Local governments across the state have been clamoring to see how the California Public Employees’ Retirement System would deal with a small town’s decision to stop paying into the pension fund. Now the wait is over. On Wednesday, CalPERS voted to slash benefits for Loyalton, California’s 5 retirees, declaring the city to be in default.
“This is a decision we take very seriously and one we very much regret had to be made,” said Rob Feckner, president of the CalPERS Board. “As a Board, we have a fiduciary responsibility to keep the CalPERS Fund on secure footing, and as part of this duty we must ensure that employers adhere to the contracts they agreed to. When they don’t, the law requires us to act. The people who suffer for this are Loyalton’s public servants who had every right to expect that the city would pay its bill and fulfill the benefit promises it made to them.”
Like many municipalities, Loyalton expanded retiree benefits when the times were good, but eventually found the obligations too much to bear. In 2013, the city voted to exit the system, but it could not afford to pay the nearly $1.7 million penalty. The pension fund says it tried repeatedly to contact the city to get it to pay, but never heard back. As CityNews reported last month, Loyalton pensioners were shocked when they began receiving letters from CalPERS letting them know their benefits could soon be reduced by as much as 60 percent.
If CalPERS follows through, this would be the first time the country’s largest pension fund cut benefits for retirees because of a city’s failure to pay. That sets a major precedent that could have reverberations for municipalities statewide, including three other agencies that are currently deliquent.
There does appear to be a glimmer of hope for the retirees. The Loyalton City Council voted in closed session this week to cover the portion being cut by the pension system. However, the decision is not yet final.
Read more about the decision by CalPERS’ Board of Directors here.