CalPERS Demands Payment

December 21, 2012 – In The News
Daily News Los Angeles

After months of trading increasingly sharp legal filings, a pitched battle between San Bernardino and the nation’s largest pension system will take place in bankruptcy court today – with each warning that the other’s victory could mean defeat for the little guy.

Since filing for bankruptcy Aug. 1, the city has stopped paying its share of required payments to the California Public Employee Retirement System and anticipates deferring those payments until the end of the fiscal year 2012. For CalPERS to give that money as an “involuntary loan” could threaten the soundness of the fund, violating its constitutional duty to protect retirees statewide according to Chief Executive Officer Ann Stausboll.

The sentiment to have a high-octane push to lift a state that otherwise presents anyone from suing a city while it’s in bankruptcy court, so CalPERS can ask state courts to force the city to make those payments.

San Bernardino’s pendency plan – its budget during bankruptcy or until the end of fiscal year 1013-14 – cut $26 million as it sought cuts of 30 percent to most city departments, but also puts off nearly $35 million in payments.

CalPERS does offer hardship plans, but much of that depends on reprioritizing the payments, meaning they’re made over a longer period of time. For the most part, San Bernardino is amortized for 30 years, the maximum allowed.

What the city does produce is being eagerly watched by observers throughout the state and nation, both because it may set bankruptcy percent and because of the role pensions play.

“You can’t overemphasizes that, look, the biggest problem” San Bernardino is not unique in being crushed by its pension obligations, in large part because CalPERS is under performing and San Bernardino offered very healthy pension offers,” said bankruptcy lawyer Michael Sweet of Fox Rothschild in San Francisco.

Most observers and participants predicted the judged would hear arguments and give guidance on December 21, however it has been delayed.