The recent suspension of payments to CalPERS by San Bernardino and Compton may force the courts to answer a longstanding question: can pension payments be suspended or modified in the face of significant financial struggles?

San Bernardino has framed their decision to withhold roughly $5 million in payments to the pension system as a choice between making the payments or making payroll. In Compton, cyclical revenue struggles have traditionally led to the city falling behind in its payments in September, October, or November, but then coming current again in December. But now the pension fund is becoming more forceful in demanding its payments.

How and if the courts ultimately decide how flexible these payments can be could impact future decisions by municipalities facing similar struggles. In the past, cities going through bankruptcy continued making the required CalPERS payments. But if the size, and timing of those payments could be adjusted in bankruptcy, it could incentivize further Chapter 9 filings.

For other municipal creditors, a ruling in favor of flexibility could also mean that cities would have additional revenues to satisfy other debts through a bankruptcy process, instead of squeezing smaller creditors to satisfy the largest of city creditors.

Read the full story at the Los Angeles Times.