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[Opinion] Rep. Tim Ryan's Good Idea: Pay Pensions Before General Creditors in Bankruptcy
"On May 20, Rep. Tim Ryan (D-OH) introduced the Prioritizing Our Workers Act of 2019 ... [T]he bill would require that pension benefits owed to workers be honored before other creditors of a bankrupt company are paid back. Such a change to bankruptcy law faces formidable political obstacles and would have substantial effects on financial markets.... Ryan's proposal moves in the right direction from the standpoints of both economics and fairness[.]" (Charles Blahous, Manhattan Institute for Policy Research)
Eighth Circuit Appellate Panel Says No Bankruptcy Exemption for Certain Retirement Plan Assets Acquired in Divorce
"Normally, individuals who file for bankruptcy protection may keep all of their qualified retirement plan assets -- and up to around $1.3 million in IRA assets. But the 8th Circuit has ruled that retirement assets received in a divorce -- including those obtained through a qualified domestic relations order (QDRO) -- may not always enjoy these special protections." [In re Lerbakken, No. 18-6018 (B.A.P. 8th Cir. Oct. 16, 2018)] (Ascensus)
Sixth Circuit Expands Controlled Group and Successor Liability for Pension Plan Termination Funding
"[T]he court adopted the position taken by several other circuit courts in cases involving multi-employer plans, and extended its application to single-employer plans.... [B]uyers should consider one or more of the following actions when negotiating an asset purchase agreement: [1] A purchase price reduction based on the anticipated pension liability. [2] An escrow to cover the potential pension liability. [3] Indemnity provisions that address any pension liability imposed on the buyer. [3] Where available, consider pursuing the asset purchase in bankruptcy[.]" [PBGC v. Findlay Industries, Inc., No. 17-3520 (6th Cir. Sept. 4, 2018)] (King & Spalding)
Eighth Circuit: Retirement Assets Acquired in Divorce Not Protected in Bankruptcy
"[A] bankruptcy court had initially ruled that the 401(k) and IRA assets acquired in a civil court-approved divorce settlement were not exempt from the alternate payee's (recipient's) bankruptcy estate. Lerbakken appealed, and the three-judge appellate panel affirmed the bankruptcy court's ruling that these assets must be included in the Lerbakken bankruptcy estate; thus accessible to creditors." In re Lerbakken, No. 18-6018 (B.A.P. 8th Cir. Oct. 16, 2018)] (Ascensus)
Bankruptcy Filing Shifts Spotlight to Sears Pension Plans
"Sears's bankruptcy includes a tangle of arrangements that put liens on the company's real estate and intellectual property as protection against spurning its pension debts, and illustrates how much contributions to the plans have weighed on the company's operations. Sears ... has two pension plans that held a combined $2.5 billion in assets and had a funding hole of $1.5 billion at the end of 2017, suggesting that Sears's plans are roughly 63% funded." (The Wall Street Journal; subscription may be required)
[Official Guidance] Text of PBGC Statement on Sears Bankruptcy Filing
"PBGC has been working with Sears for several years to improve the funding of the company's two defined benefit pension plans. PBGC expects that its guarantees would cover the vast majority of benefits earned under those Sears plans. If circumstances require, we are prepared to step in and provide PBGC-guaranteed benefits. The plans, which cover about 90,000 workers and retirees, are underfunded by about $1.5 billion." (Pension Benefit Guaranty Corporation [PBGC])
A Sears Bankruptcy Could Cause One of the Biggest Pension Defaults Ever
"Sears entered into a five-year pension protection plan with the [PBGC] in 2016, agreeing to set aside certain assets for pension funding. In November, Sears amended the agreement to sell up to 138 properties to finance a $407 million contribution to its pension plans. Last year, [PBGC] paid $5.7 billion to nearly 840,000 retirees from 4,845 failed single-employer plans ... Taking over the Sears pension plans would be one of the largest defaults in its 44-year history." (Chicago Tribune; subscription may be required)
Text of PBGC Motion for Summary Judgment in Participant Challenge to Termination of Delphi Salaried Employees Pension Plan (PDF)
52 pages. "After unsuccessfully challenging the agreement to terminate the Plan in the Bankruptcy Court, Plaintiffs filed this action alleging that PBGC's termination of the Plan by agreement was improper. Over seven years of discovery have failed to reveal any factual or legal basis to support Plaintiffs' claims. Contrary to Plaintiffs' allegations, the termination of the Salaried Plan through agreement with the plan administrator is fully consistent with the express language of ERISA and well-established precedent." [Black v. PBGC, No. 09-13616 (E.D. Mich; motion filed Sept. 21, 2018)] [More information about this protracted litigation is on the PBGC website -- Editor] (Pension Benefit Guaranty Corporation [PBGC])
Claims by Bondholders Against Puerto Rico Pension System Ruled Unenforceable
"U.S. District Judge Laura Taylor Swain ... ruled that any security interest over [The Employees Retirement System of the Government of the Commonwealth of Puerto Rico (ERS)] revenues, including employer contributions, held by the bondholders was 'invalidated and unenforceable,' since Congress gave authority to the Financial Oversight and Management Board to make changes.... ERS, the largest public retirement fund, has no assets and is funding benefits as revenues come in." [In re The Financial Oversight and Management Board for Puerto Rico, No. 17-213 (D.P.R. Aug. 17, 2018)] (Pensions & Investments)
Pension Deal Removes Potential $180 Million Hurdle in Tops Bankruptcy
"The agreement means Tops no longer would be liable to pay as much as $183 million over 20 years to meet funding obligations to the Teamsters pension fund. Instead, Tops, C&S and the Teamsters pension fund will contribute a total of $15 million that will help replace -- at least in part -- the pension benefits that the warehouse workers would have accumulated since the end of 2013. Those payments likely would be made into a type of retirement account." (Buffalo News)
Avaya Retiree's Widow Loses Bid to Secure Pension Payments
"The survivor benefit ... received by the widow is an unsecured debt and not a 'retiree benefit' as defined by the code, [the bankruptcy court for the Southern District of New York] held Sept. 18. The benefit is based on the widow's right to receive her late husband's deferred compensation, and Avaya's obligation to make those payments doesn't convert a pension payment into a 'retiree benefit' protected by the code, he said." [In re Avaya Inc., No. 17-10089 (Bankr. S.D.N.Y. Sept. 18, 2017)] (Bloomberg BNA)
Puerto Rico Governor Signs Pension Reform Law
"Puerto Rico has passed pension reforms that include making payments to the depleted defined benefit system from general revenues, and creating a defined contribution plan for active workers and new hires.... The changes are subject to approval by Puerto Rico's Financial Oversight and Management Board [PROMESA] ... [which] has its own plan for pension reform that calls for progressively reducing pension benefits by a total of 10% for most participants and enrolling all active members and new hires in defined contribution accounts." (Pensions & Investments)
Puerto Rico Public Pension Fund Joins Government's Bankruptcy Case
"The government's request to include the pension system ... was approved by the oversight board [on May 22].... Guy G. Gebhardt, the acting U.S. trustee for the bankruptcy case, said in court documents that he will appoint a retiree committee for participants in the commonwealth's five public pension systems. An ad hoc retiree committee had already asked the court to form an official committee." (Pensions & Investments)
Puerto Rico Bankruptcy Pits Investors Against Pensioners
"Puerto Rico's fiscal tug-of-war with pensioners, bondholders, other creditors and its own finances starts a new, uncharted chapter on May 17. That's when a specially appointed federal judge opens bankruptcy proceedings in a case that dwarfs previous public bankruptcies, with nearly $50 billion in unfunded pension liabilities, $74 billion in bondholder debt and dim financial prospects." (Pensions & Investments)
Recent Developments in U.S. Law Affecting Pension and OPEB Claims in Restructurings
27 pages. "From theory to practice, planning to enforcement, the answers to 42 of the most frequently asked questions can help you prepare, cope or respond to a restructuring.... Understanding the treatment of pension and OPEB obligations in bankruptcy continues to be important in today's business environment and the law relating to the treatment of these obligations continues to evolve." (Latham & Watkins)
ERISA Benefits and a Claimant's Bankruptcy: When Judicial Estoppel Requires Dismissal of Lawsuits Seeking Long Term Disability Benefits
"The key is to determine when the 'potential cause of action' accrued. And a recent case says those claims 'accrue' when the claimant receives the initial benefit denial letter." [Byrd v. Wellpoint Flexible Benefit Plan and Anthem Life Ins. Co., No. 17-008 (E.D. Mo. May 2, 2017)] (Lane Powell PC)
Puerto Rico Declares a Form of Bankruptcy
"Puerto Rico has roughly $120 billion of bond debt and unfunded pension obligations to restructure, which dwarfs the second-largest similar episode. When Detroit went bankrupt in 2013, it set the previous record, with about $18 billion of bond debt and retirement obligations.... [T]he governor of Puerto Rico ... petitioned for relief under Title III of a new federal law for insolvent territorial governments, called Promesa. It contains some bankruptcy provisions and has never been used before, so there is no road map to follow." (The New York Times; subscription may be required)
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 (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)] (Robinson + Cole 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." (Best Best & Krieger LLP)
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)] (U.S. 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] 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)
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