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Furthermore …

Public pension limits

A civil trial playing out this week in California features financial heavyweights facing off and could have enormous repercussions for public pensions.

At issue is the bankruptcy of Stockton, a California city that has slashed city services as well as the payments it makes on municipal bonds.

One expense it hasn’t cut, though, is pension costs – both current benefits for retirees and the money it invests to accrue pensions for future retirees.

On one side are the bondholders, trustees and insurers, including Wells Fargo, Assured Guaranty and Franklin Advisers. They argue that if bond payments are cut, pension payments should be also. On the other side are Stockton and the California Public Employees’ Retirement System, or Calpers, the largest pension fund in the nation.

As the New York Times reports, public worker pension payments have been mostly off-limits to cutbacks, particularly for existing retirees and employees. A decision against Calpers could lead financially troubled cities, counties, states and other governments to seek court protection for cutting back pension payments.

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