(Bloomberg) -- California cities may turn to bankruptcy courts to ease pension obligations after a judge ruled the California Public Employees’ Retirement System doesn’t deserve special protection, a decision that may reverberate across the country as municipalities struggle with their finances.
Bankrupt cities can cancel contracts with Calpers because federal law overrules state protections given the pension giant, U.S.Bankruptcy Judge Christopher Klein said last week in a hearing over the municipal bankruptcy of the city of Stockton.
Stockton’s bankruptcy pits public-pension advocates against Wall Street creditors, who stand to get pennies on the dollar for their bonds. The ruling would make it more attractive for California cities with unmanageable pensions to use bankruptcy law to cut debt, just as private companies do.
“It means a city can get control of its retiree liabilities and pension liabilities,” said Dale Ginter, a lawyer who represented retirees in the bankruptcy of Vallejo, California. “That’s huge.”
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