Wednesday, October 1, 2014
Reversal for CalPERS and Not Great for UC
The verbal ruling from U.S. Bankruptcy Judge Christopher Klein, two years after Stockton filed for bankruptcy, was the decision CalPERS longed to avoid. For the first time, a judge in California has said a city or county can walk away from its CalPERS obligations, the way a bankrupt retail chain can exit a bad lease at a shopping center.
Whether Stockton would sever its CalPERS contract is another matter. City Manager Kurt Wilson told the Sacramento Bee that there’s no change in the city’s plan to keep paying CalPERS in full and retaining its full pensions. The city’s attorney, Marc Levinson, spent the afternoon trying to convince Klein to approve Stockton’s financial reorganization plan even with the CalPERS relationship left untouched...
Full story at http://www.sacbee.com/2014/10/01/6752346/calpers-bankruptcy-stockton.html
In principle, the decision - likely to be appealed - applies only in cases of bankruptcy - something unlikely to occur at UC. However, anything that suggests pension promises can be broken makes pensions less valuable to employees and potential hires. It can also lead to perverse behavior such as taking a lump-sum cashout (despite the loss of retiree health care) because a retiree is scared that the promise won't be fulfilled.