Headlines about "Bankruptcy"

Gathered from the web by the editors at BenefitsLink.com.
Pensions Still Cloud Stockton Bankruptcy Exit
"Stockton's plan to leave a huge pension debt untouched was still an issue last week as the city council, hoping to end a two-year bankruptcy, approved settlements for 95 percent of the claims. The settlements include Assured Guaranty and National Public Finance Guarantee, the main opponents of Stockton's eligibility for bankruptcy. The bond insurers argued that an early plan to cut bond debt, but not pension debt, treated creditors unfairly. Now the last major creditor that has not settled, Franklin Bonds, argues that if Stockton exits bankruptcy without cutting pension debt, the city could slide back toward insolvency like Vallejo." (Calpensions)

Unions Want to Use $100M in Federal Housing Relief Money to Plug Detroit Pension Hole
"Under the plan being discussed, Detroit Emergency Manager Kevyn Orr would get access to $100 million earmarked for Michigan from a fund the U.S. Treasury Department established in 2010 to provide relief in the wake of the housing crisis. Michigan would send the federal money to Detroit for blight reduction, as has been done in the past. Mr. Orr then could take other funding already earmarked for blight elimination and use that in a plan to help make up a $3.5 billion shortfall in the retirement system for city workers[.]" (The Wall Street Journal; subscription may be required)

Detroit Pension Deal Approved by One Retirement System
"The tentative settlement with the General Retirement System ... would cut pensions for general city workers and retirees by 4.5 percent and eliminate cost-of-living adjustments ... The tentative deals represent much smaller decreases in benefits than Detroit had been seeking." (Reuters)

Supreme Court Justices on the Edge About Protections for Inherited IRAs in Bankruptcy
"Obviously well prepared [at the oral argument], the Justices gave neither side much breathing room, peppering both lawyers from beginning to end with probing questions about the weak points of their position. So only moments after Kannon Shanmugam (representing Clark) began to speak, Justice Kennedy pressed on the weakest point of Shanmugam's position, noting that 'it seems to me that you really rendered the words "retirement funds" superfluous.'" [Clark v. William J. Rameker, Trustee, et al., No. 13-299, on appeal from the 7th Circuit.] (SCOTUSblog)

Detroit's Revised Bankruptcy Exit Plan Would Increase Pain for Some Retirees
"For police and fire retirees the potential cuts would rise to 6 percent from 4 percent in the previous plan in the case of a timely settlement, and to 14 percent from 10 percent if the plan is rejected and money pledged by foundations and the state of Michigan for retirees is not forthcoming. The range of cuts to general city worker retirees remained the same at 26 percent with a settlement and 34 percent without." (Reuters)

Supreme Court Argument Preview: Scope of Protections for Retirement Funds in Bankruptcy Squarely at Issue
"The specific question in this case is whether those provisions exempt the $450,000 IRA that petitioner Heidi Clark inherited upon the death of her mother.... [Clark] contends that the inherited IRA remains retirement funds because they were set aside for retirement into the identified account and remain in that account.... [The trustee in Clark's bankruptcy] ... argues that funds held in an inherited IRA are not 'retirement funds' because an inherited IRA does not have the attributes of other tax-exempt retirement funds.... [T]here is no tax penalty if Ms. Clark withdraws all of the funds from the IRA immediately; all of the other funds would be subject to penalties if they were immediately liquidated.... The Justices easily could write an opinion favoring either party. So this well might be one of those cases in which the [oral] argument could tip the balance either way." [In re Clark, 714 F.3d 559 (7th Cir. 2013; cert. granted Nov. 26, 2013).] (SCOTUSblog)

Protecting Private Wealth: Recent Bankruptcy Cases Involving Tuition Payments and Profit Sharing Plans
"Although the IRS had previously audited the debtor's tax returns and did not disqualify the profit sharing plan or assess additional taxes, the First Circuit rejected the debtor's argument that the IRS's favorable determination following the audit created a presumption that the debtor's interest in the profit sharing plan was exempt from his bankruptcy estate. The First Circuit also upheld the bankruptcy court's ruling that the debtor's individual retirement accounts were not exempt because the debtor intentionally concealed or failed to fully disclose those assets in a number of court filings." [In re Daniels, No. 12-2376 (1st Cir. 2013)] (BakerHostetler)

Once Bankrupt, City of Vallejo Still Can't Afford Its Pricey Pensions
"The California city of Vallejo emerged from bankruptcy just over two years ago, but it is still struggling to pay its bills. The main culprit: Ballooning pension costs, which will hit more than $14 million this year, a nearly 40% increase from two years ago. Amid threats of legal action from the state's pension giant, CalPERS, Vallejo did little during its nearly three-year stint in bankruptcy to stem the growth in its pension bills." (CNNMoney.com)

Eleventh Circuit: Bankruptcy Trustee Could Not Sue Bankrupt Company's Former Owner for Terminated Plan Liabilities
"The complaint, as the court read it, provided that any money recovered by the bankruptcy trustee would go to the bankruptcy estate to be allocated among all of the general unsecured creditors, including the PBGC. The court found nothing in ERISA's provisions or its legislative history suggesting, or stating, that the duty of a current or former controlled group to pay unfunded benefit liabilities is a duty owed to the employer as contributing sponsor, rather than to the plan's beneficiaries." [Durango-Georgia Paper Co. v. H.G. Estate, LLC, No. 11 -- 15079 (11th Cir. Jan. 7, 2014)] (Wolters Kluwer Law & Business)

Text of Amicus Brief Addressing Treatment of Inherited Retirement Accounts in Bankruptcy (PDF)
"[C]ertain types of accounts, such as IRAs, are taxed in a manner to encourage individuals to save funds in those accounts for retirement ... [I]nherited IRAs are taxed in precisely the opposite manner from IRAs.... [I]nherited IRAs are better characterized as anti-retirement funds: they are structured so as to require immediate consumption of the funds rather than to promote future savings. Accordingly, they are not 'retirement funds' under the Bankruptcy Code." [Clark v. William J. Rameker, Trustee, et al., No. 13-299, on appeal from the 7th Circuit.] (Prof. Seymour Goldberg; brief prepared by Jenner & Block)

Detroit Bankruptcy Plan Includes Deep Pension Cuts, Eliminates COLAs
"In the plan, which probably will be amended in the weeks ahead, police, firefighters and those departments' retirees will take a 10% cut to their current pension payment. The pensions of all other city employees and retirees will be cut more than three times as much: 34%. Neither group will receive cost of living adjustments in the future." (Los Angeles Times)

Post-Bankruptcy Detroit to Keep Defined Benefit Pension Plan
"A post-bankruptcy Detroit will maintain a defined benefit pension plan for more than 9,300 current city employees, as it has for decades ...[Detroit Emergency Manager Kevyn Orr] is hopeful state officials will provide the missing $350 million piece of the funding puzzle to help cover pension fund liability for roughly 22,000 retirees -- over and above the $370 million to come from private foundations and $100 million that a privately managed Detroit Institute of Arts expects to raise from donors over the next 20 years." (Crain's Detroit Business)

Detroit Files Plan to Restructure Debt, Leave Bankruptcy
"Detroit's emergency manager filed a plan ... to restructure the city's $18 billion debt by making cuts to pensions and creditors while offering a blueprint for emerging from the largest municipal bankruptcy in U.S. history. An early draft of state-appointed Emergency Manager Kevyn Orr's plan called for city pensioners to receive $4.3 billion in payments and bondholders about $1.1 billion during the next 40 years. That draft also detailed plans to help pensioners keep more of what they are owed by using state and private funds to protect against the sale of city-owned art at the Detroit Institute of Arts." (Fox News)

[Opinion] 2014 Facts: State and Municipal Bankruptcy, Municipal Bonds, and State and Local Pensions (PDF)
"State and local employee retirement systems do not seek federal financial assistance. One-size-fits-all federal regulation is neither needed nor warranted and would only inhibit recovery efforts at the state and local levels.... On average, the portion of combined state and local government spending dedicated to retirement system contributions is less than five percent." (National Association of State Retirement Administrators [NASRA])

Does Bankruptcy Protection Extend to Inherited IRAs? (PDF)
"If an inherited IRA will not get favorable retirement fund treatment in bankruptcy, trust arrangements should be explored to achieve asset protection.... Implementing trust planning with clients could avoid or at least mitigate the harsh effects of accelerated payout periods and reduced asset protection for retirement funds. [In this article, these] planning opportunities will also be reviewed and analyzed under the American Taxpayer Relief Act of 2012 (ATRA) and the new tax on accumulated trust investment income under the Affordable Care Act." (McGladrey)

Michigan Governor Offers Pension Aid to Detroit, with Conditions
"Michigan Gov. Rick Snyder is recommending that the state Legislature approve up to $350 million to help fund pensions in Detroit ... The money would be put forward only if there was a settlement involving the city, state, unions and retirees, meaning unions would have to drop their lawsuits. Some of those lawsuits revolve around an amendment to the Michigan Constitution that protects public pensions ... Snyder also suggested that the money go specifically to low-income pensioners, and that there be independent fiduciary management of the pension funds to ensure that they're being run effectively." (Los Angeles Times)

Michigan Lawmakers Weigh Aid for Detroit on Pensions
"Opening up the delicate question of how much help the State of Michigan ought to provide its ailing largest city, state leaders are weighing whether to devote hundreds of millions of dollars to help spare the pensions of Detroit retirees, while also saving the city's prized art collection from the risk of sale in bankruptcy.... Details of the proposal, including the precise source of the money, are in flux. But one option would be for Michigan to provide $300 million to $400 million over several decades[.]" (The New York Times; subscription may be required)

11th Circuit Discredits Company's Intent for Pension Claim
"[A] corporate employer undergoing bankruptcy reorganization cannot pursue an action for the benefit of its bankruptcy estate, and thus its unsecured creditors, against the employer's former owner for liabilities arising from the termination of a pension plan.... The court said it was the duty of the PBGC to pursue payment of those unfunded benefit liabilities.... 'In this case, the PBGC could have brought an action against members of the former controlled group for termination liability. It declined to do so.'" [Durango-Georgia Paper Co. v. H.G. Estate, LLC, No. 11-15079 (11th Cir. Jan. 7, 2014)] (PLANSPONSOR.com)

What to Do About Employee Benefits When the Company Is Headed Towards Insolvency
"If you are a board member or senior executive of a company that is rapidly failing, what do you about employee benefits? No one has ever liked my answer: freeze the benefits. This is counterintuitive advice for someone who is trying to keep the company afloat, and who would be personally affected by the loss of benefits. But let me explain why this is so important, using a complaint that was recently filed by the DOL, and the facts as they were alleged." (Porter Wright Morris & Arthur LLP)

Detroit's Emergency Manager Opts to Delay Pension Freeze
"Despite the delay, [Detroit Emergency Manager Kevyn] Orr said he reserves the right to retroactively freeze the General Retirement Fund, which covers non-public safety workers, retroactive to Jan. 1 if mediation fails to produce an agreement on a $3.5 billion unfunded pension liability the city 'cannot afford to pay.'... The pension freeze called for closing the pension fund to any new or rehired employees and stopping benefit accruals for current workers. It also stopped worker contributions to the pension and annuity savings funds and ended cost-of-living adjustments for pension payments made to retirees. As of Jan. 1, the order created a 401(k)-type defined contribution plan for affected workers." (Reuters)

Detroit Pension Funds Can Go Straight to U.S. Appeals Court
"U.S. Bankruptcy Judge Steven Rhodes in Detroit, in permitting the pension funds to bypass a review by a U.S. district judge, also said he will decide 'in the next day or so,' whether the appeal should be heard more quickly than normal.... The [city's two pension] systems after the hearing praised Mr. Rhodes' decision to allow the direct appeal and said the challenge should be heard as fast as possible." (Pensions & Investments)

District Court Order Grants CalPERS Motion for Leave to Appeal to Ninth Circuit on San Bernardino Bankruptcy (PDF)
"While the Court expresses no opinion at this time about the appropriateness of the bankruptcy court's construction of secti on 109(c)(4) and section 921(c), it finds persuasive CalPERS' argument that substantial grounds for difference of opinion exist on these issues of statutory construction, which are of great public importance." (CalPERS)

Are City Fiscal Woes Widespread? Are Pensions the Cause? (PDF)
"[T]he image that American cities are about to topple like dominoes is not accurate. About 13 percent of the cities and towns in our local sample has been cited in the press as having financial problems, which is not surprising in the wake of the 2008 financial crisis and the Great Recession. Second, fiscal mismanagement and economic issues are more important than pensions in explaining why cities are identified as being in financial trouble." (Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Mark Cafarelli, for Center for State & Local Government Excellence)

[Opinion] Allowing Detroit to Cut Retirees' Pensions is 'Unprecedented and Unconscionable'
"This decision sets a terrible precedent. Allowing a city to cut its retirees' pensions is a signal to other cities across the country that they don't need to fund their pensions responsibly and that they can renege on these promises when they run into trouble." (Pension Rights Center)

Detroit Judge's Denial of Special Protections for Pensions May Have Wider Implications
"Some potential fall-out, outside of Detroit: [1] Public employers may have a harder time attracting and retaining employees, if employees do not consider promised pension and retiree health benefits to be reliable. [2] Public employers may tend to respond to #1 by skewing compensation more toward current pay and benefits, rather than retiree pensions and benefits ... [3] Unions may be more inclined to negotiate for higher current funding of plans, rather than just promised benefits." (Calhoun Law Group)

[Opinion] Illinois Slays Its Pension Dragon?
"The unions are going to challenge this in court and they're right, the primary reason behind this colossal pension mess is decades of mismanagement by the state of Illinois which failed to top up public pension plans for years. But fiscal mismanagement is only part of the story, albeit a big part.... [L]ike so many other states, all stakeholders including unions held onto the pension rate of return fantasy, foolishly believing that they will magically consistently earn their 8% bogey on a sustained basis over many years." (Pension Pulse)

[Opinion] Detroit's Bankruptcy Breakthrough: Pension Impairment Allowed by Judge
"If pension benefits are immune from bankruptcy, then unions would have even less incentive than they do now to consider the economic condition of a city when they press politicians for more benefits.... The Detroit pension precedent will strengthen the case for other bankrupt cities that want to modify retirement benefits including San Bernardino, California, which is currently fighting [CalPERS] in court. Judge Rhodes's wise ruling is a warning to unions and their political bodyguards that Chapter 9 is not a pension safe harbor." (The Wall Street Journal; subscription may be required)

Detroit Is Ruled Eligible for Bankruptcy, No Special Protections for Pensions
"Judge Steven W. Rhodes of the United States Bankruptcy Court, found that Detroit was insolvent and that the pension checks of retirees could be cut during a bankruptcy proceeding, a crucial part of his decision.... Judge Rhodes ruled Tuesday that Michigan's protections for public pensions 'do not apply to the federal bankruptcy court,' adding that pensions are not entitled to 'any extraordinary attention' compared with other debts.... Labor agreements, including pensions, are subject to changes during a bankruptcy proceeding, the judge said, but the court 'will not lightly or casually exercise the power to impair pensions.'" (The New York Times; subscription may be required)

Detroit Retirees Got Extra Interest After Their Guaranteed 7.9%
"Money for pensions and the annuity plan was commingled. If the pension's return fell below 7.9 percent, enough was credited to the annuity fund to meet the guaranteed rate ... The bonus interest applied to employee savings was 'effectively robbing the general retirement system of precious funds' to sustain traditional pensions ... [Although] the pension fund lost 24 percent of its value in 2009, it still guaranteed the savings plan's 7.9 percent return." (Bloomberg)

Supreme Court to Chart Fate of Inherited IRAs in Bankruptcy
"The nation's highest court ... said it would hear arguments in Clark v. Rameker in a fight over whether Heidi Heffron-Clark and her husband, Brandon Clark, can keep creditors from going after $300,000 in an IRA inherited from Heffron-Clark's late mother. The hearing should clear up a split among lower courts ... and could impact retirement and end-of-life planning." (Reuters)

Bankrupt San Bernardino to Dispute Debt with CalPERS
"CalPERS says that after San Bernardino halted its employer contribution to the fund for an entire year after filing for bankruptcy protection in August last year ... its arrears stand at just under $16.5 million, plus growing interest. City officials say it is unclear exactly how the arrears figure has been calculated. They say they owe CalPERS about $13 million. City officials also want to seek as long a period as possible to repay the deficit, and block potentially onerous interest charges and other fees." (Reuters)

Judge Dismisses CalPERS Appeal of San Bernardino Bankruptcy
"U.S. Bankruptcy Judge Meredith Jury ... dismissed CalPERS' request that she certify the pension giant's direct appeal to the 9th U.S. Circuit Court of Appeals, a decision that San Bernardino officials have said will save the city time and money in its already sprawling fight with CalPERS.... 'The procedure asserted by CalPERS, in the Court's view, is duplicative and not an efficient use of judicial resources,' she wrote. '... If this court had granted certification, CalPERS has proposed to also file a Motion for Leave in the 9th Circuit. This duplication is inefficient and possibly may lead to inconsistent results.'" (The Sun)

Detroit Agreement with EMTs, Paramedics Union Would Freeze Pension Plan, Restructure Health Benefits
"Under the new contract, EMTs and paramedics in the Police Officers Association of Michigan union accept a 10% wage cut, which is imposed on all city employees. The union also accepts a pension freeze and transfer of employee pensions to a defined contribution plan. Employees under the deal also agree to enter the city's restructured health plan. Under that plan, annual deductibles for Detroit's active city workers will rise to $750 annually from $200 and family plans will see annual out-of-pocket costs rise 50% to $4,500 from $3,000." (Pensions & Investments)

An Analysis of the Treatment of Employee Pension and Wage Claims in Insolvency and Under Guarantee Schemes in OECD Countries
"[M]ost OECD countries have adopted hybrid systems which combine both some form of priority for both pension and wage claims, as well as some form of guarantee fund to complement the insolvency system.... [G]iven the relative vulnerability of employees and the sophistication of most lenders, the United States should balance these interests to provide increased protection for employment claims during municipal and corporate insolvency proceedings through giving heightened priority treatment to employees pension and wage claims in bankruptcy in tandem with a federally-operated guarantee scheme for both pension and wages claims." (Paul M. Secunda via SSRN)

No Ceasefire in CalPERS War with San Bernardino
"CalPERS made two court filings last month after the San Bernardino city council approved a confidential draft of a plan to exit bankruptcy, as if stepping up opposition in reaction to something in the plan. But a spokeswoman for the big pension fund said the filings are unrelated to the city's plan or 'term sheet.' As directed by a federal bankruptcy judge, the plan is a starting point for closed-door mediation and has not been revealed to the public." (Calpensions)

Retiree Health Care, Not Pension Shortfall, a Core Reason for Detroit Bankruptcy
"Despite a bitter dispute over whether Detroit emergency manager Kevyn Orr can reduce pensions, [former Michigan treasurer Andy] Dillon testified during Detroit's bankruptcy trial that the city's nearly $6 billion unfunded retiree health care liability was more concerning.... The city agreed to delay cuts to retiree health care insurance for those not covered by Medicare until the end of January, a month later than they were to take effect ... because of the problems with the [ACA] website and confusion about the insurance changes." (Detroit Free Press)

Pensions Spared as Stockton Prepares to Exit Bankruptcy
"[U]nder the terms of recent settlements, bond insurers who are backing about $240 million in city debt will accept a 'haircut' of as much as 50 percent on some bonds. Retirees will keep their full pensions, though 1,100 of them will lose their retiree health insurance.... Stockton voters are likely to approve a sales tax increase that could all but seal a surprisingly speedy end to the city's bankruptcy case. With that, the much-anticipated showdown over pensions will move to Detroit or another city seeking court protection from creditors." (Reuters)

Bankruptcy Judge Presses Detroit Emergency Manager Over Proposed Pension Cuts
"Kevyn Orr, Detroit's state-appointed emergency manager, testified ... that he did not mean to mislead city retirees when he said during a June 10 public meeting that pension rights were 'sacrosanct' under Michigan's constitution.... 'I was trying to say we understood these issues around pensions,' Orr said. 'What would you say to that retiree now about his rights?' asked U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case. 'I would say that his rights are in bankruptcy now,' Orr said." (Reuters)

CalPERS Files Notice of Appeal in San Bernardino Bankruptcy
"The California Public Employees' Retirement System has filed an appeal of the judgment that granted the City of San Bernardino eligibility to proceed in its bankruptcy. CalPERS argues in its filing that the City did not file for bankruptcy in good faith and with any concept of a plan of adjustment -- two prerequisites of the Bankruptcy Code. The Pension Fund further states that the City failed to explore any alternatives to bankruptcy and failed to make any meaningful financial information available to creditors during the course of the bankruptcy process." (CalPERS)

Judge Hints Bankruptcy Code Does Not Provide Preferred Status to Detroit Pension Funds
"The federal judge overseeing Detroit's bankruptcy filing called the city's pension funds 'unsecured creditors' and stated that any special protections for them would violate federal bankruptcy law. The statement by U.S. Bankruptcy Judge Steven Rhodes, in an exchange with an attorney representing Detroit's two pension funds, came in the closing session of a three-day hearing examining legal issues in the bankruptcy case." (Reuters)

CalPERS to Appeal Ruling Allowing San Bernardino to File for Bankruptcy
"'The California voters placed provisions in our Constitution to ensure the employees' pensions would be protected by CalPERS as their fiduciary and trustee,' said Anne Stausboll, CalPERS Chief Executive Officer. 'This appeal affirms our commitment to support and defend the integrity of the system and our members' vested rights, in accordance with the laws of the land and our obligations under the federal and State constitutions.'" (CalPERS)

Fixing California: Troubled Cities Must Reckon with Stockton's Deal
"The most optimistic pension reformers had hoped that the decrepit city of Stockton's 2012 bankruptcy would be a 'day of reckoning' -- a point where the city's leaders would pare back overly generous retirement benefits and embark on a road to fiscal responsibility.... But as often happens with government-reform efforts, the pessimists turned out to be right. Earlier this month, the Stockton City Council approved a plan that restructures debt and fully funds the California Public Employees' Retirement System, thus leaving pension benefits for city employees unscathed." (San Diego Union-Tribune)

Pension Withdrawal Liability Is Dischargeable in Bankruptcy
"[The Ninth Circuit] distinguished the duty to pay a pension contribution from the duty to pay a withdrawal liability assessment, based on the different origins of these duties. The duty to pay current pension contributions arises under a collective bargaining agreement which creates an express fiduciary duty on the employer's part to make ongoing contributions. The duty to pay withdrawal liability, however, arises not under the collective bargaining agreement, but under ERISA itself." [Carpenters Pension Trust Fund of Northern California v. Moxley, No. 11-16133 (9th Cir. Aug. 20, 2013)] (Michael Best & Friedrich LLP)

Detroit Pension Funds' 13th Check Approved by Judge, But Retirees Shouldn't Count the Money Yet
"Detroit's controversial 13th check got new life [on October 4] when an administrative law judge ruled that one of the city's two pension funds must be given the right to make retroactive bonus payments to retirees and active employees for 2011 and 2012. The recommended order ... is largely symbolic for now because U.S. Bankruptcy Judge Steven Rhodes may still block the payments.... [Judge Doyle] O'Connor acknowledged that his opinion might not mean much, saying it 'may well offer little more solace than an assurance of a full ticket-price refund offered while still on the sharply tilting deck of the Titanic.'" (Detroit Free Press)

Federal Judge Lifts Stay on Suit Over Extra Detroit Pension Checks
"The federal judge overseeing Detroit's bankruptcy petition has granted a union's request to allow it to continue a fight for extra pension checks.... In 2011, the City Council ended the pension system practice of issuing bonus checks. The union says that it should have been handled in collective bargaining. A labor judge earlier ruled the City Council was wrong when it cancelled the practice of the so-called 13th check." (CBS Detroit)

Stockton May Dodge Pension Battle If Deals Hold
"Chances of the Stockton bankruptcy producing a landmark ruling to cut pensions dimmed last week, when the city announced a deal with one bond insurer and a tentative deal with another one. The two big bond insurers, who unsuccessfully opposed Stockton's eligibility for bankruptcy, [had] argued that a city plan to cut bond debt was unfair because the largest creditor, CalPERS, would be untouched." (Calpensions)

Detroit Pension Proposal Would Push Workers, Retirees Into 401(k) Plan, Shut Out New Employees
"Hoping to stanch some of the red ink flowing from Detroit, its emergency manager is riling the workforce with a proposal to close the city's pension plans to new employees by the end of the year and move the city to a 401(k)-style system that has become the norm in the private sector. Detroit's underfunded obligations of about $3.5 billion for pensions and $5.7 billion for retiree health coverage are part of the city's $18 billion debt load and a major reason emergency manager Kevyn Orr filed for bankruptcy protection in July." (The Washington Post; subscription may be required)

Stockton Releases Bankruptcy Plan; CalPERS Payments Unaffected
"The massive plan document submitted to the Stockton City Council [on Friday, September 27] reinforces the concept that CalPERS would be held harmless while other creditors would suffer losses. The city pays CalPERS about $29 million a year ... The proposed plan 'significantly impairs the interests of former employees and retirees with respect to health benefits,' the document says." (Merced Sun-Star)

Detroit Spent Billions Extra on Pensions
"Detroit's municipal pension fund made payments for decades to retirees, active workers and others above and beyond normal benefits ... [T]he outside actuary's analysis ... concluded that the extra payments had cost the city nearly $2 billion ... 'People were having a hard time, living hand-to-mouth, and we thought we would give them some extra,' [said a spokeswoman for Detroit's pension trustees]." (The New York Times; subscription may be required)

Former U.S. Auto Czar Ron Bloom to Advise Detroit Retirees
"Detroit's retirees have bolstered their defenses against benefit cuts in the city's bankruptcy case by hiring Ron Bloom, a chief architect of the Obama administration's 2009 U.S. auto bailout and long-time adviser to unions in industry shake-ups. Lazard Ltd, where Bloom is now vice chairman, said it will advise a nine-member committee that represents 23,500 public sector retirees facing cuts to their healthcare and pension benefits after Detroit's Chapter 9 Bankruptcy filing on July 18." (Reuters)

Peabody Says It No Longer Owes Benefits to Patriot Retirees
"[Patriot Coal] and [Peabody Energy Corp.] are fighting over the responsibility to fund benefits for a group of about 3,100 retirees that Peabody agreed to continue covering after the October 2007 spinoff.... An appeals court last month [said] the abrogation of labor deals should have exempted the group in question, and that the group's benefits remained the responsibility of Peabody. But that ruling was 'not concerned with, and expressed no opinion on, what effect a new labor agreement would have on Peabody's' obligations' ... Under the new deal, Peabody's funding obligations, which are tied to the amount of benefits Patriot provides to its workers, disappear, because the deal transfers all benefits to an outside trust, Peabody argued." (Reuters)

Detroit Considers Pushing Its Retirees Into Health Exchanges
"[An] attorney who represents associations of Detroit police, firefighters and other city employees, said ... that the emergency manager, Kevyn Orr, is considering offering a stipend of about $125 a month for retirees under age 65. Those over 65, who now get city-paid health insurance to supplement their Medicare coverage, would get only Medicare.... Converting younger retirees to a plan offering a $125 monthly stipend would reduce Detroit's annual retiree healthcare costs to less than $50 million from $170 million[.]" (Reuters)

Kodak Leaves Bankruptcy Behind with its Pensions Intact
"On [September 3], Eastman Kodak Co., known for its iconic film business, ended a 20 month bankruptcy proceeding with its two pension plans intact. That means the nearly 63,000 people covered by those plans will have a more secure retirement.... [The PBGC works] with companies to help them keep their plans so retirees get all the benefits they earned. Last year, our efforts kept more than $12 billion in unfunded pension benefits off our books and helped nearly 200,000 stay in their plans." (Pension Benefit Guaranty Corporation)

Nearly $1 Billion in Bonuses Paid from Ailing Detroit Pension Fund
"One of Detroit's two pension funds handed out nearly $1 billion in bonus cash payments over two decades to retirees and active employees' retirement accounts instead of reinvesting the extra earnings for the future ... The payments, often referred to as a '13th check,' ... [increased] the amount the city needed to contribute each year to keep the pension fund solvent." (Detroit Free Press)

Withdrawal Liability Can Be Discharged in Bankruptcy: Good Thing to Know
"The Court ... noted that 'money that is owed to the Fund is not in the Fund, and is therefore not yet a Fund 'asset' and also noted that ... a debtor is not a fiduciary unless he was a fiduciary before the debt arose -- the failure to pay the debt cannot create a fiduciary status that did not previously exist. The Court also held that, unlike delinquent contributions, withdrawal liability could not be characterized as a plan asset because it arises by statute, not contract, and necessarily arises after the contractual relationship ends. So by its very nature, it is not a 'delinquent contribution.'" [Carpenters Pension Trust Fund v. Moxley, No. 11-16133 (9th Cir. Aug. 20, 2013)] (Fox Rothschild LLP)

[Opinion] Lessons from San Bernardino Bankruptcy
"Some American states have over a hundred different public pension systems. Policy experts tend to view this as inefficient and advocate consolidated systems at the state level as a remedy. But the potential benefits of centralization -- lower administrative costs and more professionalization -- should be weighed against the thin empirical evidence for it and the dangers of creating a bully like CalPERS, which plays a major role in shaping policy. San Bernardino retirees would still have the right to protest pension cuts in bankruptcy even were there no CalPERS." (Public Sector Inc.)

Preserving Some Portion of the Non-Qualified Plan Benefits of a Bankrupt Company
"The bad news for the GM retirees is that they lost this case to have a plan amendment adopted as part of the bankruptcy process interpreted more favorably to them.... The good news ... is that the plan participants retained any non-qualified benefit at all following the bankruptcy." [Tate v. General Motors LLC, No. 12-1214 (6th Cir. Aug. 6, 2013)] (Winston & Strawn LLP)

[Opinion] CalPERS Statement on San Bernardino Bankruptcy Ruling
"We are disappointed with the Judge's tentative ruling but CalPERS will continue to participate in the bankruptcy process in good faith. CalPERS will also continue to work with the City of San Bernardino so it can hopefully resolve its financial problems and also deliver promised benefits to their City employees and retirees. However, CalPERS must and will continue to aggressively pursue all past due contributions, resulting interest and penalties owed by the City." (CalPERS)

San Bernardino Gets Bankruptcy Protection
"Judge Meredith Jury of the U.S. Bankruptcy Court for the Central District of California ruled that San Bernardino was eligible for Chapter 9 bankruptcy protection despite opposition by [CalPERS]. The $260 billion pension fund is the city's biggest creditor and America's largest pension fund.... CalPERS argues that it should not be treated like other creditors and must be paid in full because California state law says the fund must always be fully paid, even in a bankruptcy. Bondholders argue that federal bankruptcy law trumps state statutes and say CalPERS should be forced to fight with other creditors over how much they are paid under an exit plan." (Reuters)

Judge Speeds Hearing on Detroit Bankruptcy Eligibility But Delays Pension Issues
"[Federal Judge Steven Rhodes] said he would delay hearing objections to the bankruptcy that center on potential cuts to retiree pensions, which unions and retiree groups argue are protected by the Michigan state constitution. The judge wrote in his order that he 'appreciates the extraordinary importance of the pension rights,' but he will not consider arguments about potential cuts to pensions until after he decides whether the city is eligible for bankruptcy." (Reuters)


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