This story is ricocheting around the world of public finance today. Darla Mercado reports for InvestmentNews:
In what’s believed to be a first by a public pension plan, the Northern Mariana Islands Retirement Fund filed for Chapter 11 bankruptcy protection on Tuesday.
The public defined-benefit plan is in a big hole. At the moment, it’s only 38.8% funded, thanks to low investment returns and a benefit structure that’s been increased without raises in funding ….
Marcia Wagner, managing director at The Wagner Law Group, believes that this is the first time a public pension plan has filed for bankruptcy. Notably, this is a restructuring of the fund and not a liquidation, which would be under the jurisdiction of Chapter 7 of the U.S. Bankruptcy Code.
The development of the restructuring will set a precedent, particularly at a time when local government budgets and defined-benefit plans are under strain.
For Rhode Islanders, at least two things are immediately striking about this story.
First, the Mariana pension plan’s funded level of 38.8% is actually better than Providence’s pension plan, which is 32% funded, and other plans in places like Cranston and Coventry are in far worse shape than that.
Second, this will test a novel legal theory that it’s possible for pension funds filing for bankruptcy as a separate entity from the government that set them up. That would allow Providence’s pension fund alone to file for bankruptcy without the capital city going into Chapter 9.
The story is also a reminder that Rhode Island isn’t alone in having a unique pension-plan design. The Mariana fund “permitted the grandchildren and great-grandchildren of the first generation of retirees to receive benefits after the original retiree died,” Mercado writes.
Meanwhile, the Providence City Council’s far-reaching pension overhaul, which includes a multi-decade COLA freeze, passed out of committee on Tuesday evening. The full City Council is scheduled to vote on the measure at a special meeting Thursday night. And the Projo obtained the mayor’s alternative offer to retirees.
• Related: Prof: Providence retirees may face 73% haircut in bankruptcy (Feb. 22)