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Public Pension Fund Files Bankruptcy: The First Domino

Written by Gary North on April 30, 2012

The Mariana Islands are legally inside the United States — just not geographically.

The retirement fund was $640,000,000 in the hole. So, it filed for bankruptcy.

There will be many imitators.

It was a defined benefits plan. Nobody sets these up any more.

It was under 40% funded. That should have been a tip-off to retirees that they were going to get stiffed. But sheep are docile. They think everything is safe, that the guard dog will protect them from the coyotes.

This was not a liquidation. It was a restructuring. This will set a legal precedent. The retirees will not get the level of benefits they were expecting, as in “Sorry, Charlie.”

The feud between the retirement fund and the commonwealth over the government’s responsibility to chip in for employer contributions to the pension plan goes back to 2006.

While the commonwealth court decided in favor of the retirement plan in 2009, the local government has been unable to make the mandated $231 million payment — and now the amount it owes to the pension plan has ballooned to $325 million, according to bankruptcy court filings.

Part of the problem has been the generosity of the pension plan. While the defined benefit program was designed to serve retirees and their spouses, the fund had permitted the grandchildren and great-grandchildren of the first generation of retirees to receive benefits after the original retiree died, according to court documents.

Fat city just went on a diet. The days of wine and roses are over. Time to sober up!

In the meantime, the pension plan created an entity called Pension Holdings Corp., which has enough money to pay two months of benefits to islanders. Thus, beneficiaries can keep collecting while the plan discusses with creditors terms for making future payments.

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4 thoughts on “Public Pension Fund Files Bankruptcy: The First Domino

  1. Jeanne Ballard says:

    All these idiot economists who started this plan should go back to Econ 101….and definitely sober up

  2. ccfonten says:

    Who's next? Because the unions just do not understand that there is not an unlimited source of money for just them. My mom used to ask me if I thought money grew on trees when I asked for unreasonable things. Guess she was right….some people do think money grows on trees…………….the unions and the welfare addicted.

  3. Louis XIV says:

    Grandchildren and greatgrandchildren? Who thought THAT would work? Sounds like a public employees' union, thinking that if they negotiated it with a government agency, it could never go away. Think again. I will not work until my last breath so public employees can retire at 50 or 55 9and hook up their greatgrandbabies to the teat).

  4. nyrefugee says:

    The States have a similar problem. Vote buyers in NY have teacher and other jobs pension protection in the state constitution. My coworker's smug referreal to that was rudely interrupted. I explained that a state can be 'insolvent'. All contracts then are subject to renegotiation, like it or not. The plans are broke, or close to it. Even activist court rulings cannot conjure up funding from thin air. It should start small, with ever increasing requirements to pay health care coverage. Then, after protests and threats, pensions could be trimmed more seriously. Could be explained as 'temporary' until finances 'improve'. That won't happen.