Calif. City Bankruptcies Could Rein in Pensions

Federal judges may be calling the shots, not the pension providers

As financially troubled cities suspend their payments to California's pension fund, federal bankruptcy judges may have the final word on the long-assumed inviolability of retirement benefits.

Neither Vallejo nor Stockton mentioned pension rights of current or retired employees when they filed for bankruptcy protection, even as they sought relief from holders of bonds and other creditors. But companies that had insured hundreds of millions of dollars in Stockton's bonds mounted stiff resistance, contending that if they had to take a financial haircut, the city's retirees should as well.

The California Public Employees' Retirement System geared up for legal war, insisting that pensions are sacrosanct.