By Dale Kasler
10/30/2014 9:20 PM

Government pensions in California remain untouchable, at least for now, after a bankruptcy judge approved Stockton’s plan to repay its creditors Thursday without reducing the city’s pension obligations.

In a major victory for CalPERS and public employees, U.S. Bankruptcy Judge Christopher Klein approved Stockton’s reorganization plan over the objections of a disgruntled investment firm, Franklin Templeton, which wanted more money at the expense of the city’s pension benefits. “This plan, I’m persuaded, is about the best that can be done,” Klein told a packed courtroom in U.S. Bankruptcy Court in Sacramento.

Klein’s ruling came one month after he decided that Stockton could reduce its payments to CalPERS if it wanted to. He said breaking contracts, including the relationship between Stockton and the big pension fund, is the essence of bankruptcy. But on Thursday he confirmed Stockton’s blueprint for exiting bankruptcy even though it keeps pensions intact.

The Stockton case has loomed as a major test of the sanctity of public pensions at a time of rising costs to governments. Klein’s Oct. 1 decision sent major reverberations through the financial world, government circles and public employee unions. Klein acknowledged Thursday that the earlier ruling “undermined” what had been an ironclad assumption: that government pensions are safe and sound, no matter what.

On Thursday, the judge took stock of the practicalities of Stockton potentially ripping up its contract with CalPERS. Even a partial reduction in payments to CalPERS would have triggered a complicated mechanism that would have slashed pension benefits to Stockton workers by 60 percent. Stockton officials said firefighters, police officers and other municipal employees, who have been quitting city government already, would rush to the exits in even greater numbers, leaving the crime-ridden city essentially ungovernable.

“It would be no simple task to go back and redo the pensions,” the judge said.

Harvey Leiderman, a San Francisco lawyer and pension-law expert not involved in this case, put it this way: “Oct. 1 was an academic exercise. (Thursday) was a reality check.”

CalPERS officials, who have steadfastly fought to preserve pensions, hailed the decision as fair treatment for Stockton’s retirees and current employees, who have already taken cuts in salary and medical coverage. As for the legal status of pensions, they said Thursday’s decision takes a lot of the sting out of the earlier ruling, which was seen as a blow to the nation’s largest public pension fund.

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