During the Stockton, Calif. bankruptcy trial last week, Judge Christopher Klein implied that cutting pension obligations is not off the table — perhaps following the lead of Detroit Bankruptcy Judge Steven Rhodes. A consultant hired by one of Stockton’s debtors suggested that if payments to CalPERS are not cut, the city could fall back into bankruptcy — a sentiment echoed by Moody’s. CalPERS tried to distance itself from the Detroit situation, claiming that it is an “arm of the state.”
Meanwhile, the U.S. Supreme Court refused to hear the city of New Orleans’ appeal in a case where the city has refused to pay the pension liabilities owed to firefighters. And New Jersey Gov. Chris Christie’s recently released budget calls for significant cuts in state payments to fund their DB plan. Reuters reviews the entire situation, focusing on what cuts and changes to state retirement systems would mean to current and retired workers.
Though private workers with no pension plan may have little sympathy for public employees whose benefits might be cut, it’s important to remember that public workers likely took lower-paid jobs in order to get these pensions, and that the problem with underfunding lies mostly with politicians and officials who mismanaged them.
