Important Federal ruling on public employee pensions

From: Silver Hadden Silver + Levine

Judge’s Ruling Protects Vested Pension Entitlements

In a case which has been watched closely by all public employees, the federal bankruptcy judge, who had stated earlier this month that future funding payments by the City of Stockton to CalPERS could be reduced as a result of bankruptcy proceedings and the resulting pension entitlements could be impaired like any other contractual obligation, approved the plan the City had submitted to the court. This action will allow the City to emerge from bankruptcy with no reduction in pension benefits for its active and retired public employees.

As a result, this decision protects the vested pension entitlements of active and retired employees and will most certainly serve to deter other municipalities from trying to avoid their obligations to fund those benefits by declaring bankruptcy. Such a strategy would otherwise be very tempting in this political climate. Judge Klein said that the City’s workers and retirees had already taken enough hits in the bankruptcy by agreeing after the bankruptcy filing to take big cuts, including ending free retiree medical care. This is an encouraging ruling for our clients.