Michael Hiltzik

Michael Hiltzik
October 2, 2014

The investment house Franklin Templeton’s effort to knock down the city of Stockton’s proposal to emerge from bankruptcy portrays the case as one in which Franklin is defending itself against three big, faceless adversaries.

These are CalPERS, California’s enormous public pension agency, and “the City and its organized labor allies.” Franklin objects that they’re angling to preserve their preferential position in the bankruptcy reorganization, while cramming down big losses on Franklin, which holds more than $36 million in city debt, of which some $32 million is unsecured. The city proposes to pay Franklin about 1 cent on the dollar for that unsecured portion.
I’ve concluded that pensions could be adjusted. – US Bankruptcy Judge Christopher Klein

But of course this is not a battle of big institutions. You have to read fairly carefully in Franklin’s brief to recognize who would be the real victims of its position: 2,400 retirees whose retirement benefits already have been cut, and whose income would be eviscerated if Franklin gets its way.

CalPERS wouldn’t be hurt; it would just pass on its losses to the retirees by cutting their pensions, as Franklin states explicitly. “Organized labor”? That’s Wall Street’s contemptuous way of referring to workers who’ve had the temerity of banding together to protect their own rights.

On Wednesday, Bankruptcy Judge Christopher Klein rattled pension advocates across the country by concluding that Stockton’s contract with CalPERS to manage its pension fund was conditional, like any other contract in bankruptcy: “I’ve concluded that pensions could be adjusted,” he declared.

This was a cavalier way of agreeing that no one important would be injured if, as Franklin asserts, Stockton stiffed CalPERS on the $1.6-billion termination fee it would normally have to pay for ending the pension contract. That fee would cover the city’s unfunded liability for its workers’ benefits. CalPERS would simply cover the shortfall by taking it out of the retirees’ checks.

Franklin sugarcoats the implications of its demand by painting Stockton’s retirees as grasping crooks. The city’s pension liability, it asserts, was “brought about by years of ‘pension spiking’ and unfunded promises of lavish benefits.”

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