Posted Dec 20, 2011 05:46 pm CST
A lawyer representing retired police and firefighters in Central Falls, R.I., says his clients have agreed to steep pension cuts in a groundbreaking bankruptcy deal.
The agreement is subject to approval of the bankruptcy court, report the New York Times and the Wall Street Journal (sub. req.). Lawyer Matthew McGowan, who represents the retirees, told the Wall Street Journal the pensioners agreed to the cuts because of a promise by the state treasurer to ask lawmakers for money to supplement the lower pensions for the next five years.
If the money isn’t forthcoming, the retirees will likely challenge a state law that gives bankruptcy priority to municipal bondholders over retirees and other creditors. McGowan contends the law is a “voidable fraudulent transfer.”
The employees’ pension fund ran out of money this fall, and general revenue wasn’t sufficient to cover the benefits, the Times says. The employees don’t receive Social Security, but they agreed to cuts that, for many, will amount to 25 percent over five years. The deal will help Central Falls exit bankruptcy in as soon as a year, according to the Wall Street Journal.
Prior coverage of municipal bankruptcies:
ABAJournal.com: “Largest Ever Municipal Bankruptcy Is Filed as Ala. County Seeks Protection from Creditors”
ABA Journal: “The Next Chapter: Municipalities Are Using Chapter 9 to Fend Off Creditors”