Government pensions in California have withstood another fierce challenge in bankruptcy court.
A bankruptcy judge has dismissed a lawsuit filed by two disgruntled bond creditors challenging the city of San Bernardino’s decision to make its pension payments in full to CalPERS.
Ruling from Riverside, U.S. Bankruptcy Judge Meredith Jury tossed the claim filed by the two creditors, Ambac Assurance Corp. and a Luxembourg bank named EEPK.
Last fall the city, which filed for bankruptcy protection in 2012, said it would pay its $24 million-a-year CalPERS bill in full. Ambac and EEPK said that arrangement was unfair to other creditors. Although San Bernardino hasn’t filed its complete repayment plan, it’s likely that many creditors would stand to receive only a portion of what they’re owed.
Ambac and EEPK are owed a total of more than $59 million in the San Bernardino bankruptcy. Lawyers for the two creditors couldn’t be reached for comment.
CalPERS welcomed the ruling.
“The judge in this case has ruled appropriately,” said the California Public Employees’ Retirement System in a prepared statement. “Now the city can turn its attention to the more pressing matter of completing its plan of adjustment for exiting bankruptcy.”
Dave Low, chairman of the union-backed advocacy group Californians for Retirement Security, added: “This is another big win in court for middle-income working families who play by the rules and earned their retirement security over the interests of Wall Street. The courts have made it clear that California law protects the promises made to firefighters, police, school employees, teachers and other public employees about their benefits.”
Public employee pensions remains under attack in the political arena, however. Former San Jose Mayor Chuck Reed and former San Diego City Councilman Carl DeMaio are pushing a pension reform initiative for next year’s election ballot. Details have yet to be revealed, but Reed has been outspoken on his desire to roll back pension benefits for current employees.
Gov. Jerry Brown signed into law a pension-reform package that affects newly hired workers only. That law took effect in January 2013.
It’s the second big legal victory in a matter of months for CalPERS and public employee pensions.
Last fall, a bankruptcy judge ruled that Stockton had the legal right to reduce its payments to CalPERS. But the judge also gave his blessing to Stockton’s repayment plan, in which the city agreed to continue paying CalPERS in full.
As a practical matter, experts say cities have little choice but to pay CalPERS the full annual amount. Anything less triggers a complicated legal mechanism that would result in a significant slashing of benefits to current and future retirees. In Stockton, for example, pension benefits would have dropped 60 percent, and city officials said police, firefighters and other municipal employees would have quit for other jobs.