Pension Protection in Stockton Bankruptcy

From time to time, there have been suggestions that public employers should test the idea that prior defined-benefit pension promises – such as those made by UC – cannot be undone.  So far in California, all modifications of public pensions have been prospective, i.e, affecting new hires or possibly future accumulations of current workers.

In the case of the ongoing City of Stockton bankruptcy, certain insurers of Stockton bonds – who will suffer losses – challenged whether Stockton should be allowed to declare bankruptcy if it didn’t try to undo its existing CalPERS pension liabilities.  CalPERS took the standard position that past liabilities were ironclad obligations. Now a bankruptcy judge has declared that Stockton could legitimately declare municipal bankruptcy without attempting somehow to renegotiate its past pension obligations:

…In a blistering critique, the judge assailed major Wall Street bondholders, Assured Guarantee Corporation and National Public Finance Guaranty Corp., for acting in a heavy-handed manner by refusing to negotiate the city’s bond debt unless Stockton took actions to cut its massive employee pension obligations…

You can find the details at:
http://www.sacbee.com/2013/04/01/5308036/stockton-bankruptcy-challenge.html

UPDATE: The NY Times has a somewhat different cut on this story:
http://www.nytimes.com/2013/04/02/business/ruling-sets-stage-for-pension-battle-in-bankrupt-city.html