Bondholders File Protest Against CalPERS in San Bernardino Bankruptcy

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On Monday, San Bernardino's bondholders filed a legal protest against CalPERS, saying the pension fund is seeking preferential treatment in the city's bankruptcy case, the Sacramento Bee reports (Kasler, Sacramento Bee, 12/11).

Background

San Bernardino has withheld $6.9 million worth of pension payments from CalPERS since filing for bankruptcy in August.

CalPERS is the largest creditor in the city's bankruptcy case.

Jim Morris -- the San Bernardino mayor's chief of staff -- said missed pension payments are among the many financial obligations the city has delayed to make payroll and maintain essential services.

CalPERS has not stopped providing retirement checks to beneficiaries since San Bernardino halted its pension payments. However, the agency in October filed a formal objection to the city's bankruptcy claim, saying the city's "financial records are in disarray" and calling for it to produce "credible" financial projections (California Healthline, 11/21).

In addition, CalPERS has been seeking the right to sue the city.

Details of Bondholders' Filing

The legal protest was filed by a group of financial firms representing bondholders and two insurance companies, which together could lose tens of millions of dollars in the case.

According to the filing, CalPERS "would be receiving preferential treatment" if it is allowed to sue the city.

Joseph Esuchanko -- a Michigan pension expert -- filed written testimony on the bondholders' behalf, saying that San Bernardino's lack of CalPERS payments "in no way jeopardizes the actuarial soundness of the pension system."

According to the Bee, the protest increases the likelihood that the city's bankruptcy filing will test the influence of CalPERS and public pensions.

CalPERS' Response

In a statement, CalPERS said that it is "fighting for ... dedicated public employees." Officials added, "[W]e will protect our members' retirement security, including taking appropriate action to safeguard their pensions" (Sacramento Bee, 12/11).

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