Issues in Stockton Bankruptcy Case Could Impact Pension Plans

August 24, 2012
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Challenges surfacing in the bankruptcy proceedings for the city of Stockton, California, could have wide-reaching ramifications regarding how future municipal bankruptcy law cases will handle the issue of retiree benefits and pension plans. Two of the city’s largest creditors, National Public Finance Guarantee Corp. and Assured Guaranty Corp., have challenged the bankruptcy filing, reports the Wall Street Journal, saying that the city should have also sought concessions from the the California Public Employees’ Retirement System (Calpers). The city pays roughly $10 million per year into an investment fund run by Calpers, which covers more than 3,000 communities across the state. However, because of contribution shortfalls, the paper says Stockton has a $147 million debt to the retirement plan. Should that debt be included in the restructuring, its unclear if Calpers would then reduce the pension payments it makes to former city employees. A spokesperson for Calpers told the paper that it was “committed to safeguarding” retirees’ benefits. “Nothing like this [about pensions] has been worked out in bankruptcy court before, and whichever way it is resolved, it could have far-reaching implications,” Richard Larkin, credit analysis director a New Jersey bond underwriter, told the Journal. He added that a restructuring of pension obligations could impact many other California cities in the future, as more have been rumored to be considering filing for bankruptcy. Last year, the city of Vallejo emerged from a lengthy bankruptcy case in which it avoided adjusting pension payments. In late June, Stockton became the largest city ever to file for Chapter 9 bankruptcy protection after years of financial missteps. It owes its creditors more than $700 million.