Moody’s released a report Wednesday outlining the credit agency’s thoughts on CalPERS in the wake of the Stockton ruling.
The agency affirmed CalPERS’ rating of Aa2, which is the third-highest rating available. From the report:
Favorable outcomes for CalPERS in the Stockton, CA and San Bernardino, CA bankruptcy proceedings lend further support to CalPERS improving financial profile because it reduces the likelihood that other CalPERS contracting employers will race to declare bankruptcy to reduce growing pension liabilities. The combination of a reduction in the likelihood that other distressed California municipalities will pursue bankruptcy to reduce pension liabilities and contribution rate increases on contracting employers in each of the last three years should improve the CalPERS funded status and its ability to cover the expected longer lives of retirees.
More from the Sacramento Bee:
Stockton’s court-approved plan to continue full contributions to its CalPERS-administered pension program sets a positive course for the retirement system, Moody’s Investors Service said in a Wednesday morning statement.
The firm’s assessment is the other side of what it said shortly after bankruptcy Judge Christopher Klein’s Oct. 1 non-binding comments that pensions aren’t immune to bankruptcy law. Wall Street applauded his statements and Moody’s said the judge’s remarks signaled that bankruptcy could be a new tool for financially-stressed municipalities.
But now that Klein has blessed Stockton’s plan, which cuts payments to debtors but leaves its contributions to CalPERS untouched, Moody’s says the case “likely sets a precedent that pensions will enjoy better treatment than debt in California (municipal bankruptcy) cases.”
Klein said that rejecting Stockton’s plan would irreparably degrade the city’s core services, including police and fire departments already struggling to hire and retain workers. Moody’s said Klein’s decision was “somewhat of a surprise,” given his earlier comments, and would discourage other contracting employers from using bankruptcy to cut their growing pension liabilities.
CalPERS is the nation’s largest public pension fund.
Photo by Stephen Curtin