Saturday, November 1, 2014

Bankruptcy Judge in Stockton Case Approves Plan That Keeps Pensions Intact and Highlights Difficulties in Cutting Pensions

This is from Ed Mendel at
... To cut pensions, said the judge, the city would have to reject its contract with CalPERS and “more importantly” its contract with employees. Pensions are part of total pay, and while in bankruptcy Stockton negotiated contracts with unions.
Klein said employees agreed to pay cuts during the negotiations with the understanding that pensions would not be cut. He said all of the concessions were “made on the direct income side not the pension side.” 
So to cut pensions, the city would have to reject a collective bargaining agreement. A U.S. Supreme Court decision (Bildisco 1984) set a higher standard for rejecting a collective bargaining agreement. 
The judge said Congress responded by setting a higher standard than Bildisco for rejecting a collective bargaining agreement in business bankruptcies (Chapter 11), which so far is not applicable to municipal bankruptcies. 
He said rejecting a “garden variety” contract is a low-level hurdle, rejecting a collective bargaining agreement under Bildisco is a higher hurdle, and rejecting a bargaining agreement in a business bankruptcy is an even higher hurdle. 
“So it would be no simple task to go back and redo the pensions,” said Klein. In the case of Stockton, the package of pay concessions would have to be reopened, which “as a practical matter would be difficult to do.”...