For the first time, a public pension plan files for bankruptcy

This story is ricocheting around the world of public finance today. Darla Mercado reports for InvestmentNews:

In what’s believed to be a first by a public pension plan, the Northern Mariana Islands Retirement Fund filed for Chapter 11 bankruptcy protection on Tuesday.

The public defined-benefit plan is in a big hole. At the moment, it’s only 38.8% funded, thanks to low investment returns and a benefit structure that’s been increased without raises in funding ….

Marcia Wagner, managing director at The Wagner Law Group, believes that this is the first time a public pension plan has filed for bankruptcy. Notably, this is a restructuring of the fund and not a liquidation, which would be under the jurisdiction of Chapter 7 of the U.S. Bankruptcy Code.

The development of the restructuring will set a precedent, particularly at a time when local government budgets and defined-benefit plans are under strain.

For Rhode Islanders, at least two things are immediately striking about this story.

First, the Mariana pension plan’s funded level of 38.8% is actually better than Providence’s pension plan, which is 32% funded, and other plans in places like Cranston and Coventry are in far worse shape than that.

Second, this will test a novel legal theory that it’s possible for pension funds filing for bankruptcy as a separate entity from the government that set them up. That would allow Providence’s pension fund alone to file for bankruptcy without the capital city going into Chapter 9.

The story is also a reminder that Rhode Island isn’t alone in having a unique pension-plan design. The Mariana fund “permitted the grandchildren and great-grandchildren of the first generation of retirees to receive benefits after the original retiree died,” Mercado writes.

Meanwhile, the Providence City Council’s far-reaching pension overhaul, which includes a multi-decade COLA freeze, passed out of committee on Tuesday evening. The full City Council is scheduled to vote on the measure at a special meeting Thursday night. And the Projo obtained the mayor’s alternative offer to retirees.

• Related: Prof: Providence retirees may face 73% haircut in bankruptcy (Feb. 22)

  • Ed

    Charles Lamb : Credulity is the man’s weakness, but the child’s strength. Charles Lamb knew much about Rhode Islands public sector employees. Too bad for the Providence public sector employees, that Mayor Taveras only spoke about FY2013. He did not mention the rest of FY2012. Providence will file chapter 9. You people who think you are entitled to these overgenerous benefits are going to get a dose of reality. You have been overcompensated for your entire lives. Say thank you for what you got, if you are old, life as you know it is over. I hope you taught your kids how to save because that is where you are going to be living.

  • GaryM

    Ted,

    Interesting, but unlikely to survive.

    More likely, this is to buy time and also line some crony law firm’s pocketbook (paid of course by taxpayers who will now take a double hit).

    • http://www.wpri.com/dpp/news/news_team/ted-nesi Ted Nesi

      Worth watching though, don’t you think?

      • GaryM

        No doubt, this will be felt everywhere. Thanks for posting the link to the court document. I read through the case and once again, it boils down to how “reasonable” will be defined by the courts.

        In case anyone wants to know, the Northern Mariana Islands is one of the two insular area Commonwealths of the United States of America, the other being Puerto Rico occupying a strategic region of the western Pacific Ocean about three-quarters of the way from Hawaii to the Philippines.

        Thanks Wiki

  • oreo

    Ed the talking horse speaks again.

  • http://kixproductions.com/cnmiretiree/ Northern Mariana Retiree

    Read more about the Northern Mariana Islands Retirement Fund and the recent Chapter 11 Bankruptcy filing here: http://retiree.thecnmi.com

    The CNMI Government (sponsor of the plan) stopped making the CNMI Constitutionally mandated Employer Contributions to this Fund in 1999. Eventually CNMI courts found that unconstitutional 6 years later ( http://www.cnmilaw.org/pdf/superior_court/09-06-29-CV06-0367.pdf ) and have ordered the the CNMI Government to pay the fund $231 million in missed payments. Since that time not a cent has been paid to the Retirement Fund from the Government to satisfy that judgement. The CNMI Government still continues to fail to remit the full amount owed in Employer Contributions to the Fund for active members.

    The program is generous but the reason it is hemorrhaging today is not due to the limited over-generous areas but the failure of the Government to properly fund the system as contractually agreed.

    • Steve D

      NM, the exact reason Providence pension is in trouble! Now I’m not saying 6% pensions don’t have to go, but look at the whole picture. Gina and Angel’s failure to look at the past will come back to haunt them……

      • Tough Love

        Denial ? Grasping at straws ?

        As the author said, plan on becoming a burden to your kids when your Plan fails.

    • John Smith

      Lets not forget to mention that the Northern Marianas Governor has complete freedom to ignore any order from the local Northern Marianas Courts, since the Northern Marianas Attorney General is appointed by him. The Attorney General, is the chief law enforcement officer in the islands, and no court case may be filed without his consent (which means the consent of the governor). If he/she dares to make any move without the consent of the governor, his is removed from his extemely well paid post, within 24 hours. Contined.. .

      • John Smith

        Additionally, the Retirement Fund Board is also appointed to their cushy posts by the governor, with no input from we members (retirees/current government employees). There are no requirements for appoint to the board, other than to be a political supporter of the governor, and to be in his good graces. Very few have ever been college graduates, and a large number have not graduated from high school. The board has absolute authority to do with our money as they wish, again with no input from we members. They may loan it to whom they choose, and later forgive the debt, they may vote themselves raises, they may travel around the world on our dime, they may hire as many employees as they chose, for any salary they chose, or retain numbers of outside attorneys, with huge retainers (even though they are already assigned a government attorney), etc.
        Continued. . .

      • http://kixproductions.com/cnmiretiree/ Northern Mariana Retiree

        Exactly correct Mr Smith. This is a Dictatorship hiding behind the guise of a Democracy.

        For example, the other day the Police Commissioner in the Northern Mariana Islands was investigated for threatening to handcuff and shoot an innocent by-standard. The Attorney General launched and investigation and within a week decided that the Police Commissioner was cleared. It appeared from the AGs stand point that it was not a threat as the Police Commissioner posed the shooting message as a question: “Do you want me to shoot you”. Therefor it was more an offer than a threat.

        You just can’t make this up. You can read more on that and many more stories here: http://www.mvariety.com/cnmi/cnmi-news/local/45821-ag-clears-mafnas.php

      • John Smith

        Out of order, I guess, but continued from “(even though they are assigned a government attorney)” below:

        This situation would be less intolerable, if it weren’t for the fact that the Retirement Fund Boards does not work for the members. Rather, they work for, owe their loyalty to, and are owned by the governor, who appointed them to their dream positions.

        This explains why the board has made no attempt in three years to collect one dollar of the $231 million dollar judgement levied against the governor/government, in our favor. Rather, they have made strenuous efforts to prevent the case from being accepted by the Federal District Court, who has the power to compel the governor/government to comply with the local court’s judgement. . . Adding insult to injury, the board has expended hundreds of thousands of dollars of our money, in order to prevent us, whom they supposedly represent, from receiving the millions the governor/government illegally deprived us of. . .

        If you would like to see how the Northern Marianas Government really works (under the U.S. Flag, no less), log on to http://www.saipan.com Don’t be deluded by the name of the site. It is a well written, objective expose, of the unbelievable nepotism, and corruption that go on here. Oh. . . Did I leave out that retribution which is a way of life here, among our government officials – which is why my name is John Smith. . .

      • http://kixproductions.com/cnmiretiree/ Northern Mariana Retiree

        The CNMI was in the news a few years back for another incident involving this same AG and Governor. The Governor had a federal detainee removed from prison at 3am and brought to his house for what he claims was a massage. Nowhere else on US soil would this have been okay’s and gone un-prosecuted. Here in the CNMI the Governor got cleared by the AG without even a slap on the wrist. Read more about this story here: http://www.zimbio.com/Governor+Benigno+Fitial/articles/ws3cf_SImyW/Human+Smuggling+Massage+Gate+Summary+Document

        Welcome to the CNMI the new Wild Wild West!

      • http://kixproductions.com/cnmiretiree/ Northern Mariana Retiree

        If the two previous stories have not convinced you that this place is way out of whack and seriously needs intervention, perhaps the fact that the Governor of the CNMI’s own personal driver was also caught and arrested for buying and selling ice (crytal meth) from the Governor’s vehicle. He was eventually put under house arrest because of a heart condition (maybe due to the ice?):

        http://www.saipantribune.com/newsstory.aspx?newsID=93852&cat=1

      • http://kixproductions.com/cnmiretiree/ Northern Mariana Retiree

        Recently the Governor of this US Commonwealth took a trip to China to make an offer to lease one of their entire islands to China.

      • John Smith

        I should add that the reason the Retirement Fund Board has filed for bankruptcy (no matter what they say) is to immediately stop all other court actions concerning the Fund – in other words to halt any action on the part of the Federal District Court to acquire the case, and thereby force the Northern Marianas Governor/Government to comply with the local court judgement, which ordered them to reimburse the Retirement Fund, the $231 million, plus interest, they knowingly, and deliberately deprived us of. . .

        By the way, the local court, also ordered the governor/government to immediately resume the full monthly payments into the Retirement Fund, required by the Northern Marianas Constitution. To date, after three years, the governor/governor has also failed to comply with this order.

  • http://www.ssc.wisc.edu/cdha/info/archives/1833 CAAR E-Clippings No. 3064–April 25, 2012 « CAAR E-Clippings

    […] 22. RHODE ISLAND NEWS: "For the first time, a public pension plan files for bankruptcy," by Ted Nesi (WPRI [Providence] Channel 12 News blog, Apr. 25, 2012). blogs.wpri.com… […]

  • http://blogs.wpri.com/2012/05/05/the-saturday-morning-post-quick-hits-on-politics-more-in-ri-14/ The Saturday Morning Post: Quick hits on politics & more in RI | WPRI.com Blogs

    […] assets, not its promises; that suggests a 73% haircut. Another pension fund is now trying to file for bankruptcy on its own. Finally, look back to Vallejo. True, the city didn’t cut pension benefits by a penny – […]

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