In Stockton, Calif., Investment House Franklin Templeton Eviscerates Pensions

Franklin Templeton’s real take on the situation is given away by its claim that the crisis was “brought about by years of ‘pension spiking’ and unfunded promises of lavish benefits.” But as Hiltzik notes, the company provided no evidence was presented in court that pension spiking took place or that it affected the Stockton bankruptcy. And the so-called “lavish” pensions that need to be cut amount to $24,000, on average. If Franklin Templeton’s plan goes through, retirees—who did not earn Social Security benefits while they worked for Stockton–will be forced to survive on $9,600 a year. The city says that it would be devastated by a flow of current employees leaving if they know their pensions are going to be cut at that level.

The rest of Franklin Templeton’s plan and claims about the situation also fall flat. As Hiltzik explains:

Franklin’s complaint that it’s being uniquely disadvantaged in the bankruptcy reorganization falls apart when one examines what Stockton’s employees and retirees already have sacrificed. Among other cuts, city employees were hit with involuntary furloughs in 2008 through 2012, gave up cost of living increases for several years, and began paying a retirement contribution of up to 9% in 2011. New employees already receive sharply reduced benefits. (A full list is here.)
The biggest hit involved retiree health benefits, which were negotiated in past years as an alternative to wage increases. Eventually, the city’s actuarial exposure to health claims by 1,100 retirees reached $545 million. As part of a bankruptcy settlement with retirees, that was reduced to $5.1 million—the same 1% payoff Franklin is grousing about—and lifetime health benefits were eliminated.
The $5.1 million is to be paid out in lump sums ranging from $460 to $14,000; as the retirees committee observed, the one-time payments are “not enough to cover even one year of premiums for replacement health insurance and for many…without providing any coverage for dependents who were covered by the city’s plan.”