Fitch: court decision on retiree benefits may be credit negative

WASHINGTON Wed Oct 2, 2013 5:19pm EDT

WASHINGTON Oct 2 (Reuters) - A recent decision by the Superior Court of California in Los Angeles has put into question how much a U.S. state or local government can adjust the healthcare benefits paid to their retirees, which could be credit negative, Fitch Ratings said on Wednesday.

In a special comment, Fitch said the ruling overturned a freeze on retiree healthcare cost inflation enacted by the city of Los Angeles in 2011. The decision indicates "local and state government may not have as much ability to control other post-employment benefit liabilities and consequently have less overall budget flexibility than is traditionally assumed."

Public employees' pensions are generally enshrined in contracts and protected by states' constitutions, but other benefits that retirees receive - almost entirely healthcare - are not.

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