Tag: Franklin Templeton Investments

CalPERS CEO Addresses Stockton Ruling

The CalPers Building in West Sacramento California.
The CalPERS building in West Sacramento, California.

Anne Stausboll, CEO of the California Public Employees Retirement System, released a statement addressing a recent court ruling that the bankrupt city of Stockton could cut pensions and stop contributing to CalPERS as part of its bankruptcy proceedings.

The statement in full:

The ruling last week by a federal bankruptcy judge in Stockton’s bankruptcy case has caused many to speculate about the future of pensions. Public employees, retirees, employers, lawyers, taxpayers, and journalists have legitimate questions and concerns.

As the administrator of pensions, the California Public Employees’ Retirement System does not win or lose in this situation. If pensions are reduced in bankruptcies, the only losers are public employees.

Contrary to the belief of many pension critics, CalPERS is no Goliath. Franklin Templeton Investments – the last bondholder standing in the way of the city of Stockton’s plan to rebuild – is no David.

Franklin Templeton is a sophisticated Wall Street investor that did its due diligence, analyzed the risks, and decided to make a $36 million investment in Stockton. As it turns out, the investment did not pay off. That’s how the investment world works. Franklin needs to move on.

The real Davids are the current and former employees of the city of Stockton whose retirements are at stake. These librarians, secretaries, firefighters, police officers, 911 dispatchers, and school custodians chose to serve the public at lower salaries in return for the promise of a reliable and secure pension. Their pensions are deferred compensation that they earned by working 10, 20, and sometimes 30 years in service to their communities.

Public employees contribute from every paycheck toward their own retirement. It is not a bonus or optional benefit that an employer may choose to not pay during hard times.

We applaud the leadership of Stockton officials in finding solutions to protect the pension promises made to its public employees while forging a reasonable path toward a fiscally sustainable future.

CalPERS will stand by Stockton, its employees, and residents, and will continue to champion those who really stand to lose – the real Davids – the public employees and retirees who spent their careers serving our communities and California.

 

Photo by Stephen Curtin

“Historic” Ruling Expected in Stockton Bankruptcy Case; Can A Bankrupt California City Cut Pensions?

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Can a bankrupt California city legally reduce both its payments to CalPERS and the pension benefits it promised to its workers?

Those are the questions that will likely be answered by the end of the day Wednesday in what’s already being called a “historic” ruling. From the Sacramento Bee:

After months of buildup, U.S. Bankruptcy Judge Christopher Klein is likely to rule on a protest filed by one of Stockton’s creditors, Franklin Templeton Investments. Franklin said the city can’t continue paying its full pension contribution every year to CalPERS while offering a meager payout on the $36 million owed to the investment firm.

At a July 8 hearing, Klein hinted that he was sympathetic to Franklin’s view. “I might be persuaded that … the pensions can be adjusted,” he said.

It’s not at all certain whether Stockton would reduce its pension payments, even if Klein says it can. Under state law, CalPERS says it would have no choice but to end Stockton’s pension plan. Pension benefits would drop by an estimated 60 percent, which city officials believe would trigger a mass exodus by police officers and other employees.

Regardless of what Stockton does, CalPERS has been fighting strenuously to avoid a legal ruling that says pension contributions are no longer untouchable. The giant pension fund’s lawyers say CalPERS is merely trying to protect a system that serves the public well.

“Pensions secure financial futures and help the state and its local subdivisions recruit and retain valuable public servants,” CalPERS’ lawyers said in a recent court filing. “Putting a cloud over public pensions only invites worry and uncertainty about the security of those pensions.”

Public pensions have been considered ironclad for generations. State legislatures are free to reduce benefits for new workers, as California did in 2013, but it’s long been agreed that promises made to existing employees and retirees must be kept.

Those legal protections, however, have been under duress ever since Stockton filed for bankruptcy protection in 2012. Several of the city’s Wall Street bond creditors, who lent the city more than $200 million during the housing boom, warned that they would fight in court if they were left with peanuts and the city’s $29 million-a-year contribution to CalPERS was left intact.

A bankruptcy judge ruled earlier this summer that Detroit could indeed cut pension benefits as part of its bankruptcy proceedings.

But CalPERS argues that the ruling doesn’t apply to California, because California protects pension benefits under its constitution. Michigan doesn’t.