Pebble Beach, CA Government Retirees Face New Threat : Bankruptcy of Municipalities Which Now Pay Their Pension And Medical Insurance

Seniors have had so much to worry about financially since the recession, with the downturn in real estate and investments and rising prices of day-to-day goods.  Now many more may have something else to worry about, the safety of their government pension plan.  The bankruptcy of the city of Stockton may have far reaching implications to government retirees, as a judge must now determine if a local city can use the Federal courts to wiggle out of pension obligations just as a corporation does when if files for bankruptcy protection.  City manager Bob Deis told USA today that he used the Chapter 9 filing as a strategy to abandon costly retirement promises just as American Airlines and General Motors did.  Former and current policemen, firefighters, teachers and other employees of the city of Stockton could lose a fortune if Deis is successful.  The California case is being watched by municipalities across the country and, if it's successful, many other cities may file for bankruptcy, leaving their retired employees in the lurch.  "This is a big test case," University of Pennsylvania law professor David Skeel told a reporter.  "The conventional wisdom has been until very recently that you can't touch retirement benefits or labor contracts in bankruptcy court.  That conventional wisdom has been rapidly eroding because of the horrendous financial conditions of some cities and the role pensions are playing in the trouble," he said.  Skeel predicts the case may go all the way to the Supreme Court because so many seniors could have benefits stripped from them permanently if the case goes forward.  Although almost 700 local governments have filed for bankruptcy protection over the past six decades, they have normally been done to give bondholders a haircut when special projects went off track.  In addition to the financial pain caused to seniors, investors in government bonds may be hurt as well.  California already has the lowest bond rating of any state in the nation.  Investors flock to municipal bonds because the yield is free from federal income taxes.  If this case is successful, many investors may give up on municipal bonds which are no longer seen as a safe haven.  But retired Stockton city employees have bigger problems.  Gerri Ridge, a retiree who worked 26 years for the Stockton police department says she worries the city's fiscal woes will end her life early.  The city has stopped paying retiree medical benefits and Ridge has had two heart attacks already.  She said that she plans to reduce doctor visits and shop for less expensive heart medications.  "I know for a fact that I might not make it to 65," she said after she lost her medical benefits and now faces lowing her $1,895/month pension.  What a sad state of affairs many cities in this state have gotten into.