On October 1, 2014, the bankruptcy judge overseeing the chapter 9 proceeding of Stockton, California observed from the bench that the city can cut pension obligations. In a statement made during plan confirmation proceedings, the judge said he believed that Stockton could exit the state's retirement system by rejecting its contract and restructure about $1.6 billion in unfunded pension liabilities as part of a plan of adjustment. In addition, he said that any lien that the retirement system would have resulting from such rejection could be avoided. The judge believes that the federal bankruptcy laws control over state law which prohibits California cities from repudiating pension fund payments. In response to the ruling, CalPERS, the state public employee retirement system, says it disagrees with the judge's comments and that the comments do not have an immediate effect in the Stockton chapter 9 case since the judge will not rule on whether Stockton's plan is confirmable until later this month. The City's current proposed plan does not seek to impair its obligations to CalPERS or to its retired employees. Stay tuned!
On a different note, I am pleased to announce the launch of Global Restructuring Watch, our blog dedicated to bringing readers the latest worldwide trends and developments in bankruptcy, insolvency and restructuring. Please click here to subscribe and to read our blog posts. http://www.globalrestructuringwatch.com/
This article is presented for informational purposes only and is not intended to constitute legal advice.
