CalPERS is stepping up the pressure on San Bernardino, threatening to sue the insolvent city for failure to make millions in payments to the pension fund.
The California Public Employees' Retirement System, in a U.S. Bankruptcy Court filing late Tuesday, again demonstrated it will take legal action to make sure it gets paid.
Anne Stausboll, the fund's chief executive, said the action was necessary to "protect the retirement security of all CalPERS members."
San Bernardino hasn't made its payments to CalPERS since filing for Chapter 9 bankruptcy protection in early August. The city owes the fund $6.9 million.
In its court filing, CalPERS asked a bankruptcy judge to lift the legal stay that shields San Bernardino from lawsuits while it's in bankruptcy.
CalPERS wants to "prosecute an action against the city to collect the 'deferred' payments," the filing said. It attached a copy of the proposed lawsuit to the filing.
With pension costs rising and many cities struggling financially, San Bernardino's bankruptcy is shaping up as a crucial test case of CalPERS' muscle and the sanctity of public pensions.
For the most part, other troubled cities have kept the money flowing to CalPERS uninterrupted. Vallejo thought of scaling back pension benefits after its bankruptcy filing in 2008 but backed down when faced with a threatened lawsuit by CalPERS.
Stockton, which filed for bankruptcy protection in June, is continuing to pay CalPERS even though two of its creditors are demanding that the pension fund take a back seat to other financial obligations.
San Bernardino is taking a different tack. The City Council just approved a plan to defer all CalPERS payments until the next fiscal year, which begins next July. It also wants to renegotiate the terms of its CalPERS obligations, which exceed $21 million a year.
The city's plan, which would defers payments to other creditors as well, requires court approval.
In October, CalPERS filed a formal objection to the city's right to file for bankruptcy protection. This week's court filing goes a step further.
Failing to pay CalPERS violates state law, and "the city should not be allowed to use the bankruptcy process to avoid complying," CalPERS lawyers wrote. A hearing is set for Dec. 21 in U.S. Bankruptcy Court in Riverside.