San Bernardino Sign

The city’s lawyers suggested San Bernardino wasn’t eager to pick a fight with the nation’s largest public pension fund.

By Dale Kasler
11/18/2014 11:08 PM

Public employees and retirees in California absorbed a potentially devastating court ruling a little more than a month ago: Pension benefits can be legally slashed if their employers go bankrupt.

The cities in a position to cut pensions, however, have shown no interest in doing so.

California’s two bankrupt cities, first Stockton and now San Bernardino, have agreed to pay CalPERS in full and keep their retirement plans intact, in spite of the October ruling by Sacramento bankruptcy court Judge Christopher Klein.

San Bernardino’s agreement, disclosed in a court filing late Monday, ends a lengthy impasse with CalPERS that had put the city’s employees’ and retirees’ pension plans in limbo. It came three weeks after Klein approved Stockton’s plan to follow the same strategy and pay CalPERS every penny – despite his October ruling that it was legal for Stockton to stiff the pension fund.

Taken together, Stockton and San Bernardino’s decisions suggest that, even if a judge says it’s legal, severing ties with the powerful California Public Employees’ Retirement System is extremely difficult as a practical matter. If Stockton had reduced payments to CalPERS, it would have triggered a mechanism that would have cut retirement benefits by 60 percent. Stockton officials say employees would have quit in droves.

“There’s been this kind of pension reform drumbeat; the reality is very much different,” said Teague Paterson, a Sacramento attorney who represents public employee unions. “For the people who actually have to run these cities and be responsive to the demands of citizens, (cutting pension benefits) is not that simple.”

With the cost of public pensions rising throughout California, the Stockton and San Bernardino bankruptcies have loomed as important tests of whether benefits could be curtailed. In Stockton, a creditor launched a major challenge to the city’s decision to keep paying CalPERS. San Bernardino actually withheld payments from CalPERS for several months after it filed for bankruptcy protection in 2012, racking up a past-due account of around $14 million. Some of the city’s elected leaders also made noises about trying to reduce San Bernardino’s ongoing $24 million-a-year contribution to the pension fund.

After months of legal sniping, San Bernardino and CalPERS announced in June they’d reached a tentative settlement. They were under a court-imposed gag order and couldn’t release any details until now.

In a filing Monday in U.S. Bankruptcy Court in Riverside, lawyers for the city said San Bernardino intends to “ratify in full the City’s relationship with CalPERS.” At a court hearing Tuesday, the city’s lawyers suggested San Bernardino wasn’t eager to pick a fight with the nation’s largest public pension fund, despite its earlier jousting.

“The 800-pound gorilla in the case is CalPERS,” said Paul Glassman, an attorney for the city, according to a report by Bloomberg.

The agreement calls for San Bernardino to repay CalPERS the overdue amount in 24 equal installments, with interest, starting in July of this year. So far, the city has paid $4.5 million of the past-due amount, said CalPERS spokeswoman Rosanna Westmoreland.

“We are pleased that the city of San Bernardino has made the right decision to fulfill the retirement security promises made to its employees,” CalPERS said in a prepared statement. CalPERS has been adamant that its member agencies fully pay their pension contributions.

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