The pensions of public employees across California are not as safe as they were once thought to be.
The state’s biggest pension fund, the California Public Employees’ Retirement System, spent millions of dollars to defend itself and worker pensions in the bankruptcy cases of two cities.
But the legal strategy backfired. A judge’s recent ruling destroyed legal protections that CalPERS and the state’s public unions had spent decades building through legislation passed in Sacramento.
Here are some answers to frequently asked questions:
What has changed to put government pensions at risk?
A judge in the city of Stockton’s bankruptcy case ruled that public workers’ future pensions could be cut just like other debts the city owes.
U.S. Bankruptcy Court Judge Christopher M. Klein said that two state laws that CalPERS and the unions had pushed through to protect pensions were trumped by federal bankruptcy law.
Have pensions been cut for any government workers in California?
No. Stockton officials said they did not want to cut worker pensions or move them out of the CalPERS pension system to a more affordable retirement plan. They argued that the city’s workers would leave for jobs in other cities where they could continue adding to their CalPERS pensions.
Klein approved Stockton’s bankruptcy plan even though it included full payments to CalPERS in the future. At the same time, the plan included tens of millions of dollars in losses for companies holding the city’s debt.
Why is the ruling significant?
In future municipal bankruptcy cases, worker pensions could be on the table for cuts just like the rest of the city’s bills.
In what city could this happen next?
The city of San Bernardino filed for bankruptcy in 2012 and continues to debate how it will pay its bills. City officials have said repeatedly that they do not want to cut worker pensions. But they still haven’t filed their plan for emerging from bankruptcy.
Two companies owed more than $50 million by the city have filed a complaint aimed at the city’s payments to CalPERS. They say it's illegal for the city to continue paying CalPERS in full while they get nothing.
Why are more cities worried about how they will pay for the pensions that have been promised to workers?
Cities across the state are facing steep increases in pension payments owed to CalPERS. Those rising payments were one reason that Stockton and San Bernardino filed for bankruptcy in the first place.
Part of the problem is that many cities have promised workers pensions that are more generous than those once offered in private industry. Many government workers in California can retire at 50 or 55 on lifelong payments that can nearly match their salaries if they have been longtime employees.
How much do the state, cities and other government agencies now owe for pensions promised to workers but not yet set aside?
The combined shortfall is nearly $200 billion. Already some cities are cutting back on services such as street repairs and library hours to pay more to CalPERS to cover the debt.
What does CalPERS say about the recent court developments?
CalPERS lawyers disagree with Klein’s ruling. The fund says it is considering its legal options, but doesn’t discuss its litigation strategy.