CalPERS Defends Public Workers’ Pensions Amid City Bankruptcies

CalPERS is defending public workers' pension benefits as cities filing for bankruptcy seek to reduce their pension commitments, Bloomberg reports.

Background

According to Bloomberg, city budgets across the state are strained by growing retiree payment obligations.

CalPERS is the largest creditor in bankruptcy cases filed by San Bernardino and Stockton. The cases represent a total of $290.8 million at stake for CalPERS.

According to actuarial statements, the two cities represent 0.7% of employer contributions to CalPERS.

Bloomberg reports that the bankruptcy cases could set a precedent if judges relieve the cities of their pension commitments.

Arguments in Bankruptcy Cases

Karol Denniston -- a bankruptcy lawyer at Schiff Hardin in San Francisco -- said that the briefs filed by insurers in the bankruptcy cases argue "that CalPERS should be treated like any other creditor." She added, "CalPERS is going to argue that they're a different kind of creditor, in that they hold the money in trust for the retirees."

In a statement, Peter Mixon -- CalPERS' general counsel -- argued that the interests of residents with pensions should be considered before those of other creditors.

Mixon said, "The obligations owed to the public workers of the city have priority over those of general unsecured creditors including bondholders." He added, "Unlike insurance companies, policemen, firefighters and other public employees are not in a position to evaluate credit risk of their employers."

In addition, CalPERS is working to counter arguments that pension costs contribute significantly to current and potential city bankruptcies.

In a Sacramento Bee opinion piece, Rob Feckner -- chair of the CalPERS board of administration -- said, "It's not fair to scapegoat public employees and pensions for the financial woes of our cities," adding, "The real culprit is the economy and housing market, along with financial decisions made by city officials."

Dan Pellissier -- president of California Pension Reform -- said that while pension costs are roughly 10% of most city budgets, the cities need flexibility to deal with those costs when revenues are low.