[quote=davelj][quote=CA renter]In bankruptcy, employee compensation is a priority claim. These pension contributions are a part of employee compensation.
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Whether or not pension contributions are “part of employee compensation” is up for debate. Certainly, the *employee* contribution portion of the total contribution is probably sacrosanct. But the status of the *employer* contribution portion is what judges will be deciding.
Recall that when a corporation goes bankrupt and its pensions are taken over the the Pension Benefit Guaranty Corporation that the maximum pension benefit guaranteed by PBGC is ~$56K annually. Benefits above that level are lost – and constitute a haircut to the pension fund – just like the haircut that the bondholders take. So, while it’s not an apples-to-apples comparison, there is precedent in the corporate world for pensions taking a haircut in bankruptcy.
My point is that it remains to be seen what happens to public pensions in bankruptcy. I suspect they will be cut back but that most or all of the cutbacks will occur for those with large pensions, just as in the case of the PBGC.
You make it sound like this issue is settled. I can assure that it’s not. Not by a long shot.[/quote]
davelj, I understand that it is the employer-contribution of the pension that the judge for the Stockton BK will be deciding upon. However, the rights to a public pension, the formula for qualifying for that pension and the formula for determining its amount are steeped in state law. A private corporation’s pensions are not. The question of law is whether a federal judge can trump state law. If this BK judge makes a ruling against the City of Stockton pensioners, I have no doubt that it will be summarily appealed … in short order. As a matter of fact, an appeal will be likely ready to file prior to the hearing when the issue is supposed to be decided … just as a precaution.
Perhaps some of the CA inland cities and counties which were grossly overbuilt during the millenium boom and whose RE markets then crashed (ex: Stockton) will now begin to see greater property tax proceeds in the coming months/years. This should ameliorate most of their general fund shortfalls and enable them to pay what they promised into the pension funds. And there is nothing precluding these jurisdictions from shoring up their own house by removing the health-plan allowance from MOST retirees (for those where their HC allowance is NOT protected by law), and, of course, eliminating defined benefit plans for those hired after a certain date and/or future hires.
You are correct in that this issue will not be “settled” until the “fat lady” sings. And that will likely be a few years from now.
