Who Does Bankruptcy? Mapping Pension Impairment in Chapter 9
24 Pages Posted: 19 Jan 2014 Last revised: 28 May 2014
Date Written: January 17, 2014
Employee retirement benefits constitute the lion’s share of the financial burden today confronting distressed cities and towns across the country. Statehouse bargaining may reduce the costs associated with some of these legacy costs, but most jurisdictions protect pension benefits, to varying degrees, as contractual entitlements immune from impairment by the state. Who will bear the burden of municipal financial distress thus turns in part on the question, recently decided in Detroit, whether federal bankruptcy law is competent to reduce these obligations where state law decidedly is not. Yet little has been written on the subject. This essay takes up the legal issues surrounding Chapter 9’s efficacy in this regard. It argues, first, that the critical question is who among those involved in the coordinated activities that constitute bankruptcy “does” impairment. It concludes that under federal law the (federal) bankruptcy judge, and not the states or their constituent municipalities, impair contractual obligations. The terrain is less certain with respect to the discourses of state law, and this could well matter. Still, this essay argues, cities and towns will likely be able to use Chapter 9 to shed liabilities associated with locally administered pension plans. Whether wise policy would permit them to do so is another matter.
Keywords: Chapter 9, Municipal Pensions
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