(May 2, 2014) — The largest pension fund in the US has weighed in on the Detroit bankruptcy ruling with a legal filing that claims the move threatens the country’s entire public pension system.
The California Public Employees’ Retirement System (CalPERS)—acting as amicus curiae, or “friend of the court”—set out its concerns about the US city’s bankruptcy ruling given by a court judge. It also requested that the court reverse its judgements or at least remove certain aspects of the decision.
In CalPERS’ legal opinion, “the court improperly issued an advisory opinion on a constitutional question of the highest order,” despite counsel for the US and Detroit both arguing it was not appropriate to do so. It added that federal courts lacked the power to make such a move, which permitted Detroit to impair current employee and retiree pensions as it moved through the bankruptcy process.
“In essence, the bankruptcy court decided a constitutional question, not because it was unavoidable, but because it believed that putting the issue behind it would facilitate negotiations and administration of the case,” the document said.
In CalPERS’ view, “that decision should have waited for another day”.
The decision could open floodgates for other courts to agree that filing for bankruptcy protection under Chapter 9 would allow other states and municipalities to impair public pensions, CalPERS worried.
The document maintained that the decision was faulty—and they want it amended.
“While the pensions systems here are municipal run and created by the Detroit City Charter, the CalPERS system is created by state law and is run by an arm of the State of California. Thus, impacts on the CalPERS system have a state-wide, not only local, effect… Accordingly, if this court determines that it was proper for the bankruptcy court to reach this issue and affirms the court, amicus requests that this court issue a narrow holding, taking into account the differences between state-run pension plans and municipal-run pension plans, given the different role states and municipalities play in our constitutional plan.”
CalPERS has criticized court-handling of the Detroit bankruptcy before. In December, it said in a statement: “The ruling is short-sighted and does not take into account the promises made in exchange for the financial and physical investments that public employees and retirees make in our communities.”
The pension has experience with municipal bankruptcies. Californian cities Stockton and San Bernardino were some of the largest municipal bankruptcies in American history—until Detroit came along.
Related content: CalPERS Remembers a CIO, Commits to Next Generation & Detroit’s New Plan