Tuesday, March 26, 2013

California municipal pension funds battle bondholders in bankruptcy court in Central Valley

Pension funds for municipal and local government employees in California are watching closely as a bankruptcy case for Stockton, CA goes to trial, as reported in the New York Times today by Mary Williams Walks, link here

Pension funds in California have deep pockets for legal battles, unlike the case in Rhode Island where the town of Center Falls slashed its pensions to retirees.  There is question as to whether Stockton (and maybe some other Central Valley cities) could qualify for “Chapter 9” at all.  Insurance companies guaranteeing bond holders of their interest payments will fight, however, if municipalities cut their payments. 

Many retirees around the country have invested heavily in tax-free bond portfolios often sold by banks (especially Suntrust in the east); some may have close to half their portfolios in these instruments.  So there is a battle between one set of retirees and another.  This is indeed part of "pension tsunami".  

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