The California Public Employees’ Retirement System (CalPERS) has won its battle to protect members’ benefits in the bankrupt city of Stockton.
A bankruptcy judge in California yesterday reversed an earlier decision that would have left public employees of the city of Stockton facing pension cuts of up to 60%.
“This plan, I’m persuaded, is the best that could be done in terms of restructuring the city’s debts,” said Federal Benkruptcy Judge Christopher Klein, quoted by Bloomberg. He was speaking following final approval of a plan to bring Stockton out of bankruptcy and settle with creditors.
“The city has made a smart decision to protect pensions and find a reasonable path forward to a more fiscally sustainable future.”—Anne Stausboll, CalPERS CEOKlein had initially ruled that CalPERS as a creditor of Stockton did not deserve special protection, meaning the city could walk away from its contributions to the pension system.
CalPERS CEO Anne Stausboll welcomed the new ruling, calling it “a smart decision”.
“The judge recognized that the city’s employees and retirees have already made significant concessions with respect to their pension and health benefits and that further impairing pensions would harm them even more,” Stausboll said.
“The city has made a smart decision to protect pensions and find a reasonable path forward to a more fiscally sustainable future. We will continue to champion the integrity and soundness of public pensions—to protect the benefits that were promised to the active and retired public employees who participate in the CalPERS pension plan.”
Under the ruling, fund manager Franklin Templeton stands to incur significant losses on unsecured debt it holds. Bloomberg reported that two funds would get back just 1% of $36 million, on top of a $4 million secured claim.
“We are obviously disappointed by your ruling and we will evaluate our options,” James Johnston, a lawyer for Franklin Templeton, told the judge yesterday.
CalPERS has been a vocal opponent to bankruptcy judges who have sought to align the $300 billion pension with other creditors. Following Klein’s initial ruling earlier this month the pension issued a statement calling the decision to enforce pension cuts “not legally binding”. CalPERS had submitted unsecured claims to $147.5 million of city assets.
The ruling comes as another US city—Detroit, Michigan—prepares for a final ruling on its plans to exit bankruptcy. CalPERS, while not a creditor in this case, has claimed that federal courts do not have the power to impose a proposal to let the city impair workers’ pensions.
In June, CalPERS successfully negotiated with the city of San Bernardino to settle a claim over $16.5 million of deferred debt payments.