A federal judge ruled yesterday that Stockton, California can renege on its public pension obligations via its Chapter 9 bankruptcy.
This view probably is shared by many judges, and it could have serious repercussions for public employees who have been counting on their pensions to see them through old age. One of the major reasons people go into public service, despite lower salaries, is because pension benefits were more generous — and more secure — than in the private sector. But now, after a lifetime of dedicated service, they may find that stool kicked out from under them.
The Stockton case, if it stands as precedent, has all sorts of potentially ramifications. These include:
(1) Banks and other big private investors who own bonds of bankrupt municipalities will insist more aggressively that their claims be paid at the expense of pensioners. (We’ve already seen this in Detroit’s bankruptcy litigation.)
(2) Cities facing financial struggles will find it more tempting to file for bankruptcy to shed expensive pension obligations, and many private sector companies have done.
(3) States and cities will come under increasing political pressure from rightwing government haters to renege on their pension promises.
(4) Public universities and colleges facing dwindling state support and pushback on tuition increases might be tempted to look for cost savings by reneging on their pension promises.
It’s one thing for investors to suffer losses in a corporate or municipal bankruptcy. They get paid for taking risks, and institutional investors are experts at managing investment risks. And they’re usually managing other people’s money, so an investment loss isn’t personally devastating for them. Retirees are in an entirely different position. You can’t diversify an employer pension; if something bad happens to it, you’re screwed. And during your working years, you never had personal control over the bad things that might happen to it; that was out of your hands.
But for most of America’s recent history, since pensions were invented, people didn’t worry about it. For a long time, pensions were considered sacrosanct and unassailable; and public pensions were thought to be even safer. But the country’s financial condition and political temperament have changed, not for the better, and retirees and soon-to-be-retireds now face previously unimagined financial perils. It isn’t just pensions that have come under assault; some political interest groups want to slash or eliminate Social Security and Medicare, too. (Why does America suddenly hate old people — our own fathers and grandfathers?)
This is worse than just a rancid way to treat senior citizens who upheld their end of the bargain with a lifetime of hard work they can’t retrieve if a crass and unfeeling society decides to trash the retirement promises that were made to them. In the larger context, when society allows pension promises to be broken ex poste facto, it undermines confidence in all contracts and we’ll stop trusting each other. It’s the first slip down a slippery slope from being a unified nation to becoming a raucous jungle where it’s every hungry animal for himself.
On a broader scale, it’s clear that America’s ideas of retirement security are undergoing drastic revision, just as our notions of employment security already have. Today’s young workers expect neither job security nor employer-provided retirements. Because jobs don’t last anymore, they must be entrepreneurs in a constantly changing labor market. Likewise, they anticipate having to provide for their own retirements with savings and investments they manage themselves.
The young may figure out ways to cope. Older workers accustomed to the old ways and perhaps unaware the roof is falling on them are more likely to be victims than survivors. The first thing they must do is learn to take nothing for granted anymore, because we can’t trust each other to keep the social and legal commitments we’ve made to each other anymore. Living in a society in which a judge can, in five minutes, kick a leg off a stool you spent a lifetime making, safety lies in having a stool with extra legs.