On September 12, 2012, CalPERS' general counsel released a
public statement setting forth CalPERS'
legal position on the limitations of the power of the
bankruptcy courts to interfere with the relationship between the
state of California and its municipalities regarding the payment of
retirement and other benefits to state employees.
Pensions and other benefits remain at the forefront of the
municipal financial crisis in California, and it appears that
CalPERS may be setting the stage for forthcoming legal battles in
the Stockton case, and perhaps others. CalPERS has previously
proudly boasted that Vallejo
did not take CalPERS on with respect to pension benefits, but only
healthcare retiree benefits.
commentators have predicted a looming constitutional battle
over pension benefits. The acuteness of the pension crisis was made
plain in a Stanford
Institute for Economic Policy Research Report, published
earlier this year, which concluded that aggregate pension costs
have expanded at a rate of 11.4% per year and pension expenditures
represent 10.1% of total municipal spending.
Whether Stockton, San Bernardino or another municipality will
undertake a war of attrition against CalPERS over pension benefits
remains to be seen.
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The court’s determination of these issues may turn on the facts—the timing of the transfers—but may also turn on the interpretation of the scope and intent of the applicable safe harbor provisions concerning setoff rights.
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