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Bankrupt Detroit can cut pensions; big implications for California

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Published: Tuesday, Dec. 3, 2013 - 9:13 am
Last Modified: Tuesday, Dec. 3, 2013 - 2:18 pm

In a case with major implications for California, a judge today ruled that the bankrupt city of Detroit can impose cuts to its municipal pension plans.

The ruling by U.S. Bankruptcy Judge Steven Rhodes could help bankrupt San Bernardino in a potential legal showdown with CalPERS over the sanctity of employee pensions.

According to the Detroit News, the judge said pensions are essentially the same as any other contract, and “it has long been understood that bankruptcy law entails the impairment of contracts.”

His ruling doesn’t automatically give San Bernardino, which filed for bankruptcy in 2012, the right to cut pensions, said James Spiotto, a Chicago bankruptcy lawyer who has followed both cases. But it strengthens the city’s hand.

“Obviously, it can be instructive,” Spiotto said.

CalPERS, which argues that pensions can’t be cut, has tried unsuccessfully to get San Bernardino’s bankruptcy filing thrown out of court, saying the city is just trying to get out from under its lawful pension obligations.

The city temporarily halted pension contributions to CalPERS right after going bankrupt, and while it has renewed the payments, it still owes the big pension fund about $15 million in past-due payments.

The San Bernardino City Council in October tentatively approved a bankruptcy reorganization plan that lays out how each creditor would be treated, including CalPERS. The plan remains confidential for now, but San Bernardino officials have spoken openly about their desire to reduce pension obligations. The city’s annual CalPERS bill runs about $24 million.

Neither CalPERS or the San Bernardino city attorney were immediately available for comment today.

Detroit officials at one time floated the idea of cutting employee pensions by as much as 90 percent. But the judge, in his ruling today, indicated that the city should proceed cautiously.

“This court will not lightly or casually exercise power…to impair pensions,” he said, according to the Detroit News.

Spiotto said courts have generally taken the view that, while contracts can be reduced in bankruptcy, the cuts need “to be the least drastic.” Retirees need to receive “everything that can be paid practically,” he added.

Call The Bee’s Dale Kasler, (916) 321-1066. Follow him on Twitter @dakasler.

Read more articles by Dale Kasler


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This morning a judge overseeing the City of Detroit’s fiscal sustainability ruled that the City can be afforded bankruptcy protection, meaning that all 100,000 of its creditors now stand to lose a significant portion of monies owed to them.

The most notable victims are the tens of thousands of retirees living off of pensions – many of whom will see an 80% obliteration of the retirement funds they believed they’d receive until they died.

Edited by lostinblue

If more citizens were armed, criminals would think twice about attacking them, Detroit Police Chief James Craig

Florida currently has more concealed-carry permit holders than any other state, with 1,269,021 issued as of May 14, 2014

The liberal elite ... know that the people simply cannot be trusted; that they are incapable of just and fair self-government; that left to their own devices, their society will be racist, sexist, homophobic, and inequitable -- and the liberal elite know how to fix things. They are going to help us live the good and just life, even if they have to lie to us and force us to do it. And they detest those who stand in their way."
- A Nation Of Cowards, by Jeffrey R. Snyder

Tavis Smiley: 'Black People Will Have Lost Ground in Every Single Economic Indicator' Under Obama

white-privilege.jpg?resize=318%2C318

Democrats>Socialists>Communists - Same goals, different speeds.

#DeplorableLivesMatter

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