Public Pension Fund Files Bankruptcy

by Stephen Kass on September 5, 2012

On April 17, 2012, the Northern Mariana Islands Retirement Fund (Fund), a United States public pension fund, filed for Chapter 11 bankruptcy. The Fund provides retirement benefits to government employees of the Commonwealth of the Northern Mariana Islands (Commonwealth).  The Commonwealth is a U.S. territory.  The Fund listed $256 million in assets and $1 billion in liabilities in its bankruptcy petition.  The Fund alleged it will exhaust its claims paying ability by as early as 2014.

The Commonwealth and the United States Trustee’s Office have challenged the Fund’s eligibility to file bankruptcy.  The United States Trustee’s Office is a division of the United States Department of Justice. It is responsible for overseeing the administration of bankruptcy cases.  The United States Trustee’s Office does not work for either the creditor or debtor.

Chapter 9 is unavailable to the Fund.   A Chapter 9 debtor must be a municipality.  The Commonwealth is not a state.  The Fund cannot be a municipality as defined in the Bankruptcy Code.

Under Chapter 11 a debtor must be a person.  “Person” includes individuals, partnerships, and corporations, but specifically excludes governmental units. There is question whether the Fund is a governmental unit.

The opponents to the bankruptcy filing claim the Fund’s structure and statutory existence establish it is a “governmental unit” of the Commonwealth. Providing retirement benefits to government employees appears to be a “traditional governmental function.”  The governance of the Fund is controlled by the Commonwealth through the passage of legislation and the appointment of the Board of Trustees.  It seems the Commonwealth’s statutory designation of the Fund confirms the “governmental unit” classification: “The Northern Mariana Islands Retirement Fund shall serve in a fiduciary capacity with respect to employer and employee contributions and shall serve as a fiscal and administrative agent of the government.”

Motions to dismiss were filed in the bankruptcy case.  On May 18, 2012, the Fund argued it is not a “governmental unit.” If it is not a government unit, Chapter 11 is an available remedy for resolving its debts. The Fund argued in response to the motions to dismiss that “governmental control” is based by governmental involvement in the day-to-day affairs of the entity.  The Commonwealth just has the authority to regulate the Fund and that regulation, even if “extensive and intrusive,” does not transform a regulated entity into a governmental unit.  The Fund argued the government’s designation of the Fund as a “public corporation and autonomous agency” classifies it as a regulated entity, not a governmental unit.

Contact an experienced New York bankruptcy attorney for questions on Chapter 11 bankruptcy.

Comments on this entry are closed.

Previous post:

Next post: