … it is doubtful that CalPERS even has standing to defend the city pensions from modification, CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable,” Klein wrote. “The bully may have an iron fist, but it also turns out to have a glass jaw.”
This could have a dramatic impact on municipal finances going forward – in California and around the country. If cities think they can lower their pension and retirement obligations through bankruptcy, it may prove to be a more attractive alternative.
Up until now, judges have found and CalPERS has argued that pensions cannot be trimmed as part of bankruptcy proceedings. Other creditors have been left holding the bag while pension funds are made whole.
Klein’s ruling could change all that.
To read the full ruling, which could be a game-changer for pensions, click here.