A bankruptcy judge handed CalPERS and organized labor a decision they've long feared Wednesday, declaring the city of Stockton has the right to reduce pension payments and even sever ties with the powerful pension fund.
The verbal ruling from U.S. Bankruptcy Judge Christopher Klein was groundbreaking. It pierced CalPERS’ aura of invincibility and made clear, for the first time, that public employee pensions in California aren't sacred. Two years after Stockton filed for bankruptcy protection, buried under more than $200 million in bond debt, a judge has declared that a municipality can walk away from its obligations to the California Public Employees’ Retirement System.
Klein’s ruling was prompted by a legal protest from Franklin Templeton Investments, which is due to be repaid just $4 million on a $36 million loan it made to the city during better economic times. Franklin wants a better deal from Stockton even if it comes at the expense of the pensions.
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