Who’s Next?

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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.

Questions:

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.

Sources:

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)