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Bankruptcy Judge's Big Ruling: Pension Contracts Not Sacrosanct

CalPERS photo

CalPERS headquarters in downtown Sacramento

CalPERS photo

A federal judge has issued a ruling in the city of Stockton’s bankruptcy case that could reshape California’s public employee pension system as it exists today.

U.S. Bankruptcy Judge Christopher Klein held off on ruling whether Stockton must reduce its pension payments so the city’s creditors aren’t the only ones taking a financial hit – but he did rule that the city could. That’s a “sea change,” says Sacramento State visiting scholar Bob Benedetti, who’s studying municipal bankruptcies in California.

“Most cities will be affected by this, because it could mean that should they get in financial difficulty, the retirement programs could be tapped to pay creditors,” Benedetti says.

Asked if Klein's ruling could be the beginning of a fundamental overhaul, reshaping or undermining of California’s existing and longstanding pension system, Benedetti replied: “That’s correct.”

“Employees are going to have to be more on guard – and unions as well – in terms of getting protections for pensions. Before this, one thought that if one won a pension at the bargaining table, it was secure,” he added.

In a statement, CalPERS says it disagrees with the judge’s ruling and calls it neither legally binding in the Stockton case nor precedent-setting for future ones.

The good news is the case is still presently postured in a way that CalPERS is not going to be affected and the benefits that have been promised to employees are not gonna be affected through this plan. So that hasn’t changed,” attorney Mike Gearin, who represents CalPERS, told reporters after the hearing.

The judge will rule on Stockton’s bankruptcy exit plan, which maintains its pension payments at the expense of its creditors at the end of the month.

Ben Adler

Capitol Bureau Chief

Capitol Bureau Chief Ben Adler first became a public radio listener in the car on his way to preschool – though not necessarily by choice. Now, he leads Capital Public Radio’s state Capitol coverage, which airs on NPR stations across California.  Read Full Bio