CALPERS, shorthand for California Public Employee Retirement System, is fighting in Federal bankruptcy court to demand that payments to the fund be protected against the bankruptcy of the city of Stockton, California. CALPERS wants to be treated differently than all other creditors of Stockton. They want full repayment, not some haircut, of the future moneys to be paid into the fund to provide for the retirement of future Stockton retirees.
A Federal judge on Wednesday opined that it wasn't even clear that CALPERS was owed anything by the city of Stockton, since the amount of future payments is not currently known, even if Stockton were solvent. In any event, the judge ruled that CALPERS had no right to be treated separately in bankruptcy. Given the looming bankruptcy of numerous cities in California, not to mention the state itself, CALPERS is in deep, deep trouble. This threatens the future pension payments for state employees in California.
An article in today's NY Times by Mary Williams Walsh lays out the court's opinion on the plight of CALPERS.
Quoting the judge: "...in bankruptcy, Stockton could legally refuse to pay the bill because it arose from the city's contract with CALPERS, and contracts are broken routinely in bankruptcy. The bankruptcy code provides that the lien can be avoided and be treated as an unsecured claim," Judge Klein said.
This is the beginning of the end for CALPERS, long the most underfunded public pension fund in the United States. Not far behing CALPERS is CALSTERS, which is California's pension fund for public school teachers. That one is a mess as well.
For years, politicians and board trustees of public pension funds, have buried their heads in the sand while their pension funds' unfunded liabilities have soared into the stratosphere. Now the day of reckoning is here. The pensions that public employees and public school teachers expect to be waiting for them are not going to be there.
Meanwhile, the largest pension fund in America, TIAA-CREF is fully funded and then some. This is the pension fund that applies to academics. It is a defined contribution fund, which, by definition cannot be underfunded. These same academics, who have a comfortable retirement future ahead of them, have been part of the problem with the unfunded nature of public pension funds. They have been in the vanguard of resisting reform in the public pension world.
The looming disaster in California that will spread to almost every state in the US has been a bi-partisan affair. Republicans and Democrats alike have swept the growing problems of public pension funds under the rug for generations. The grandaddy of them all -- social security -- has the same problems ahead for the same reasons.