Loading ...Judge: Stockton Must Treat Pension Like Other Debt
Striking at the sanctity of public pensions in California, a federal judge ruled Wednesday that U.S. bankruptcy law allows the city of Stockton to treat pension fund obligations like other debts, meaning the city could trim benefits.
Stockton argued that it must make its pension contributions for public employees before its creditors are paid the entire amount they are owned.
The case is being closely watched because it could help clarify who gets paid first by financially strapped cities around the nation — retirement funds or creditors.
The ruling was prompted by a key creditor’s contention that pension obligations should be treated like other debts. Franklin Templeton Investments said the pension payments are fair game as it tries to collect on an unsecured $32.5 million claim against the city.
U.S. Bankruptcy Judge Christopher Klein said he would announce his decision on Oct. 30 on the city’s overall plan to leave bankruptcy and the contention by Franklin Templeton.
California pension officials said they expect his decision Wednesday on the pension plans to be appealed.
Attorneys had argued that California law gave pension funds special protections beyond those offered in other cases such as the bankruptcy declaration in Detroit.
In making his ruling Wednesday, Klein said, “California public employee retirement law … is simply invalid in the face of the supremacy clause of the United States Constitution.”
That means federal bankruptcy and contract law applies to the pension fund, “just like anybody else,” Klein said.
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