The struggling town of Central Falls Rhode Island filed a bankruptcy petition on Monday, August 1. A Boston bankruptcy judge held the first hearing on Wednesday August 3, stressing that the court is in “unchartered waters” as it sorts through the $80 million in unfunded pension and benefits liabilities and a $5 million budget deficit.
1. Central Falls filed a Chapter 9 bankruptcy. What is the difference between Chapter 9 and a Chapter 11 bankruptcy?
2. The Acting Auditor General of Rhode Island, Dennis Hoyle stated that the “At $2.4 billion, the newly disclosed unfunded liability for other post-employment benefits provided by municipalities overshadows the collective unfunded liability for all locally administered pension plans which now totals $1.9 billion. Based on this statement, explain the term “unfunded liability” in terms of pension accounting.
3. What is the difference between post-employment benefits and pension plans?
4. Explain unfunded pension benefits, using a journal entry or entries to illustrate your answer.
CNN video. (2011). Bankrupt town a “cautionary tale,” August 4 (Retrievable online at www.cnn.com/video)
Johnson, D. (2011). Fiscal Disasters Like Central Falls’ Are Being Replicated In Cities Across The U.S., Business Insider, Aug. 4 (Retrievable online at http://www.businessinsider.com/fiscal-disasters-like-central-falls-are-being-replicated-in-cities-across-the-us-2011-8)
Rubenstein, J. (2011). Central Falls Bankruptcy Triggers CU Ads, Credit Union Times, August 4 (Retrievable online at http://www.cutimes.com/2011/08/04/central-falls-bankruptcy-triggers-cu-ads)