LOS ANGELES — The California Public Employees' Retirement System, in a conference call with media Friday, emphasized its stance that California public pensions remain insulated from the Detroit bankruptcy.
As part of his favorable ruling on Detroit's eligibility, U.S. Bankruptcy Judge Steven Rhodes' said that Chapter 9 permits the city to cut its pensions, despite state constitutional protections.
Rhodes found in his ruling that Michigan's constitutional protection of pensions does not apply in federal court. As contractual rights, he said pensions can be subject to the bankruptcy court's authority to impair contracts.
"The first thing I would say is that you should try to keep in context that it was a Detroit bankruptcy decision and it is not binding on any other court," said Gina Ratto, CalPERS' interim general counsel. "In fact, it is not binding on any other court in Michigan or that district, and it is certainly not binding on any court in California."
Ratto acknowledged that bankruptcy judges do tend to rely on what other bankruptcy judges say around the country.
"And, there is certainly a dearth of opinion around Chapter 9 decisions," Ratto said. "I think judges are struggling with this and looking to each other."
But CalPERS officials said they think the differences between Detroit and California are significant.
In California, there are remedies for breach of pensions not included in the Michigan law. For instance, CalPERS can enforce a lien against a public agency's assets if it doesn't make payments, Ratto said. CalPERS also can terminate the plan and the participation of the public agency in the event of missed payments, she said.
State statute says it is a criminal act for cities to make payroll without making payments to CalPERS, according to Ratto. The agency has not asked the California Department of Justice to take action against San Bernardino, which owes CalPERS $17 million in missed payments and penalties, she said.
"Part of what I think is important is that when a public agency chooses to become a member of CalPERS they choose to abide by the entire public structure," said Brad Pacheco, a CalPERS spokesman.
According to Ratto, as a state agency, CalPERS has sovereign powers.
CalPERS is "an arm of the state, not a city like Detroit, which is a creature of Michigan state," Ratto said.
As an arm of the state, CalPERS receives the same protections as the state under the U.S. Constitution's 10th and 11th amendments that protect state sovereignty, Ratto said.
"The court did not find that federal law trumps state law," Ratto said. "It merely found that contractual rights could be impaired."
Michael Gearin, an attorney with law firm K&L Gates, which is representing CalPERS in the San Bernardino bankruptcy, said CalPERS pension rights are more like property rights than the contractual rights of Detroit's pension plans.
"Judge Rhodes was very clear in describing what Michigan pensioners have as contract rights," Gearin said. "If it is a simple contract than bankruptcy can impair it, similar to what Judge Christopher Klein said regarding health benefits in the Stockton bankruptcy."
But Gearin said CalPERS views the pension fund's agreement with cities as having something "significantly different from what they have in Michigan."
Gearin also disputed the idea that Klein's ruling might have opened the door for pensions to be impaired in Stockton when he reserved judgment on the issue.
"There still could be a fight in Stockton if a plan had been proposed that impaired pensions, but Stockton has not done that and intends to honor its pensions," Gearin said.
San Bernardino began mediation with its creditors before U.S. Bankruptcy Judge Gregg Zive on Nov. 24. Zive was appointed by U.S. Bankruptcy Judge Meredith Jury to handle mediation on a term sheet for the city's plan of adjustment needed to exit bankruptcy.
Ratto said the discussions led by Zive have been promising, but they are under strict confidentiality imposed by Zive to not discuss the details of the mediation. Additional mediation days have been scheduled on Jan. 9 and 10 in Los Angeles to work on the agreement that will form the basis of the city's plan of adjustment needed to exit bankruptcy.
CalPERS was also slated to appear in U.S. District Court for a hearing on its motion to appeal San Bernardino's eligibility to be in bankruptcy. Jury denied a motion by CalPERS seeking direct certification for the appeal to U.S. Ninth Circuit Court of Appeals.
A hearing is being held in Detroit Monday on a motion appealing that city's eligibility for bankruptcy filed by the city's pension funds, Ratto said.
CalPERS attorneys have been in discussions with the board about filing an amicus, or friend of the court brief supporting Detroit's pension plans, but a decision has not been made, she said.
