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CalPERS to Appeal San Bernardino's Bankruptcy Eligibility

Author: Joel R. Glucksman

Date: October 31, 2013

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The California Public Employees’ Retirement System (“CalPERS”) announced its plans to appeal a decision handed down by the U.S. Bankruptcy Court, which affirmed San Bernardino’s eligibility to seek Chapter 9 municipal bankruptcy.

CalPERS, California’s largest pension fund, argues that the city did not seek out other alternatives to alleviate its financial struggles before seeking relief under bankruptcy law. The group also claims that the city failed to file its bankruptcy petition in good faith and did not provide accurate financial information.

“The California voters placed provisions in our Constitution to ensure the employees’ pensions would be protected by CalPERS as their fiduciary and trustee,” said Anne Stausboll, CalPERS CEO. “This appeal affirms our commitment to support and defend the integrity of the system and our members’ vested rights, in accordance with the laws of the land and our obligations under the federal and State constitutions.”

At present, more than 1,700 retirees formerly employed by the city of San Bernardino currently receive a pension from CalPERS, and the municipality currently owes roughly $17 million in overdue payments to the fund.

It is unclear whether the appeal will be successful, as the pension fund tried to block the city’s bankruptcy eligibility in August with no success. U.S. Bankruptcy Judge Meredith Jury, who overruled the fund’s initial objections, said the city needed “breathing space” under bankruptcy protection to renegotiate its debts, according to Bloomberg. She also said in her ruling that all of the city’s 10,000 creditors would be best served through bankruptcy proceedings. However, CalPERS has historically argued that pension funds should not be treated like other creditors.

At roughly $260 billion, CalPERS is the biggest pension fund in the country and is San Bernardino’s largest creditor.

San Bernardino sought Chapter 9 bankruptcy protection last summer, citing severe budgetary shortfalls and pension obligations that resulted in more than $1 billion in debt.

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