Bankruptcy Judge in Stockton Case Rules CalPERS Payments Can Be Cut

CalPers CaliforniaIn a verbal ruling which could potentially have tremendous repercussions for CalPERS, the California Public Employees’ Retirement System – not to mention public employee unions in other jurisdictions – the judge handling the bankruptcy proceeding for the City of Stockton announced that the city had the right to reduce pension payments due retired beneficiaries. Further U.S. Bankruptcy Judge Christopher Klein declared that Stockton could break its ties with CalPERS.


The decision comes in the context of various other high-profile Chapter 9 municipal bankruptcies where the issue of cutting public employee pension benefits is being litigated. In the most famous such case, involving the City of Detroit, an agreement between the emergency City Manager and creditors including municipal employee unions preserved all future payments for police officers but made modest cuts for other employees including teachers. As the federal bankruptcy judge in that case is currently conducting an ongoing trial, it is still too early to see if the terms of that agreement are accepted by the court and incorporated in to its final decree. However, the presiding judge there has indicated his view that they can be cut.


Meanwhile in San Bernardino, the parties reached a settlement this past summer which involved disposition of pension claims. However, as the terms of the settlement have not yet been made public, it is premature to speculate what transpired in that municipal bankruptcy.            


As with the situation in the Detroit case, it is also too early to say what effect this ruling will ultimately have. The fact such benefits can be cut does not mean they will. If a settlement is reached between Stockton and its creditors, the ruling may never be tested in any appellate tribunal. Decisions by judges at the trial level – as this ruling is – do not possess the precedential effect that holdings in appellate cases confer. Accordingly, it is possible that this ruling may not establish a definitive precedent which could undermine the rights of public employee pension holders in California and beyond.


When the bankruptcy judge hearing the case in Detroit suggested that the claims of the public employees could be impaired, officials for CalPERS hinted that such ruling did not apply as California law provides certain protections to CalPERS members. With this latest ruling by Judge Klein, CalPERS finds its seemingly impregnable position in jeopardy. Unfortunately, this could mean future retirees who worked in California cities that seek bankruptcy protection may see their pension benefits reduced. It could also diminish the negotiating posture CalPERS may have with municipalities and other governmental entities in the future.


The Wilson Law Firm, a Professional Corporation, at 1120 Iron Point Rd Suite 100, Folsom, CA 95630 represents parties, including CalPERS members, involved in domestic relations disputes.  Call The Wilson Law Firm, a Professional Corporation at the firm’s office at: 916-608-8891 to set up an appointment to speak with Attorney Dennis Wilson or visit its website at /.