How Ironclad is the Pension Guarantee?

Famous clash of Civil War ironclads

There is a risk in even blogging about this topic that someone will start worrying that his/her pension check next month won’t arrive.  So the usual caveats are in order.  1) There is enough money in the UC pension today so that if no one contributed (and in fact contributions are being made and ramping up), 2) and investment returns were zero over the long term (very unlikely), the fund would not run out of money for many, many years.  And even at that point, there could be pay-as-you-go funding.  In addition, the Regents’ 2010 plan for a lower tier affects pensions only for new hires.

Nonetheless, the issue of cutting existing pension obligations keeps being raised, particularly by those who don’t like public pensions.  Most recently, there has a been a legal battle over the bankruptcy filing of the City of San Bernardino regarding its pension obligations to CalPERS.  When it filed for bankruptcy, that city stopped making its payments to CalPERS (which doesn’t mean that CalPERS stopped paying pensions to those who earned them in that city).  The city said it was short of cash.  CalPERS threatened to sue, threats that it made (successfully) to other bankrupt cities.  Initially, all of this was reported by the media as a loosening of the public pension guarantee.  But that is not accurate, as a recent article in calpensions.com points out.  The federal bankruptcy judge asked CalPERS not to sue – but did not forbid it.  So far CalPERS has not sued.  But the bankruptcy judge has also said that unlike other creditors, CalPERS is not among those who would have to negotiate for a reduction in what they are ultimately paid on their debts.  It appears that CalPERS will have to be made whole.  The outcome of the San Bernardino filing for bankruptcy is not clear.  (There are even some questions about whether the city met the full requirements for such a filing.)  But so far, the idea of an ironclad pension obligation seems to have been reinforced rather than eroded.

Again, this situation is very unlike that of UC.  UC is not filing for bankruptcy.  You will get your pension.  The concern for UC is that past underfunding is now encroaching on the current and future budget of the system.  As we have repeatedly emphasized, the pension is a young folks issue, not an old folks issue, because of the budget impact.

The calpensons.com article is at:
http://calpensions.com/2012/12/24/san-bernardino-may-have-to-pay-full-pension-tab/

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