In the Los Angeles Times, Michael Hiltzik lays out the tale of how investment house Franklin Templeton Investments is attempting to gut the pensions of 2,400 retirees from the city of Stockton. The city has been involved in bankruptcy proceedings recently, and Franklin Templeton is trying to further cut pensions that already have faced cuts in recent years.
After a judge ruled that the pension contract could be adjusted as part of the bankruptcy proceedings, Franklin Templeton suggested that the city not pay the $1.6 billion termination fee to CalPERS, the state retirement system, which would then pass those cuts along to retirees, cutting their retirement income. The $1.6 billion fee normally would be required to cover the termination of the pension contract, Hiltzik says, in order to cover the existing pension obligations.
Franklin Templeton's real take on the situation is given away by its claim that the crisis was "brought about by years of 'pension spiking' and unfunded promises of lavish benefits." But as Hiltzik notes, the company provided no evidence was presented in court that pension spiking took place or that it affected the Stockton bankruptcy. And the so-called "lavish" pensions that need to be cut amount to $24,000, on average. If Franklin Templeton's plan goes through, retirees—who did not earn Social Security benefits while they worked for Stockton--will be forced to survive on $9,600 a year. The city says that it would be devastated by a flow of current employees leaving if they know their pensions are going to be cut at that level.
The rest of Franklin Templeton's plan and claims about the situation also fall flat. As Hiltzik explains:
Franklin's complaint that it's being uniquely disadvantaged in the bankruptcy reorganization falls apart when one examines what Stockton's employees and retirees already have sacrificed. Among other cuts, city employees were hit with involuntary furloughs in 2008 through 2012, gave up cost of living increases for several years, and began paying a retirement contribution of up to 9% in 2011. New employees already receive sharply reduced benefits. (A full list is here.)
The biggest hit involved retiree health benefits, which were negotiated in past years as an alternative to wage increases. Eventually, the city's actuarial exposure to health claims by 1,100 retirees reached $545 million. As part of a bankruptcy settlement with retirees, that was reduced to $5.1 million—the same 1% payoff Franklin is grousing about—and lifetime health benefits were eliminated.
The $5.1 million is to be paid out in lump sums ranging from $460 to $14,000; as the retirees committee observed, the one-time payments are "not enough to cover even one year of premiums for replacement health insurance and for many...without providing any coverage for dependents who were covered by the city's plan."