Retirees at Center of San Bernardino – vs. – CalPERS Bankruptcy Battle

December 21, 2012 – In The News
San Bernardino County Sun

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 on Friday, December 21, 2012.

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 fiscal year 2013 – by which time CalPERS calculates it will owe up to $19 million.

For CalPERS to give that money as in “involuntary load” could threaten the soundness of the fund, violating its constitutional duty to protect retirees in California.

CalPERS does offer – and other cities have used - hardship plans, but much of that depends on reamortizing the payments, meaning they’re made over a longer period of time. For the most part, San Bernardino is amortized for as long a period as is allowed – 30 years.

Both sides accuse the other of exaggerating the damage they would suffer, and both have enlisted allies to the fight.

CalPERS notes that state laws make it the only one responsible for determining whether its system is sound and add that it’s impossible to determine what the effect of stopped payments will be since they city’s official plan doesn’t say when repayment will begin or what, if any, interest will be offered.

In court documents, the city says enough relevant information has been produced and criticized CalPERS for “a harangue replete with misstatements respecting the city’s production of documents.”

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

“You can’t overemphasize 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 participants and observers hesitantly predicted Judge Jury would hear arguments and give some guidance Friday, but delay a decision of later.

“As I said, you can’t overemphasize how big a deal this is,” Sweet said. “It’s a pretty wonky concept – this is not something people think about every day – but the implications will be extraordinary for current workforces and cities going forward.”