Patsy Jardin is used to being in the know in the small Sierra County town where she worked for more than 30 years, sometimes as its only public employee.
She understood that Loyalton had broken with the California Public Employees’ Retirement System three years ago. She just didn’t know that her former employer’s departure from the nation’s largest public pension fund would cut into her own retirement.
That part of the deal was not clear until she and four of her peers received letters this month warning them that the Sierra County city’s failure to pay into CalPERS soon would lead to a reduction in pensions for her and four of her former peers.
“If I lose it, then I’m really in trouble,” said Jardin, 71.
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The Loyalton retirees soon may have the unwanted distinction of becoming the first in the state to see their promised retirement benefits slashed because of their former employers’ inability to pay into the public pension fund.
Loyalton’s tiny city government is one of three agencies that are so far behind in payments to CalPERS that the fund is taking steps to reduce pensions for former workers.
Of the three, Loyalton faces the biggest bill if it wants to protect its retirees. It owes CalPERS a hefty termination fee of $1.6 million.
That’s equivalent to about $2,100 for each of the town’s 750 or so residents. It’s a sum that far exceeds the city’s resources, said Loyalton City Councilman and at-risk retiree John Cussins.
“Five retirees and the obligation is a million-six-sixty-one. Wow,” CalPERS board member Bill Slaton said at a public meeting earlier this month, drawing out the syllables in the sum.
Around the state, other local governments are watching how CalPERS handles Loyalton. It’s regarded as a bellwether for how the fund may work with financially distressed cities that cannot keep up with their pension obligations.
The ranks of those cities may grow as CalPERS acts to shrink a funding gap between what it pays out every year and what it earns from its member agencies and its investment returns. In recent years, investment income has lagged at less than the fund’s target of a 7.5 percent return rate, raising the prospect of a hike in fees for CalPERS members.
Loyalton’s pension problem “is a huge deal for anyone concerned about pensions bankrupting small cities and special districts,” said Republican Assemblyman Brian Dahle of Bieber, whose staff is working with the Loyalton pensioners. “If this goes down and CalPERS retirees start losing what they were promised, it will be a disaster.”
CalPERS’s board of directors in November is expected to vote on what to do with delinquent Loyalton, the California Fair Financing Authority and the Niland Sanitary District from Imperial County.
At a preview to that vote this month, the main question from the fund’s board members centered on why CalPERS had not acted faster to shrink its expenses for out-of-compliance members. Loyalton’s City Council voted to leave the fund almost three years ago and has not paid CalPERS since.
“We’ve continued to pay benefits to their employees as of today, 2 1/2 years removed,” CalPERS board member Richard Costigan said.
“Resolutions need to happen more quickly,” Slaton said.
Other members recommended denying Loyalton’s request to leave the fund until CalPERS recovers the money it’s owed.
The three agencies are facing pension cutbacks for different reasons.
Niland, the small sanitary district from rural Imperial County, is in the early stages of separating from CalPERS. So far, it owes $23,795, according to a report from the CalPERS staff earlier this month.
The California Fair Financing Authority essentially dissolved in the recession when the state reduced its support for county fairs. It has about 24 retirees and two surviving dependents drawing benefits. Since the recession, its responsibilities have folded into a different organization, the California Fair Services Authority.
The fair financing authority as a distinct entity owes CalPERS about $360,000 to catch up on delinquent payments. Its leaders are trying to come up with the money.
“We realize that we have this obligation. We want to make sure we honor that obligation. We just have needed time to work out a payment plan,” said the financing authority’s managing director, Becky Bailey-Findley.
Loyalton’s City Council voted to leave CalPERS in 2013. Its handful of retirees were led to believe that the decision would apply only to new hires.
CalPERS sent a series of letters to the city outlining its bill. The termination fee is intended to discourage agencies from leaving the fund. It’s a one-time payment that would cover the pensions of current retirees after shifting the city’s account to a low-risk fund within CalPERS.
For some reason, no one from Loyalton responded to the CalPERS letters.