CalPERS Won’t Refinance SB’s Pension Fund Debt

(May 10) Holding the line on a policy that it maintains is crucial to preserving the integrity of its entire pension program, the California Public Employees Retirement System has said it will not refinance bankrupt San Bernardino’s unpaid employee retirement contribution debt.
The city of San Bernardino filed for bankruptcy protection in August. Throughout the current 2012-13 fiscal year it has withheld $12.3 million in payments to the California Public Employees Retirement System (CalPERS). The city has vowed that as of July, it will reinitiate making its retirement fund payments.
At this point it wants to renegotiate the financing plan for the money on which it is in arrears.
CalPERS, concerned that showing leniency to San Bernardino would result in other financially challenged municipalities throughout the state  temporarily skipping out on their financial obligations to the fund, is unwilling to refinance that debt or show any compassion to the city.
Moreover, San Bernardino’s return to the fold as a paying member into the system will not result in CalPERS ending its legal challenge to San Bernardino’s bankruptcy filing in Riverside Federal Court.
CalPERS has sued San Bernardino, maintaining that it has priority status among the city’s multitude of vendors, suppliers and creditors, and that the courts should force the city to meet its $1.7-million-per-month obligation to the public workers’ retirement fund. So far the judge overseeing the case, Federal Magistrate Meredith Jury, has refused to grant CalPERS’s motions, ruling that requiring the city to expend its scant revenue to cover retirement costs would undercut San Bernardino’s effort to get back on its feet financially.
Nevertheless, CalPERS is not prepared to accept the $12.3 million installment repayment plan the city is proposing, maintaining that under  California law the withheld money,  interest, penalty interest, late fees and all costs of collection are due it immediately, and that further delays will entail accruing interest and that interest will continue to accrue until the due amount is fully paid.
In what is considered to be a positive step out of the bankruptcy abyss, the city council in April approved a 14-month budget in consonance with its “pendency” plan, which was presented to Jury in November as a strategy for the city finding its way out of bankruptcy. That plan calls for “deferring“ $37.4 million in general fund debt payments owed in 2012-13, including $16.8 million of its current obligations for pensions. The fiscal year ends June 30. At that point, the city will be in arrears $13 million to CalPERS, another $3.3 million  on an outside $50 million pension bond and $500,000 to Public Agency Retirement Services, which coordinates retirement benefit perquisites.
In a move that will partially ameliorate CalPERS, San Bernardino is proposing to undertake a “fresh start” with the state governmental employee retirement system. But those payments call for “reamortiz[ing] CalPERS liability over 30 years” structured in such a way that the city achieves a savings of roughly $1.3 million per year. The exact nature of that restructuring has not been clarified. CalPERS is highly skeptical of that proposal and distrustful of the city’s representations and has so far refused to accept the extension of payments the city envisions.
City officials have made at least three sojourns to Sacramento since November to see if a mutually acceptable payment schedule that allows pensions to continue to be paid out to current and future city retirees can be made.  Two major sticking points exist: The $13 million the city is deferring indefinitely and the city’s proposed decreased annual payments into the fund from here on out.
At present, CalPERS  is instituting system-wide rate hikes intended to remain in place for at least the next seven years in an effort to achieve system integrity through 2043. CalPERS, which manages $256 billion in assets, is San Bernardino’s biggest creditor. San Bernardino’s contribution into the retirement fund is equal to 0.3 percent of CalPERS annual revenue stream.
Based upon its past filings in bankruptcy court, CalPERS does not appear to be disposed to accepting any place in the San Bernardino debtors line other than first.
“It is not mere speculation to say that the city may not be able to pay its post-petition bills after languishing in bankruptcy for an indeterminate amount of time,” said a CalPERS filing in federal bankruptcy court. “To the contrary, the pendency plan suggests that the city has no intention of paying its postpetition obligations to CalPERS but, instead, intends to ‘modify’ those administrative claims in its plan of adjustment,” the filing said.
CalPERS maintains that as a quasi-governmental entity, it is exempt from the protection provisions of the city’s bankruptcy filing.

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