California Bankruptcies Shield Retirees, Not Bondholders

The recent war of words between the California Public Employees’ Retirement System and a Bermuda-based bond-insurance company called Assured Guaranty Ltd. has made it clear that California officials would rather stiff bondholders than trim even the most generous pension benefits promised to public-sector workers.

The debate centers on Stockton, California, the largest city in the nation to declare bankruptcy. In its initial proposal to creditors, the city would fully fund its pension system while walking away from $124 million in debt from pension-obligation bonds it floated in 2007.