Calpers No Better Than Bondholders in Stockton Bankruptcy

California cities may turn to bankruptcy courts to ease pension obligations after a judge ruled the California Public Employees’ Retirement System doesn’t deserve special protection, a decision that may reverberate across the country as municipalities struggle with their finances.

Bankrupt cities can cancel contracts with Calpers because federal law overrules state protections given the pension giant, U.S.Bankruptcy Judge Christopher Klein said yesterday in a hearing over the municipal bankruptcy of the city of Stockton. The judge will decide later this month how to apply his ruling to the city's reorganization plan, which protects Calpers.