CalPERS Counters Implications of Detroit Bankruptcy Ruling

NEW YORK (TheStreet) -- The California Public Employees' Retirement System (CalPERS) doesn't agree with a Michigan judge's decision to allow the city of Detroit to proceed in with it Chapter 9 bankruptcy, the largest in U.S. history.

On Tuesday, Judge Steven Rhodes of the U.S. Bankruptcy Court for the Eastern District of Michigan ruled Detroit was eligible for Chapter 9 bankruptcy protection. The decision moves forward Detroit's July bankruptcy petition and undercuts efforts by the Detroit's pension and retirement system to keep it out of Chapter 9. Should the ruling stand, it will set a precedent that could work against public employee pension systems faced with similar bankruptcy proceedings in other locations.

CalPERS said in a Tuesday statement that Judge Rhodes didn't correctly recognize the three-way relationship between public agencies, their employees and their retirement systems. The pension fund, one of the largest in the U.S., also said it continues to believe its members' rights are protected by the California constitution.

"The Detroit court failed to recognize the difference between a two party contract and the unique nature of a state public employee retirement system, which creates a three-way relationship among a public agency, its employees and the retirement system. In California, our members' vested rights to their pensions are protected by the California constitution, statutes and case law," CalPERS said.

"Unlike Detroit, CalPERS is not a city pension plan. CalPERS is an arm of the state and was formed to carry out the state's policy regarding public employees. The Bankruptcy Code is clear that a federal bankruptcy court may not interfere in the relationship between a state and its municipalities. The ruling in Detroit is not applicable to state public employee pension systems like CalPERS," the fund added.

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