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LACERS Answers Your Questions About Bankruptcy

LACERS is aware that there has been speculation in the media as to whether the City should, or may, file for Chapter 9 bankruptcy, like the City of Vallejo did in 2008 and some other municipalities have done.  Although LACERS cannot predict what might occur, we can offer our members some basic information that will help you understand what happens to pension and health care benefits when a city files bankruptcy.

The following questions and answers are designed to provide general information to our members.  These comments are not meant to be legal opinions or commitments to any particular outcome.  Actual circumstances will have an effect on the information provided below.

Q: I am a retired member of LACERS.  I’m afraid that if the City files for bankruptcy, my retirement checks will stop.  Is that true?
A: No, not true.  If the City were to file bankruptcy, it would not affect LACERS ability to pay benefits to current retirees.  LACERS would continue to pay all monthly retirement checks to its current retired members and their beneficiaries, on time and in the full amounts.
Q: Can the City reject its obligation to fund members’ retirement benefits in bankruptcy court?
A: No bankruptcy court has ever allowed a municipality to reject its obligation to pay vested retirement benefits.  Even the City of Vallejo didn’t ask the Court to do that.
Q: Could the City stop paying its contributions to the retirement system?
A: No, bankruptcy law does not permit a city to avoid its statutory obligations.  The City’s obligation to pay contributions to LACERS is written into the City Charter and state law.  The City could not lawfully stop paying its contributions during Chapter 9.
Q: Our retirement benefits are granted under the City Charter and by City Council ordinances.  Could the City Council change the law and reduce active member benefits?
A: Vested retirement benefits are protected from impairment under both the California and United States Constitutions.  Bankruptcy law has never been used to reduce vested retirement benefits.  Employees are vested in their retirement benefit the day they are first employed, even if it takes five years to be eligible for payment.  The law does permit changes to retirement allowances, but only under very unique circumstances and only if any benefit reduction is offset by a comparable new benefit.
Q: The City has also promised to help pay my health care premiums after retirement.  Could the City cut back on those premium payments?
A: This would depend on whether your right to health care payments is considered to be “vested” or not, which, in turn, will depend on what was promised, by whom, to whom, and when, and what was done in reliance on that promise.  LACERS cannot predict how a court might rule after considering all of the relevant facts.
Q: Where can I get more information about bankruptcy and my benefits?
A: LACERS’ staff is here to help answer your questions.  Feel free to contact us and look for future updates on our website as events occur.