Chapter 11 case could trigger wave
of public-pension fund bankruptcies
Workers in Northern Mariana look to
halt fund's filing for court protection
By Darla Mercado Published: April 30, 2012
Lawyers representing participants
in the Northern Mariana Islands Retirement Fund have filed a motion to dismiss
the pension plan's Chapter 11 bankruptcy filing. And experts say the outcome
could have widespread implications for other public pensions in the U.S.
Margery S. Bronster, an attorney with Bronster
& Hoshibata, filed a motion April 20 on behalf of
two anonymous retirement plan participants, arguing that the plan cannot file
for Chapter 11 restructuring because it's not a person under the bankruptcy
code and because it's a governmental unit.
“As a general
matter, governmental units can't file bankruptcy; this fund is a unit of the
Commonwealth of the Northern Marianas.” Ms. Bronster said in an interview with InvestmentNews.
She added that by filing for bankruptcy, the fund was permitting the local government
to avoid its obligation to its retirees.
“If the
bankruptcy court allows this, then it's only a matter of time before pension
plans across the country start running to bankruptcy court.”
In what's
thought to be a first for a public pension fund, the Northern Mariana Islands
Retirement Fund filed for Chapter 11 bankruptcy protection in the U.S. District Court for the Northern
Mariana Islands on April 17. The fund filed for court protection
after being hobbled by underfunding by the U.S. commonwealth
and the payment of overly generous benefits.
There are
more than 5,000 beneficiaries in the plan, including retirees and employees.
Attorney
Jeremy Coffey, who is representing the fund in the bankruptcy case, could not
comment on the matter, as the litigation continues. The case is set for a June
1 hearing.
In the
meantime, the number of litigants is growing. The Commonwealth Ports Authority,
which manages the airports and seaports in the Northern Marianas, filed April
27 to join the case as an intervener — a party that's not part of the original
litigation but whose rights could be affected by the outcome.
Originally,
the pension fund was designed to serve retirees and their spouses, but it also
permitted the grandchildren and great-grandchildren of the first generation of
retirees to receive benefits after the original retiree died.
Holding
$268.4 million in assets and facing $911 million in liabilities, the fund is
expected to run out of money in July 2014. Fund actuaries are working on a new
report on the state of the fund. They reported in 2009 that the pension plan
would have to slash benefits by 58% to get the fund back on its feet.
The fund and
the participants represented by Ms. Bronster are also
in federal court in civil litigation over a mandated $231 million payment that
has been owed to the pension plan since 2009. Over time, that amount has
ballooned to $325 million, bankruptcy court filings show.
Ms. Bronster said that by filing for Chapter 11 bankruptcy, the
pension fund is attempting to avoid the pending civil claim. “We don't think
the fund has done enough to collect the money that the government owes, and it
hasn't done enough to force the government to meet its obligations to
retirees,” she said.
Darla
Mercado writes for InvestmentNews, a sister
publication of Pensions & Investments.
http://www.pionline.com/article/20120430/REG/120429889/chapter-11-case-could-trigger-wave-of-public-pension-fund-bankruptcies