CalPERS gets dreaded decision: Judge rules Stockton can sever its city pensions

[Newsjock]

Source: Sacramento Bee

In a potentially groundbreaking decision, a federal bankruptcy judge today struck down the sanctity of government pensions in California, saying the city of Stockton has the right to sever its contract with CalPERS.

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.

... The judge later determined that the state law takes a back seat to the federal bankruptcy code and the US Constitution. James Johnston, a lawyer for Franklin, said CalPERS isn’t entitled to “some exalted status under California law.”

CalPERS and the city say chaos would ensue if the city doesn’t pay CalPERS in full. Default would occur, and the city would either have to make a one-time payment of $1.6 billion to keep its pensions intact or watch CalPERS slash pension benefits by 60 percent. The result would be a mass exodus of employees, the city says.

Read more: http://www.sacbee.com/2014/10/01/6752346/calpers-bankruptcy-stockton.html

[pipoman]

1. People who have paid in should receive benefits....

That said, what private sector employer still has a pension plan? 401k, yes....but pensions have gone the way of the buggy whip...

[Dreamer Tatum]

2. The investors paid in too. nt

[StatGirl]

6. They did, but . . .

. . . surely they knew they would be the last in line to get anything in the event of bankruptcy. This should have been written into the contract.

I thought it was a Democratic principle that wages supersede any other type of debt. Pension plans -- private or public -- should be considered deferred wages, and they should belong to the employees.

[Dreamer Tatum]

10. It's called the law, not a Democratic principle.

I am fine with the pensioners having first lien on proceeds, but I don't care much for the attitude of "FUCK those investors, those bloodsucking leeches" as though the act of providing capital is some sort of crime. "Too bad for the investors, but they should bear the bulk of the risk" is far more acceptable to me.

[KansDem]

12. Are these the same "investors" that got bailed-out in 2008?

I wonder...

[Dreamer Tatum]

13. Obviously not. nt

[KansDem]

19. So no one connected with Wall Street had investments in CALPers?

The Wall Street Journal is very interested in this development. And who reads the WSJ?

Calpers' top investment executives including Chief Investment Officer Ted Eliopoulos are discussing whether to make the changes and have not made a final decision, according to the newspaper. Calpers' board has not been told about the talks, sources told the Wall Street Journal.

The newspaper said one of the biggest changes the fund is considering is potentially eliminating investments in indexes for commodities, including energy, food and metals.

Calpers currently has $2.4 billion in such indexes, or less than 1 percent of total holdings, according to the report.

The fund is also thinking about shifting its $55 billion investment in company stocks to broader investments in countries or sectors, it said.

The report also said that Calpers may get rid of some of its highly paid external investment managers.

Calpers, which has a $4.5 billion hedge fund, is also trying to figure out options for part of the portfolio.

And...

Calpers is mulling whether to exit or cut back its investment in commodities, company stocks and hedge funds, the newspaper reported, citing anonymous sources. Calpers had assets totaling $290.5 billion as of April 30, 2014, according to its website, and any move it makes to change its investment strategy could influence other state and local pension funds.

http://www.reuters.com/article/2014/08/11/us-calpers-idUSKBN0GB02W20140811

I don't know, maybe it's just me but when I see "Calpers could shift investments to avoid risky bets in areas like commodities" and "assets totaling $290.5 billion" and "investments in indexes for commodities, including energy, food and metals" and "$55 billion investment in company stocks" and "investment managers," I think "Wall Street."

[CreekDog]

35. investors take a risk

an employee's pension shouldn't be a gamble.

[Dreamer Tatum]

41. except those funds are invested. nt

[NutmegYankee]

3. Hell, let's keep the race to bottom in full throttle!

Why have 401k's? Most parts of the third world don't even have that! And yet they survive in their squalid little huts!

<-------for the OBVIOUS impaired.

[senseandsensibility]

4. You said it, my friend.

I wish we could nominate posts. Yours deserves to be on the greatest page.

[pipoman]

54. Benefit plans exist to add benefits to working

At one place or another. .the only thing that will take benefits away is further expansion of the employers market for jobs.

[jtuck004]

8. Because defined pensions are good for workers, 401Ks good for the thieves that rob workers. n/t

[Veilex]

15. Absolutely!

It has long been my contention that any "career" style job that lacks pensions is not a real job... and that's not a reflection on workers, but the employer.

[kelly1mm]

36. If a defined benefit pension obligation can be massively decreased in BK court (like this rulling)

then why are 401k's worse? Since the money in your 401k is yours, the company cannot touch it (subject to vesting).

The only reason my wife and I were able to retire in our 40's was due to the 401k plans we were easily able to roll over between jobs. Pensions generally require much longer tenure than the norm at a single company.

[jtuck004]

56. Defined benefits don't prevent stupid business decisions, or indebting your city for more than

you should, or your private business from going bankrupt and taking the assets with it, if the plan wasn't fully funded. There's an app, I mean department of the government, for that. But with private companies there are certain realities, like having to ask for a loan, that buffers such things.

Here a city took on too much debt, which in the private world would mean bankruptcy, and whatever that entails.

But there are many ways to suck money from a persons 401K with fees, for doing little or no work at all, in a healthy company which simply chooses not to share the profits of the labor with the people who do the work.

I don't like 401Ks, ymmv.

[kelly1mm]

57. My longest stint at any one company (actually the .gov) was 7 years. My pension

from there will be $231 per month if I take it at 62. That is in actual dollars, not inflation adjusted. So, I call this my cable bill pension. My 401k's however were fully funded by me (with matching funds by my 7 employers) over the 26 years I worked. Those funds are now funding my retirement (via IRA to ROTH IRA conversion ladders, no penalties and no income taxes) till pensions kick in.

Never could have done that with defined benefit plans. The earliest I could retire and draw a pension from the .gov would be 57 (with a pretty massive discount)

I love 401k's!

[jtuck004]

58. But lawyers who wanted to stick their hands in their money wrote in the advantagous terms you

praise. Of course those could be done with defined pensions. But the thieving, lying financiers wouldn't make anything from your labor. So the Larry Summers and other Republicans in the government have swayed people to their way of thinking.

The other thing is that while you have had good fortune, the process of moving to this has meant that tens of millions of Americans living around you have been excluded, so this game can be played by the wealthy and financiers. (Partly why the financial sector, which use to be about 12% of our economy, is now about 40% - YET THEY MAKE NOTHING. Worth about that, too).

But that means, increasingly, the buffer of people around you who have money is getting smaller and smaller, and the other folks live very different lives.

I don't say that to knock you down - I am happy for you, without reservation. But it is precisely that funneling of the profits to a few that is the problem. And these sorts of mechanisms enable it. (That is incontrovertible. It is why some of them were designed - it's recorded history.)

Which means that people with money, especially former "middle class" dwellers, will increasingly find themselves alone over the next few years, as many of these funds implode and the life they live will be far different than many imagined, I suspect. There are whole books out there on the subject, and have been for a number of years. Interesting to watch the predictions play out and how.

These next few years are going to be interesting, whether one has assets or not, I suspect.

[kelly1mm]

60. I certainly agree with your last sentence. We truely do live in interesting times! nt

[pipoman]

53. Yeah, no....

401k, properly managed can't be taken away and is sustainable. My point is the assertion in the op that without pensions the government can't keep employees is simply false since employees can't get pensions in the private sector any longer either. There will still be retirement benefits, probably just more like a 401k.

[jtuck004]

55. But I have to live in this reality, where we don't have "...401k, properly managed...".

Your planet sounds like a nice place

Some kidding aside, the defined pension made the business much more accountable to the people for a lot of years, and businesses, wanting to hold onto their profit regardless of what happened to employees caused the advent of the 401K. The modern 401K is often simply a vehicle for others who didn't do the work to stick their thieving, lying, managing fingers into someone else's wallet, and life, being paid for nothing. Which includes companies that stuff their employees 401K with their own stock, as if the shit is worth anthing.

Oddly enough, as good as some people think the 401K is, as it has gotten more prevalent the life of the average American has deteriorated. Something the Mi$$ RobMe class would appreciate, I'm sure.

While I am sure that isn't the fault of the 401K, the collision is interesting.

[Hestia]

66. AT&T still have pensions for their managers and tech's. My husband is under (I think) 5 different

contracts as a tech and each contract has its own level of pension funding. He is a first tier manager now and it has its own level of funding.

[Earth_First]

5. Had enough yet?!

Not necessarily devoted to those of us at DU...

...however they're coming for everything you and I own!

[ballyhoo]

7. You have no idea what will happen if this

ruling stands. These folks will take down the city.

[jtuck004]

9. It will stand, and you will see more across the country over the next few years.

Trillions out there in this kind of stuff, most of it to be stolen from working people.

[ballyhoo]

14. This is why the government has wanted to take away

everyone's guns; why Bush cancelled posse comitatus; and why all the police have been given these military defense weapons. They will steal it all, including social security, and if anyone in their right mind thinks getting together and waving a bunch of garish signs is going to do anything, they are nuts! I knew these days would come after Iraq and the selling of America to every foreign oligarch with money. You may not believe the same, but I believe the working people will revolt. Have you ever seen a mad Teamster? I have.

[dhill926]

16. where has the gov't stated...

they wanted to take away everyone's guns?

[ballyhoo]

17. I'll let google handle your question. Pack some

food.

[dhill926]

22. Crackers, Cheez Wiz and a 6 pack of Old Milwaukee ok?

[enki23]

46. You'll need to wear a special hat.

.

[CTyankee]

20. Yep. WTF?

Here we go again...

[Hoppy]

24. Lets say you are right.

Who do these people with the guns aim at? Do you know where the Koch suckers live? Maybe aim at your congress rep.

Where does Ichan live?

The mad teamster is a pipe dream.

[ballyhoo]

26. I'm a teamster on a withdrawal

card. You have no idea what you are talking about. Not even remotely.

[Hoppy]

29. I agree there is and will be anger. But there is no place to focus that anger.

[NutmegYankee]

31. That's because the 1% work hard to keep the anger focused at the wrong people.

And it works.

[ballyhoo]

32. There are plenty of places for the aggrieved to

strike and the two you mention are extremely easy. City unions have connections beyond belief. I should know within the next few hours what some of the CALPERS pensioners are saying. My sister-in-law is retired on CALPERS.

[RufusTFirefly]

33. "It's a big club, and you ain't in it."

"You know what they want? Obedient workers ­ people who are just smart enough to run the machines and do the paperwork but just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, reduced benefits, the end of overtime and the vanishing pension that disappears the minute you go to collect it. And, now, they're coming for your Social Security. They want your fucking retirement money. They want it back, so they can give it to their criminal friends on Wall Street. And you know something? They'll get it. They'll get it all, sooner or later, because they own this fucking place. It's a big club, and you ain't in it. You and I are not in the big club." -- George Carlin

[blkmusclmachine]

27. Another Detroit to be fleeced and sold to the lowest bidder.

[Hoppy]

28. Just like they took down other jurisdictions when the same thing happened?

Detroit. Providence, R.I.

The workers got fucked. No response. They took it lying down. The same thing will happen in California: Nothing>

[ballyhoo]

34. Any place else but where it is happening, maybe. The City of Stockton could probably

put a dent in ISIS. I won't even walk there in the daylight, let alone dark, and I am big.

[KansDem]

11. "...the way a bankrupt retail chain can exit a bad lease at a shopping center. "

Really?

Some get-rich-quick wheeler-dealers go belly up and want out of their obligations is the same as pensioners being denied what they paid into?

Bad analogy...

[blkmusclmachine]

18. I feel like we're living in 1930's Germany some days.

[Ruby the Liberal]

21. Wow.

Did not see this coming. Holy shit.

CALPers = ineligible for social security? Anyone know?

[NV Whino]

25. That is correct

[ballyhoo]

30. California Public Employes don't pay into social security. They pay into CALPERS, which

is known as the public union that ate California. So,no, they don't get Social Security unless its through a deceased spouse who did pay into social security on a benefit crossover. I just left a CALPERS website but I didn't save the URL. You can find it easily enough. One thing, CALPERS has made foolish investments and are not doing well. I don't know how much money the city of oakland puts into the fund as a comparison to all, but having this as a precedent would be very bad and could cause a domino effect.

[Fiendish Thingy]

39. You are wrong

This is true for some state employees, but not all CalPERS retirees.

[ballyhoo]

42. You are right. I couldn't find the CALPERS site I

was working on. Many can although they are covered by WEP. Teachers can't collect Social Security because they don't contribute.

The Windfall Elimination Provision (WEP) of the Social Security law causes a reduction in a person’s Social Security calculations if an individual does not contribute to Social Security on all earnings that will result in another pension. Teachers in California are an example because they only contribute to CalSTRS, not Social Security.

Hard to remember all this stuff off the top of your head.

http://members.csea.com/memberhome/Benefits/Retirement/SocialSecurity/tabid/1432/Default.aspx

[tularetom]

51. Not true

During the 70's public agencies were given the chance to opt out of Social Security and some in CA did. Most local agency retirees in CA are drawing SS as well as PERS, although retirees that worked some or all of their careers for "opt out" agencies are receiving reduced SS benefits, or none at all, depending on how long they contributed to SS.

[ballyhoo]

52. Yes. I know. See post 42.

[Fiendish Thingy]

38. Depends

I am a CalPERS retiree and eligible for both pension and SS. I worked for a county and paid into SS. IIRC, state employees do not.

[ballyhoo]

43. You are right. I explained in prior post to you.

ddddd

[McCamy Taylor]

23. With Citizens United, a mayor can accept a million dollar campaign contribution in exchange

for taking out a huge loan at a huge interest rate that his city can not afford in order to fund a project that his city does not need. When the loan comes due and there is no money to pay it, he can take it out of the pension fund, causing a mass exodus of city employees. At which point, a private firm will step in with a bunch of minimum wage, undocumented "contract" laborers to take over the job---doing a half-assed job for twice as much.

This is going to be the net result. We have seen it already. It was called "Robocop."

[Crash2Parties]

62. But if the investment company is on the ball

They'll find a way to own the city yet not be responsible for its liabilities, similar to what is done with say, certain roadways...

[Travis_0004]

37. Cities have been underfunding pensions for years

This is the eventual result. If the city promises a pension, they should fully fund it. That way they can not defult on obligations. Yet when the post office is required to fully fund their pension everybody bitches. If I was an employee I would much rather see a few billion in a pension account that an IOU from a politician.

[branford]

50. Fund the Pensions and Use a Reasonable Rate of Return on Investments

Not only should cities and towns have to fully fund their pension obligations, they should be required to use a rational rate of return to determine such obligations.

At budget time, states often not only under-fund their pensions and benefit plans, but use unreasonably high projected rates of return on the invested money to reduce the amounts invested even further. It's these and other budgetary accounting tricks that have allowed states, particularly New York, New Jersey and California, to balance their budgets. However, it has become little more than a pyramid scheme. As more municipal employees retire, and the obligations grow, the problem only gets worse. It's a bubble far worse than the sub-prime mortgage fiasco, and the victims will be the municipal retirees. Detroit will simply be a preview of what's to come.

[Starry Messenger]

40. It's wage theft.

No one should ever accept a retirement plan ever again. Ask for all that money up front, paid while you are working and sock it away in a plan you control.

And fuck the promise-breakers.

[ballyhoo]

44. Exactly. But that may not work right now--

dddddd

[Starry Messenger]

45. I know, we need to light a fire under some asses for this round.

[freshwest]

47. I've thought about this myself more than once, Starry. It's maddening.

I'm wondering if the federal agency that takes up the slack when a company goes bankrupt will do this for CALPERS?

The Pension Benefit Guaranty Corporation (PBGC) is an independent agency of the United States government that was created by the Employee Retirement Income Security Act of 1974 (ERISA) to encourage the continuation and maintenance of voluntary private defined benefit pension plans, provide timely and uninterrupted payment of pension benefits, and keep pension insurance premiums at the lowest level necessary to carry out its operations. Subject to other statutory limitations, the PBGC insurance program pays pension benefits up to the maximum guaranteed benefit set by law to participants who retire at age 65 ($54,000 a year as of 2011).[2] The benefits payable to insured retirees who start their benefits at ages other than 65, or who elect survivor coverage, are adjusted to be equivalent in value.

During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC's deficit increased 4.5 percent to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets...

One reason Congress enacted ERISA was "to prevent the 'great personal tragedy' suffered by employees whose vested benefits are not paid when pension plans are terminated."[19] When a defined benefit plan is properly funded by its sponsor, its assets should be approximately equal to its liability, and any shortfall (including benefit improvements) should be amortized in a relatively short period of time. Before ERISA, employers and willing unions could agree to increase benefits with little thought to how to pay for them. A classic case of the unfortunate consequences of an underfunded pension plan is the 1963 shutdown of Studebaker automobile operations in South Bend, Indiana, in which 4,500 workers lost 85% of their vested benefits.[19] One of ERISA's stated intentions was to minimize underfunding in defined benefit plans.

Defined contribution plans — by contrast and by definition — are always "fully funded." Thus Congress saw no need to provide insurance protection for participants in defined contribution plans. The Enron scandal in 2001 demonstrated one potential problem with defined contribution plans: the company had strongly encouraged its workers to invest their 401(k) plans in their employer itself, violating primary investment guidelines about diversification. When Enron went bankrupt, many workers lost not just their jobs but also most of the value of their retirement savings. Congress inserted trust law fiduciary liability upon employers who did not prudently diversify plan assets to avoid the chance of large losses inside Section 404 of ERISA, but it is unclear whether such fiduciary liability applies to trustees of plans in which participants direct the investment of their own accounts.[3]

More details here:

https://en.wikipedia.org/w/index.php?title=Pension_Benefit_Guaranty_Corporation&printable=yes

The corporation I worked for began to send notices about the PBGC every few quarters a few years ago. After a few hair-rending notices that made me despair of getting a pension, the corporation set up a plan fund the pensions better despite being less profitable than in the past and less revenue to pay future retirees.

They made an offer to invest about $10 billion dollars to make it solvent again, pending approval by the US Department of Labor, as the pensions had been negotiated by union contracts over the years. I will receive my defined benefit plan with regular social security.

I paid in over a thousand a month IRS, FICA, etc, in my peak years, so I consider myself very fortunate for a long time to have that job. The Labor Department then reviewed and accepted the plan and we didn't have to hear about the PBGC again. I hope some provision of ERISA and the PBGC will be able to give those who counted on a CALPERS pension sufficient funds to live on, but suspect if the amount is less than they expected, they may be eligible for California's exchange for healthcare. I haven't read the full page on the PBGC, but there may be a solution there.

An well-known investment firm on Wall St. (boo hiss, huh) handled our pension money but they were careful with it. The company that I worked for was tight as hell in labor negotiations but still did the right thing by those who got disabled or are retired when they took control back from other firms managing the benefit plans. They had contracted them out for a while and they sucked.

I never wanted a government job, they are not as easy as some would make them out to be and really want the folks on CALPERS to get pensions.

[former9thward]

61. The answer is no.

PBGC only covers the private sector. Not government pensions like CALPERS.

[A Little Weird]

48. This makes me sick

I am a public employee in a different state. One of the reasons I took this job was because of the pension. This job paid quite a bit less than what I was making in the private sector but it seemed like a no-brainer with the pension. They made it sound like a promise that could not be broken but we are seeing it happen now time and again.

[marlakay]

49. We are retired on calpers

From Bart which is pretty strong.

my husband didn't pay into SS because of it. What are the people in Stockton to do...become homeless?

[onecaliberal]

59. I have been paying into Pers for

17 years, won't get SS. Guess I will die in the fucking road after I can't work any longer. This country just sucks complete ass.

[seabeckind]

63. Why is there a bankruptcy?

Because of the pensions?

No.

Because: "Before the recession, Stockton leaders spent millions of dollars revitalizing the downtown area with a new City Hall and building a marina, sports arena and ballpark. The city issued about 3,000 permits annually to build new homes, and it paid police premium wages and health benefits."

Sounds like the republican gov't model. Funnel value from the public sector to the private sector and mortgage the public sector to do it. Win-win. The "creditor" gets a nice fat commission, repeatedly because of refi's, and then when no more refi's are possible, raid the only thing left that has any value.

Romney would be proud...that's his business model.

Locally the city sold its water facility to a private company for many millions. Now it's running around looking for ways to "invest" that money in the future.

Here I thought owning a water facility IS a good investment for the future. But, hey, what do I know? They decided to go for a multiuse sports facility. Traded land owned by the schools in a desireable development area to a developer for some farmland out in the nether regions --- oh and included some nice tax free benefits to the developer to "sweeten" the deal. I guess if the school needs to expand we can just go eminent domain some more land and buy some more buses.

[Fiendish Thingy]

64. This must be for future retirees

As Govts. No longer make contributions to PERS for workers who are already retired, the benefits come from the earnings from past contibutions. A bankrupt city wouldn't be able to fund the pensions of its current or future employees, but that wouldn't affect those already retired, and whose benefits are paid by PERS which is independent from the city's financial troubles.

[ladjf]

65. The "people" get the shaft again. nt

[yurbud]

67. We have to start calling pensions "deferred compensation"

Like Dick Cheney did, so taking it away is even more obviously theft.