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Bankrupt CEO Owes $67,000 for Failing to Send Paycheck-Deducted Premiums to Health Insurer
"A company CEO could not avoid a $67,839 judgment through bankruptcy where it was undisputed that he directed the company to pay his personal expenses even though he knew that insurance premiums withheld from employee paychecks had not been remitted to the insurer, which had demanded payment by month's end or the plan would be canceled.... [The court] explained that the funds withheld from paychecks constituted a trust, that the CEO was a fiduciary with respect to the trust, and that he committed defalcation in directing the payment of his expenses rather than past due premiums." [In re Harris, No. 16-6024 (B.A.P. 8th Cir. Jan. 6, 2017)] (Wolters Kluwer)
Court Finds Debtor's IRA Distribution Is Exempt From Creditors Under Texas Law
"The trustee objected to the debtor's exemption in her IRA, arguing that funds invested in an IRA are only conditionally exempt. According to the trustee, all funds withdrawn from the IRA by the debtor, including the funds withheld for the payment of income taxes, lost their exempt character because of the debtor's failure to use the funds to make a rollover contribution into another exempt retirement account.... Nothing in Section 42.0021(c) requires an account holder to safeguard distributed funds for 60 days or to transfer the funds into another retirement account, the court said.... The exemption doesn't disappear when the account holder receives a distribution, the court said." [In re Moore, No. 15-42046 (Bankr. E.D. Tex. July 6, 2016)] (Bloomberg BNA)
Why Bankrupt San Bernardino Didn't Cut Pensions
"San Bernardino follows the path of previous bankruptcies in Vallejo and Stockton by limiting the main cuts in long-term debt to bonds and retiree health care, while raising taxes, slowly rebuilding reduced services, and leaving pensions untouched.... The San Bernardino disclosure gave the same basic reason as Stockton for not attempting to cut pensions in bankruptcy: Pensions are needed to be competitive in the job market, particularly for police." (Calpensions)
Ninth Circuit Won't Expand ERISA Attorney Fee Provision
"An employer that used bankruptcy law to avoid paying more than $500,000 to a group of union benefit funds can't recover attorneys' fees under ERISA, the U.S. Court of Appeals for the Ninth Circuit held. According to the court, the employer's bankruptcy proceedings -- in which its ability to discharge the debt rested on the court's conclusion that it wasn't a fiduciary under [ERISA] -- wasn't an action brought under ERISA that would allow the statute's fee-shifting provision to apply." [Bos v. Board of Trustees, No. 12-73289 (9th Cir. Mar. 24, 2016)] (Bloomberg BNA)
Coal Company Gets Bankruptcy Court Approval to Nix CBAs, Retiree Benefits
"In her Dec. 28 opinion, Judge Tamara O. Mitchell of the U.S. Bankruptcy Court for the Northern District of Alabama granted the motion by the company and its subsidiaries requesting authorization to reject their current CBAs and terminate retiree benefits allowing them to continue with a pending sale of their mining operations. This case stems from the decline of the global metallurgical coal industry since 2011, and the court recognized the impact the ruling will have on employees, retirees, creditors, vendors, the city and the state." [In re Walter Energy, Inc., No. 15-02741 (Bankr. N.D. Ala. Dec. 28, 2015)] (Bloomberg BNA)
Bankruptcy Court Grants Hospital Group an ERISA 'Special Collection Agent' for All Denied Claims
"[A] federal Bankruptcy Court approved an application to employ an ERISA 'Special Collection Agent' for Debtors filed by Victory Parent Company, LLC in the wake of the Hospital group's Chapter 11 bankruptcy filings. The approval underscores the profound impact ERISA will have for the entire hospital industry and medical providers, particularly out-of-network, facing economic hardships, including bankruptcy filings. Compliant ERISA and PPACA appeals and litigation are the only way to protect a hospital or healthcare provider from bankruptcy." [In Re: Victory Medical Center Mid-Cities, LP et al., No. 15-42373-rfn-11 (Bankr. N.D. Tex. Dec. 3, 2015)] (AVYM Healthcare Revenue Consultants)
Creditors Can Reach Inherited IRA Under Kansas Law
"The court rejected [the IRA owner's] argument that the inherited IRA was originally a qualifying 'retirement plan,' finding that 'such a backward-looking interpretation would render meaningless the requirement that the funds presently be in a "retirement plan" (and not merely that they be in an account qualified under the particular sections of the tax code).' " [Mosby v. Clark, No. 15-915 (D. Kans. Oct. 30, 2015)] (Bloomberg BNA)
Unpaid Employer Contributions Cannot Be Plan Assets; Debt Is Dischargeable in Bankruptcy
"Because the owner had full control over the company finances, he was personally responsible for making the required contributions. Moreover, he signed a promissory note for some $360,000 in payments that the company had failed to make. Then he filed bankruptcy.... The court noted that fiduciary status should not be imposed unless the individual is clearly aware of his status, and that a typical employer never has sufficient control over a plan asset to make it a fiduciary. The court further held that, no matter how one described the supposed 'asset' -- a right to collect payments, unpaid past-due contributions, or amounts that must be paid but are not yet due -- an employer did not have sufficient control over that asset to make it a fiduciary." [Bos v. Board of Trustees, No. 13-15604 (9th Cir. July 30, 2015)] (Begos Brown & Green LLP)
San Bernardino Judge Wants Look at Pension Costs
"Pension cost cuts seemed unlikely after bankrupt San Bernardino agreed to repay CalPERS for skipped payments and adopted a recovery plan that only cuts bond and retiree health care debt, as in the previous Vallejo and Stockton bankruptcies. Then this month U.S. Bankruptcy Judge Meredith Jury asked for more information showing that if she approves the San Bernardino recovery plan, rising payments to CalPERS will not push the city into a second bankruptcy." (Calpensions)
The Smartest Reason to Max Out Your 401(k) and IRA Contributions
"Even if you're found liable for a multi-million dollar legal claim, the opposing party can't touch your 401(k) -- except, that is, when the creditor is either a former spouse or the IRS. Individual Retirement Accounts, or IRAs, don't offer the same level of protection, but they, too, provide some shelter from creditors." (The Motley Fool, via USA Today)
Text of Ninth Circuit Opinion: Unpaid Company Contributions to Multiemployer Plan Were Dischargeable in Personal Bankruptcy of Company Owner (PDF)
"Agreeing with the Sixth and Tenth Circuits, the panel held that [Gregory Bos, the owner of a company participating in a multiemployer welfare plan,] was not a 'fiduciary' under 11 U.S.C. Section 523(a)(4) when he failed to make contractually required contributions to an employee benefits trust governed by [ERISA]. The panel declined to recognize an exception to the rule that unpaid contributions by employers to employee benefit plans are not plan assets, even though other courts had recognized an exception when the plan document expressly defines the fund to include future payments." [Bos v. Board of Trustees, No. 13-15604 (9th Cir. July 30, 2015)] (U.S. Court of Appeals for the Ninth Circuit)
Lehman Exec Defeats Employee Lawsuit Over Retirement Losses
"A U.S. federal judge on Friday dismissed a lawsuit by former Lehman Brothers Holdings Inc. employees seeking to hold onetime Chief Executive Richard Fuld liable for their retirement plan losses as the Wall Street bank plunged into its 2008 bankruptcy. U.S. District Judge Lewis Kaplan in Manhattan rejected claims that Fuld breached an obligation to share what he knew about Lehman's fast-deteriorating finances with officials who oversaw the plan, where Lehman stock was an investment option. The judge also rejected claims that those officials breached their fiduciary duty to employees by letting them invest in Lehman stock, resulting in millions of dollars of losses." [In re Lehman Brothers Security and ERISA Litigation, No. 08-cv-05598 (S.D.N.Y. July 10, 2015)] (Insurance Journal)
Garnishment of HSA Balance Allowed Under Colorado Law
"Colorado's highest court has denied a debtor's attempt to characterize his HSA as a retirement plan in order to shield the HSA from a creditor's claims. The decision affirms a split decision by a lower court, which ruled that HSAs are not 'retirement plans' within the meaning of Colorado's garnishment law because they can be used for medical expenses at any point during the account holder's lifetime." [Roup v. Commercial Research, LLC, No. 14SC50 (Colo. June 1, 2015)] (Thomson Reuters / EBIA)
San Bernardino Bankruptcy Exit Plan Cuts Some Pension Costs
"A San Bernardino plan to exit bankruptcy follows the path of the Vallejo and Stockton exit plans, cutting bond debt and retiree health care but not pensions. Then it veers off in a new direction: contracting for fire, waste management and other services. The contract services are expected to reduce city pension costs. Other pension savings come from a sharp increase in employee payments toward pensions and from a payment of only 1 percent on a $50 million bond issued in 2005 to cover pensions costs." (Calpensions)
San Bernardino to Slash Retiree Health Care in Bankruptcy Plan
"Steven Katzman, who represents a committee of retirees in talks with the bankrupt city, says a tentative deal has been struck under which retirees would sacrifice the city subsidies they currently receive for health care coverage in exchange for a guarantee that San Bernardino continues to fund and not cut current pension benefits. The deal would follow an approach taken in the recent bankruptcies of Detroit, Michigan and Stockton, California, where retiree health care was slashed or eliminated, while pensions emerged relatively unscathed." (Reuters)
How the PBGC Enabled the American/US Airways Merger
"American filed for bankruptcy protection in November 2011. 'On the day that American filed, they announced "we cannot afford our pension plan and we will have to terminate it the way the other airlines did," ' [former PBGC Director Josh Gotbaum] recalled.... The agency began talks with the carrier and its unions about how to preserve the plan by making changes elsewhere in the labor contracts. 'PBGC showed the various unions that there were ways to keep their pensions,' Gotbaum said." (
Stockton Bankruptcy's Unsettled Pension Legacy
"Larger questions remain, however, from the judge's first-of-its-kind ruling that CalPERS pensions can be cut in a municipal bankruptcy, even though in this case Stockton chose not to do so. Will CalPERS appeal the pension ruling or let it stand unchallenged, possibly clouding the sense of security of state and local government employees, encouraging future bankruptcies and giving management leverage in labor negotiations? And does Stockton's decision not to cut pensions in bankruptcy risk future insolvency, as Moody's credit rating service warned a year ago, possibly putting the city on a path to future budget deficits, which Vallejo has faced since its bankruptcy?" (Calpensions)
Stockton Bankruptcy Ruling Cuts CalPERS Down To Size
"CalPERS is not a major creditor of any participating employer because it does not guarantee the funding of employees' pensions.... In evaluating the respective rights and responsibilities of various chapter 9 creditors, it is the employees and retirees of a city who are one of the largest, if not the largest creditor. An insolvent city must negotiate with them to obtain appropriate wage and benefits concessions.... The vaunted 'vested rights' doctrine under both California case law and the state and federal Constitutions does not prevent Congress from enacting a law (the federal bankruptcy act) impairing a state or local government's obligation of contract." (Chang Ruthenberg & Long PC)
CalPERS Paid Lawyers $7 Million in Bankruptcies
"CalPERS has paid two law firms more than $7 million in the Vallejo, Stockton and San Bernardino bankruptcies, even though a federal judge doubts that it has the legal standing to object to city pension cuts.... In the Vallejo bankruptcy, CalPERS from 2008 to 2012 paid $526,356 to the law firm of Felderstein Fitzgerald Willoughby & Pascuzzi. Then CalPERS switched law firms and from 2012 through last November paid K&L Gates $3.2 million for the Stockton bankruptcy and $3.3 million for the San Bernardino bankruptcy. Peter Mixon, the CalPERS general counsel for 11 years, left CalPERS in 2013 and became a partner in K&L Gates last October." (Calpensions)
The Link Between Corporate Pensions and Financial Distress
"[The authors] find that firms with DB plans typically have little exposure to the stock prior to default; the degree of underfunding increases significantly as firms near default, but is not related to restructuring types (bankruptcies versus out of court restructurings). In contrast, large exposures to company stock in DC plans often are not reduced prior to default. High levels of own-company stock ownership are positively related to default and bankruptcy probabilities." (Ying Duan, Edith S. Hotchkiss and Yawen Jiao, via SSRN)
Text of Bankruptcy Court Opinion Confirming Stockton Bankruptcy Plan and Determining Status of CalPERS (PDF)
54 pages. "[CalPERS] says that California law insulates its contract from rejection and that the pensions themselves may not be adjusted. Although ... it is doubtful that CalPERS even has standing to defend the City pensions from modification, CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable. The bully may have an iron fist, but it also turns out to have a glass jaw.... [The] California statute forbidding rejection of a contract with CalPERS in a chapter 9 case is constitutionally infirm in the face of the exclusive power of Congress to enact uniform laws on the subject of bankruptcy ... Viewing compensation as a whole package, and comparing those net reductions with the net reductions for capital markets creditors, the plan is, in law and fact, appropriate to confirm." [In re Stockton, No. 12-32118-C-9 (Bankr. E.D. Cal. Feb. 4, 2015)] (U.S. Bankruptcy Court for the Eastern District of California)
Creditor to Oppose San Bernardino Bankruptcy Plan Favoring CalPERS
"The creditor intends to pursue a new approach when hearings resume next year, in light of a deal the city reached with Calpers in November that will see the pension fund paid in full under a bankruptcy plan. The city has been ordered to produce a plan by May.... The move is significant because all the capital market creditors have so far supported the bankruptcy and it signals a change in course, speaking to the wider fight between Wall Street and pension funds over how they are treated in municipal bankruptcies." (Reuters)
[Opinion] Tug of War: Pension Plan Participants vs. Bankruptcy Claimants
"[C]ustomer risk is real for organizations such as Franklin Templeton. Unless its higher costs can be passed along to customers, expect some lenders and suppliers to say 'never mind' and look elsewhere for business. This would logically reduce the supply of capital and services and could mean higher costs for all municipalities, not just those seeking bankruptcy protection.... The best outcome is that pension-plagued municipalities seeking to exit from bankruptcy get their financial house in order as quickly as possible." (Pension Risk Matters)
American Airlines Asks for Further Deferral of Pension Contributions
"Five years ahead of its own bankruptcy in 2011, [American Airlines] ... had not yet frozen its workers' pension benefits. As a result, it was allowed to defer some of its contributions to its pensions ... The law allowed American's accountants to assume a faster rate of growth for assets in its pension funds, a move that meant it was required to set aside even less cash each year to be in good standing with its pension obligations.... Now the airline is seeking to amend the deal it struck in 2006 to extend that deadline by an additional seven years.... It wants Congress to make the change while allowing it to still use the more aggressive rate-of-growth assumptions that have helped reduce what it must contribute to the funds each year." (The Dallas Morning News)
Vallejo First to Test No Pension Cut in Bankruptcy
"What happens when a bankrupt city does not cut its largest debt, pensions, is getting its first test in Vallejo, which has higher average pensions and higher CalPERS rates than the two larger cities still in bankruptcy, Stockton and San Bernardino.... If growing pension and retiree health care costs continue to eat up more of government budgets, diverting money as public safety services and other key programs erode, is there a point at which leaders and the public demand change?" (Calpensions)
San Bernardino Will Not Cut Pensions, Restarts Skipped CalPERS Payments
"A court filing Monday officially revealed, after a mediator lifted a gag order, that under a deal announced in June San Bernardino has begun repaying skipped CalPERS payments ($13.5 million plus fees and interest) and will not cut pensions in bankruptcy. Stockton did not want to cut pensions, saying they are needed to be competitive in the job market. But a federal judge ruled in the Stockton case that CalPERS pensions can be cut in bankruptcy, where federal law prevails over state attempts to protect pensions." (Calpensions)
Let's Go, Broncos: Retiree Group Seeks Appeal of Detroit Pension Cuts
"In approving Detroit's modest reductions to most city pensions earlier this month, U.S. Bankruptcy Judge Steven Rhodes said there was a 25 percent chance his ruling could be overturned on appeal. A group of 133 holdout Detroit pensioners likes its chances. Late Monday [November 17], the pensioners asked the judge to halt implementation of Detroit's pension cuts pending their appeal to a higher court. In a court filing, the group of retirees, survivors and city workers cited the 4-to-1 odds the Denver Broncos will win Super Bowl XLIX on Feb. 1 as part of their justification[.]" (The Detroit News)
[Opinion] Stockton Highlights Nationwide Risk of Conflict Between Muni Investors and Public Sector Unions
"While this most recent ruling clearly favored public employees over investors, in an earlier ruling the same judge made history in the Golden State by designating pensions as impairable -- subject to a haircut in the event of bankruptcy. Pensions may still get favorable treatment, but no longer in automatic fashion. Stockton is not alone. A new report from Moody's Investors Service shows just how widespread the risk runs as investors weigh whether to put their trust in municipal officials. The question is whether Stockton could be a wake-up call for city managers and union leaders across the country to tighten their belts and lower the temperature at the negotiating table." (Forbes)
Appeal Threatens Stockton Bankruptcy Ruling on Pensions
"Franklin Templeton Investments filed a notice of appeal ... challenging the Oct. 30 decision that approved Stockton's reorganization plan. The plan keeps the pensions fully funded but pays Franklin, which loaned the city $36 million during better economic times, just 12 cents on the dollar.... On Oct. 1, U.S. Bankruptcy Judge Christopher Klein ruled that Stockton had the right to slash its payments to CalPERS, a decision that sent shock waves through the pension industry and had public employee unions scrambling. A month later, though, the judge approved the Stockton reorganization plan even though it leaves the city's pensions untouched." (The Sacramento Bee)
Detroit's Bankruptcy Plan: A Phoenix Emerges
"Under the agreement both pensioners and bond holders will take pain, albeit at varying degrees. The pensions of retirees will be cut by 4.5% and the cost-of-living adjustments (COLA) will go. Retirees from the police force and the fire brigade will have to live with a reduction in COLA from 2.25% to 1%. Health-care benefits will be reduced by 90% for all retirees." (The Economist)
Bankrupt San Bernardino Repaying Millions in Arrears to CalPERS
"Bankrupt San Bernardino has begun repaying millions in arrears to [Calpers] in a deal that has ended an acrimonious relationship between the California city and its biggest creditor. San Bernardino has set aside $10.6 million in its current budget, which has yet to be published, to pay an unnamed creditor. A senior city source, speaking on the condition of anonymity because details of the Calpers deal are subject to a judicial gag order, confirmed that creditor is Calpers." (Reuters)
Text of District Court Opinion: Wife's Claim for Share of Husband's Retirement Plan Was Included in Her Bankruptcy Estate Because Not Reduced to a QDRO at Time of Bankruptcy Filing (PDF)
"As part of his divorce complaint, [the husband] requested equitable distribution of their marital property ... [A]t the time Appellant filed her bankruptcy petition, no final state court order had been entered related to any of the matters raised in the complaint and counterclaim in the divorce action.... Pursuant to the Bankruptcy Code, ... [a] debtor may exempt 'retirement funds' if they are in an 'account that is exempt from taxation' under certain enumerated provisions of the Internal Revenue Code.... Appellant does not qualify for the claimed exemptions." [Urmann v. Walsh, No. 14-718 (W.D. Pa. Oct. 24, 2014)] (United States District Court for the Western District of Pennsylvania)
Bankruptcy Judge Explains Hurdles to Potential Pension Cuts by Municipalities
"[U.S. Bankruptcy Judge Christopher Klein] ruled that two CalPERS-sponsored state laws are invalid in a federal bankruptcy. One prevents a city from rejecting a CalPERS contract in bankruptcy. The other places a CalPERS lien on all assets, except wages, when a city declares insolvency.... The CalPERS general counsel, Matthew Jacobs, told reporters the approval of Stockton's plan that leaves pensions intact makes the earlier ruling 'less significant.' He said CalPERS is looking at its options, including the possibility of an appeal." (Calpensions)
Judge Approves Stockton Bankruptcy Plan; Worker Pensions Safe
"The city's plan slashes payments to other creditors, including Franklin Templeton, an investment firm that holds more than $36 million in bonds the city used to borrow money. Franklin had asked [the bankruptcy judge] to reject the city's plan so that it could get more of its money back.... Franklin had argued that the increasing cost of pensions would put the city at risk of another bankruptcy." (Los Angeles Times)
Stockton's Pension-Protecting Bankruptcy Plan Approved
"The earlier ruling by [U.S. Bankruptcy Judge Christopher Klein] gave Stockton the opportunity to end the Calpers contract, which it declined to do because, as the judge said, the workers 'would be the real victims.' Ending the contract with Calpers would have reduced pensions by 60 percent and caused many employees to leave, Marc Levinson, Stockton's lead bankruptcy attorney, has said.... Dan Pellissier, president of Sacramento-based California Pension Reform, said Stockton is going forward with 'one hand tied behind its back' by choosing not to reduce its pension burden." (Bloomberg)
Stockton Bankruptcy Ruling Will Decide Fate of Public Pensions in California
"[A] federal judge on Thursday is expected to decide whether the bankrupt city of Stockton can continue to pay employees generous pensions that soon could consume one-fifth of municipal revenues. The ruling has been much anticipated since U.S. Bankruptcy Judge Christopher M. Klein recently said that California's rich and powerful public pension system should be treated like all other creditors -- with no special protection. His comments stunned state and local officials and public employee unions, who had long considered pensions untouchable, even in bankruptcy." (Los Angeles Times)
Detroit Pension Debt Holders End Last Objection to Plan
"Detroit's pension debt holders dropped the last major objection to the city's $7 billion debt-cutting plan, as the biggest U.S. municipality to file bankruptcy began its last push to leave court oversight.... The pension debt investors hold about $1 billion in debt that was raised by the city to shore up its retirement system in 2006. It will be canceled under the plan, and the investors and bond insurers that guaranteed it will be given $141 million in new notes and land instead." (Bloomberg Businessweek)
A New Trend in Reducing Public Pension Obligations Under the Federal Bankruptcy Code?
"When the [Stockton Chapter 9 bankruptcy] plan confirmation trial continues ... the court likely will consider the following questions, among others: Is the city permitted to continue paying pension benefits in full? Can the city prefer its employees and retirees over other creditors by offering a higher rate of recovery? In other words, does Stockton's plan meet the Bankruptcy Code's confirmation requirements, including that the plan [1] is proposed in good faith and in the best interest of creditors, and [2] properly groups together similar claims and does not unfairly discriminate against certain creditors?" (Pepper Hamilton LLP)
Bankruptcy Judge: Trump Can Stop Paying for Healthcare and Pensions of Union Employees of Trump Taj Mahal Casino
"A federal bankruptcy court judge ruled Trump Entertainment could stop paying for healthcare and pensions of UNITE HERE Local 54 workers at Trump Taj Mahal, saving the casino for now, but potentially stripping these benefits from thousands of resort casino employees. Trump Entertainment officials have said they needed to cut $14.6 million in costs including $5 million healthcare expenses." (Press of Atlantic City)
[Opinion] Cities Could Save Pensions in Bankruptcy
"Stockton never asked to adjust pensions (it wants to pay pension bills in full and give bondholders just pennies on the dollar). And the gargantuan [CalPERS] -- which has long (and some say arrogantly) argued that pension obligations are sacrosanct, even in federal court -- says, 'The real precedent ... is that even if municipalities are allowed to impair pensions in the rare situation of bankruptcy, cities like Stockton can make the smart decision to protect the pension promises for their public employees.' They could. But that doesn't mean a bankruptcy judge will agree." (Orange County Register)
[Opinion] Statement by CalPERS CEO on Pensions in Bankruptcy
"As the administrator of pensions, the California Public Employees" Retirement System does not win or lose in this situation. If pensions are reduced in bankruptcies, the only losers are public employees.... We applaud the leadership of Stockton officials in finding solutions to protect the pension promises made to its public employees while forging a reasonable path toward a fiscally sustainable future." (CalPERS)
[Opinion] A CalPERS Comeuppance: Welcome to the Hotel California
"In 2011 Calpers adopted a policy of discounting the termination fee at a rate tied to 10- and 30-year Treasurys in lieu of the 7.5% rate it ordinarily uses to calculate unfunded liabilities. This sleight-of-hand blows Stockton's $212 million unfunded pension liability up to $1.6 billion. Welcome to the Hotel Calpers. You can check out anytime you want, but you can never leave. Judge [Christopher] Klein called Calpers's extortionist ploy a 'golden handcuff,' adding that 'the city's contract with CalPERS could be rejected' and the 'lien can be avoided.'" (The Wall Street Journal; subscription may be required)
[Opinion] Bankruptcy Judge Lights Fuse with Stockton Pension Ruling
"If [Bankruptcy Court Judge Christopher Klein's] theory stands, local government unions could no longer refuse to negotiate on pension reduction as a way of avoiding bankruptcy, and CalPERS and other pension systems would have to drop their pay-us-or-else arrogance." (Dan Walters in The Sacramento Bee)
Bankruptcy Judge: Trump Entertainment Can't Stop Funding Union Pension Plan
"Eliminating just the pension from the collective bargaining agreement would violate the bankruptcy code, which requires a contract to be considered as a whole, [U.S. Bankruptcy Court Judge Kevin Gross] said. 'The court does not have authority to reject a portion of a CBA,' Mr. Gross said.... The company ... said in court filings that the union contract costs about $15 million a year in health, welfare and other benefits and $5 million in pension payments." (Pensions & Investments)
Bankruptcy Judge Says CalPERS Pensions Can Be Cut
"[U.S. Bankruptcy Judge Christopher Klein] said during the trial in May that one of his options was ruling on whether CalPERS pensions could be cut without necessarily finding that Stockton pensions should be cut. Part of his analysis ... that CalPERS pensions are not state 'governmental or political powers' protected under federal bankruptcy law is that while state workers are in CalPERS by statute, cities choose to join CalPERS. Klein said California cities have the option of forming their own pension systems, joining a county pension system, hiring a private pension provider or withdrawing from CalPERS, if they can afford to do so. He concluded that benefits not prescribed by state law are not 'governmental or political' powers protected by the federal bankruptcy law, but instead are unprotected 'business powers.'" (Calpensions)
How Safe Is Your Retirement Nest Egg from Creditors?
"IRA funds dwarf the amount of retirement assets held in employer sponsored retirement plans. Those IRAs will offer tempting targets to creditors when they pass on death to beneficiaries other than a surviving spouse. Consider leaving retirement assets in your employer sponsored plans, where protection from creditors is assured, as long as possible. Alternatively, for assets currently held in an IRA, consider retaining the spouse as the primary beneficiary (that appears to be safe for now) and naming only a spendthrift trust as the alternative beneficiary[.]" (The Retirement Plan Blog)
Detroit Consultant Says Worker Savings Accounts Drained Pensions
"A Detroit employee savings plan drained $450 million from a public pension fund over 10 years, contributing to the fund's fiscal distress, the city's main restructuring adviser said. Charles Moore testified ... in federal court ... that the savings plan weakened the city's underfunded $2.8 billion General Retirement System by guaranteeing employees a minimum interest rate for the accounts.... Mr. Moore is a senior managing director at restructuring firm Conway MacKenzie." (Pensions & Investments)
Judge Denies Claims by Retirement Plan Participants for Plan Investments Tied to Madoff
"Hundreds of people whose employers invested their retirement funds with Bernard Madoff cannot recover money from the liquidation of Mr. Madoff's firm because they weren't direct customers of the imprisoned Ponzi scheme operator, a bankruptcy judge has ruled.... Investors in the plans, however, still have a shot at recovering money, because the plans themselves have brought claims against Mr. Madoff's firm. [Irving Picard, the court-appointed trustee winding down Mr. Madoff's investment firm,] has denied the claim of at least one of the four plans, court papers show." [Securities Investor Protection Corporation v. Bernard L. Madoff Investment Securities LLC, No. 09-11 (Bankr. S.D.N.Y. Aug. 22, 2014)] (The Wall Street Journal; subscription may be required)
Delaware Bankruptcy Court: Section 363(f) Bars ERISA Successor Liability Claims
"[The Court] approved the sale of a debtor's assets under section 363(f) free and clear of any successor liability claims for underfunding of the debtor's pension plan under ERISA and the Multiemployer Pension Plan Amendments Act of 1980.... [T]he Court expressed concern that making an exception to free and clear asset sales under section 363(f) for successor liability claims may depress the prices that parties bid for a debtor's assets.... The Court also rejected the Trust's argument that the bidders could have bid less if the successor liability claim was retained." [In re Ormet Corp., No. 13-10334 (Bankr. D. Del. July 17, 2014)] (Practical Law Company)
[Opinion] Detroit Bankruptcy Reveals Virtues of the Defined Contribution Retirement Plan Model
"Regardless of the final cuts imposed, the message is clear: promised city and county pension benefits are no longer sacrosanct, including those that are fully vested and supposedly guaranteed under state law.... The Detroit experience also means that public employees, who routinely have lobbied for oversized pensions local governments can't afford, need to realize that defined-benefit pensions may not be such a good deal after all. Defined-contribution pensions, such as the 401(k) or 403(b), where retirement benefits are not tied to the long-term financial health of a single business or local government, may be a better idea." (USA TODAY)
[Opinion] Supreme Court Disregards ERISA and Goes Further Astray in Applying Bankruptcy Law to Retirement Assets
"The Court's implicit addition of the phrase 'debtor's created' at the start of the exemption is based on its unexamined assumption that otherwise the phrase, 'Retirement funds to the extent that those funds are in,' would be rendered 'superfluous.' ... The phrase 'retirement funds to the extent that those funds are in' has a significance without the addition of any words that is consistent with the legislative history of the phrase, the other bankruptcy provisions, and ERISA.... Under this analysis the bankruptcy fund protection would be available to the participants and beneficiaries of such non-ERISA pension plans." [Clark v. Rameker, No. 13-299 (U.S. June 12, 2014)] (Albert Feuer via SSRN)
Detroit to Sell Millions in New Debt to Settle Bankruptcy
"Detroit plans to sell about $975 million in bonds for retirement costs and some creditor settlements as part of its bankruptcy restructuring plan awaiting approval by a federal judge.... $632 million in bonds would finance $450 million for retiree health care through a voluntary employee beneficiary association, agreed to by retirees." (Bloomberg)
Recent Supreme Court Case Highlights New Concerns in Naming IRA Beneficiary
"While most states ... do not exempt inherited IRAs, some states (e.g., Florida and Arizona) specifically provide that inherited IRAs are exempt.... However, one should carefully consider whether reliance on the state protection creates a false sense of security. If a parent resides in Florida or Arizona but the child inherits the parent's IRA and resides in a state that does not specifically protect inherited IRAs ... the inherited IRA could be subject to the claims of creditors in bankruptcy." (Quarles & Brady LLP)
[Opinion] Stockton's Bankruptcy and Pension Reform: Limited Options
"[R]ejecting the CalPERS contract ... will not produce any more cash for other creditors to divvy up in bankruptcy or to fund more services. Moreover, state law provides a financial incentive for employees to find another CalPERS job within six months after terminating the CalPERS contract. Stockton would experience a massive employee exodus, and retirees would experience a huge reduction in benefits, to well below the poverty line.... Moody's latest pronouncement that cities will file for bankruptcy protection to get out from under their CalPERS bills is ridiculous, because once cities understand what happens in this scenario, they will quickly realize this will lead to their undoing as a viable city." (Bob Deis, former city manager of Stockton, for The Sacramento Bee)
Does the Supreme Court's Bankruptcy Decision Affect IRAs Inherited by Spouses?
"Many experts believe that the Heffron-Clark decision will not apply to spouses who inherit an IRA. There are a number of special rules for spousal beneficiaries under the Tax Code that create a clear distinction between spouse and nonspouse beneficiaries. Another possibility, however, is that a spouse inheriting an IRA will be unable to claim an exemption for it. If so, it will make no difference from a bankruptcy perspective whether the client keeps the account as an inherited IRA or does a spousal rollover. Either way, the funds could be considered part of the surviving spouse's bankruptcy estate." (On Wall Street)
Detroit Retirees Approve Pension Cuts by a Landslide
"Pension cuts were approved in a landslide, according to results filed shortly before midnight [July 21]. The tally from 60 days of voting gives the city a boost as Judge Steven Rhodes determines whether Detroit's overall strategy to eliminate or reduce $18 billion in long-term debt is fair and feasible to all creditors.... General retirees would get a 4.5 percent pension cut and lose annual inflation adjustments.... Retired police officers and firefighters would lose only a portion of their annual cost-of-living raise." (ABC News)
[Opinion] Detroit's New Hybrid Plan Solution?
"[F]aced with crumbling public finances and overstretched taxpayers, most U.S. cities will have little choice but to implement some sort of risk sharing in their pension plans, forcing workers to share the pain of their plan if it fails to meet its actuarial target." (Pension Pulse)
Frustrated Detroit Workers Question Hybrid Pension Plan
"Under the new 'hybrid' plan, members of the Police and Fire Retirement System [PFRS] will contribute 6% of their weekly pre-tax base pay toward their pension and civilian workers who belong to the General Retirement System will contribute 4%. PFRS members hired after June 30 will contribute 8%. The city will match employees' contributions and pay into the pension funds." (Detroit Free Press)
San Bernardino Cuts Deal to Pay CalPERS Debt
"Bankrupt San Bernardino announced an agreement with CalPERS last week to pay off an unprecedented pension debt owed for skipping payments to the pension fund for a year - $13.5 million, plus several million more in penalties and interest.... San Bernardino has not publicly proposed a pension cut. A sketchy plan for operating in bankruptcy only proposed a 'fresh start' that would 'reamortize CalPERS liability over 30 years,' perhaps cutting costs $1.3 million in the first year." (Calpensions)
Detroit Rolls Out New Model: A Hybrid Pension Plan
"By the time the fate of the retirees has been decided, Detroit's workers will already be earning hybrid benefits. To shift the investment risk their way, Detroit has set up a series of eight 'levers' to pull if the plan's investments falter. They include setting up a reserve fund that must be used to cover losses, raising the workers' required contributions, lowering retirees' cost-of-living increases and making workers build up their benefits more slowly. In hard times, plan officials will be required to pull as many levers as it takes to keep the plan on track to be 100 percent funded within five years. Only if all eight levers are pulled and the plan is still not responding can Detroit's taxpayers be called on to rescue it." (The New York Times; subscription may be required)

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