[quote=davelj]In my opinion the most interesting part of this will be the determination of seniority (or liquidation preference) between the pension funds and the bond holders, as this is uncharted territory.
I suspect that at least some judges will deem the pensions to have been willfully ignorant in assuming that the taxpayers would be willing to pay what the pensioners assumed they would bear. And if that happens – whoa Daddy – things will get very interesting.
San Diego isn’t as bad off as San Bernardino County, but… we’re still pretty damn sickly. I give it even odds that we eventually go through the same process as Stockton – better than even odds if the Stockton BK (or others that follow it) end up with pension liability reductions as that dramatically increases the attractiveness of the BK option.
The fundamental mistake that the unions have made is in assuming that the taxpayers would be willing to meet whatever pension burden the local politicians saddled them with. (This is not unlike a banker ignoring a borrower’s willingness – as opposed to its ability – to pay its debt… and finding out the underlying collateral is insufficient to repay the principal.) In any case, it’s going to be pretty interesting.[/quote]
Calpers cut assumed annual return rate to 7.5% instead of 7.25% recommended by state chief actuary. As long as SB pension is in line with range, Judge can’t rule it legally unconscionable. Of course the rate should probably be 7% because the only people who have worse investment track record than me are pension fund managers who are peddled junk by Wall Street.
A Danish pension manager has interesting risk management strategy. Something about hedging against future pension liabilites – so hedging against interest rate drop in long term bonds that would cut income portfolio, but I can’t spell CFA so it’s just a guess.
