America's largest public employee pension plan may carry a lot of weight with its investments, but is it powerful enough to change the basic structure of bankruptcy laws in the United States?
In the latest twist to the ongoing California public pension fiasco – with cities including San Bernardino and Stockton trying to shirk their employee pension obligations as part of their bankruptcy claims, the multi-billion-dollar California Public Employee Retirement System has shot back and is threatening to challenge the very basis of those laws.
According to Bloomberg, CalPERS is pushing to change bankruptcy rulings to insist that it be paid the money that it's owed in pension premiums before other bankruptcy claimants, including the bond companies who have underwritten public debt.
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In a week, the pension giant will appear in court with representatives of the City of San Bernardino to insist that the more than $7 million in missing pension payments be given to CalPERS, citing administrative overreach in the case. CalPERS attorneys continue to suggest that the city's bankruptcy claim is based more on financial mismanagement than actual debt problems.
San Bernardino officials have countered saying that paying off their CalPERS obligations will prevent the city from offering basic public safety services.
Outside observers say the fight has now reached a point where CalPERS is questioning some of the basics of Chapter 9 laws and a decision in the pension plan's favor could radically alter the future of bankruptcy proceedings in the U.S., especially as more and more municipalities teeter on the edge of financial insolvency.
"The city will be worse off if they choose not to fulfill their obligations," said Robert Glazier, CalPERS' deputy executive director for external affairs, to Bloomberg. "We have a responsibility as fiduciaries to protect our members and the soundness of the retirement system just as our members were responsible in making their contributions, going to work and doing their jobs."
"Simply put, if the city is forced to pay CalPERS, the city's ability to continue to function would be seriously threatened," San Bernardino officials have stated.
Experts say that if CalPERS' claim is validated, municipal bonds will be much more difficult for cities to obtain and finance in the future, across the nation.
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